Disadvantages and qualifications associated with "professional investor" status?

[mrodent]

In a recent thread here I was interested in buying a Vanguard US ETF.

I went as far as opening an account with Charles Schwab (US broker) ... only for my plans to be scuppered because Vanguard VUG has no KIID, meaning that the only European people who can be permitted to buy such a terrifying KIID-free product are "professional investors".

I also have the impression, reinforced by a remark or two from a contributor here who is a professional investor, that US ETFs are often cheaper, in terms of OGCs, etc. Poster hiriskpaul also explains here https://www.lemonfool.co.uk/viewtopic.php?p=649014#p649014 that there is also a fiscal benefit to paying US withholding tax and getting a UK tax credit in exchange. I now have a lot in GIAs, in particular following an inheritance, so all tax-related matters have started to acquire quite a bit of significance.

In fact my impression now is that you probably don't need to have a US broker to buy such US KIID-less products, just to have this "professional investor" status recognised by a broker in the UK.

At least a couple of regular contributors here have said that they have this status, and there may well be quite a few.

I'm somewhat wary about the lack of consumer protection that would mean ... but in practice what does this really mean? Obviously those contributors here who have the status are reconciled to that. I'm also assuming that if you get professional status on one investing platform that that probably means that you lose consumer protection for **all** platforms as far as the FCA or FSCS are concerned. On the subject of FSCS, does this undermine your ability to benefit from the £85k protection for cash accounts?

The other thing is qualification: what do platforms typically need to accept you having this status?

[SalvorHardin]

I got my professional investor status years ago, when I was working, so the rules may be different nowadays. Back then mine was required by a client for whom I was a contractor (something to do with their compliance team, I can't say more than that).

The main thing that they wanted was several years of financial services experience at a decent level (two decades of investing in shares for myself helped a lot). Plus relevant qualifications (I had all the Actuarial investment, finance and economics exams you could do back then).

The FSCS isn't something I pay much attention to. I reflexively avoid the smaller institutions, am well diversified and the compensation limits are a small fraction of my overall worth (unless I open a lot of accounts with different providers, which I'm not prepared to do).

Being able to ignore the need for a KIID for American and Canadian REITs is the benefit for me (I wouldn't want it for American ETFs, which I avoid as there might be tax complications for me). If KIIDs were abolished I'd apply for non-professional status ASAP.

[hiriskpaul]

The other thing is qualification: what do platforms typically need to accept you having this status?

I am not sure precisely what is required. In my case I used to be a retail investor with IG, but applied for professional investor status because there was a change in regulation of spread bet companies a few years ago. This required retail investors to put up significantly larger deposits for bets. For example, an S&P 500 bet costs me a 0.45% per point, so going long a future by 1 point is equivalent to holding a position of approximately $5,000. This would require a deposit from me of $22.50, but retail investors are now required to put up a 10% deposit, ie $500. In addition as a professional investor I can use positions in regular investments, such as ETFs or shares, as collateral for the deposit. This facility was removed for retail investors.

I mainly used my IG account to trade financial options. I described my knowledge and experience of financial derivatives gained through previous employment and they gave me professional investor status based on what I told them. I didn't apply so that I could trade US listed ETFs. This was a bonus when the PRIIPs rules came in, banning retail investors from buying non-UCITS funds.

Professional investor status means giving up on protection offered to retail investors. FSCS protection would be one example.

[mrodent]

Thanks both.

This whole PRIIPs thing is such a stinker.

I just took at look at what might be available to a UK retail investor wanting to invest in a US mid-cap index ETF or US small-cap index ETF.

I find that this kind of search is a real headache, i.e. stipulating "for a uk investor" but specifically a "us index ETF" in a google search throws up all kinds of false leads. And randomly giving "tickers", "bloombergs", "mex codes" ... but even the supposed "fact sheet" often chooses to omit the ISIN, which is the only thing you really want.

Eventually I found this lad https://www.ishares.com/us/products/239587/ishares-morningstar-smallcap-growth-etf with OGC of 0.06% ... then I discover that its ISIN begins "US...". So what are alternatives to available to a UK investor? This perhaps: https://www.ssga.com/uk/en_gb/institutional/etfs/funds/spdr-msci-usa-small-cap-value-weighted-ucits-etf-zprv-gy ... OGC 0.3%. Confirmation if it were needed that we in the UK and Europeans generally are being royally shafted by something supposedly meant to protect we frail and easily exploited creatures.

Even supposing I were to be accepted as a "professional", which seems not that likely as I don't have any fin career or qualifications at all, I'd have to renounce the FSCS protection, if I understand correctly, on ALL accounts I hold with ALL UK financial institutions. I also don't have any accounts with smaller institutions, but I'm just annoyed that there should be this correlation at all (i.e. with wanting to buy a US ETF).

[TedSwippet]

This whole PRIIPs thing is such a stinker.

Indeed it is. A year ago the government completed a consultation on getting rid of it:

https://www.gov.uk/government/consultat ... disclosure

Detail of outcome
The response to this consultation confirms the government’s intention to entirely remove from legislation all firm-facing retail disclosure requirements currently in the PRIIPs Regulation and ensure that the FCA can deliver a new UK retail disclosure regime which is tailored and proportionate to the UK market. It also sets out the government’s vision for the new retail disclosure framework and further details on next steps to deliver this reform.

As ever though, best not to hold your breath waiting for actual action.

[mrodent]

A year ago the government completed a consultation on getting rid of it:

https://www.gov.uk/government/consultat ... disclosure

...
As ever though, best not to hold your breath waiting for actual action.

Particularly as it is only a couple of months that Hunt, in a particularly cack-handed manner, ordered "channels" to insinuate that there might be a (ludicrous) attempt to force people to buy GB stocks in their ISAs... and also as the City beneficiaries of such blatant price gouging are likely to be the very backbench Tory MPs who are taking the decisions...

I also doubt this kind of thing will be very high on Labour's preoccupations when the Tories are finally shovelled into the cesspit of a decade of opposition (if not oblivion).

[Alaric]

Indeed it is. A year ago the government completed a consultation on getting rid of it:

One could suspect the FCA are dragging their feet, as they were probably responible for the KIID regulations in the first place, either by commission in steering the EU that way or ommission in not watering them down or securing exemptions.