To avoid asset registration and easen up business transactions behind the sell, investment market features various investors with a special claim to these limited asset offers based on their qualification. Such investors are privileged due to the experience and expertise in their view over the financial market or dozens and hundreds million dollar nets.
Despite their respected position, investors can still cause harm to the business that are very much vulnerable to these privileged buyers directly accessing unregistered tokens and securities. To prevent that, every business is lawfully obliged to verify investors before committing to any transactions.
In this article, let’s find out more on the topic of the qualified client and how to do business with them.
To begin with, the status of the qualified client is issued explicitly under the US jurisdiction and non-US persons are not required to meet these prerequisites.
SEC states that a qualified client is an individual with the net worth of over $2.1 million (alone or with a spouse) or over $1 million assets under management of the investment adviser. $2.1 million is a new standard threshold that was applied in August 15, 2016.
A qualified client can also be:
The certification is usually conducted through a simple form, where an investor confirms the details of their position and net worth.
(1) I certify that I am a “qualified client” because I have an individual net worth, including assets held jointly with my spouse, in excess of $2,100,000. As used in the foregoing sentence, “net worth” means the excess of total assets at fair market value over total liabilities; OR
(2) I certify that I am a “qualified client” because I have at least $1,000,000 under the management of the General Partner.
The crucial difference that defines a qualified client is stricter criteria, meaning thresholds higher than the ones for accredited or sophisticated investors. Qualified clients can also be assessed performance-based fees as SEC wants to make sure they are aware and are prepared of possible downfalls and losses.
Here we come to why businesses usually seek after the qualified clients more. The reason behind it is because in most states, the performance fee (generally 20%) can be charged only to qualified clients while accredited investors are required to pay solely the management fee of the usual 2%. There is not a single businessmen who wouldn’t jump on that offer.
Bear in mind that, according to the legislation, as an accredited investor overcomes a $2.1 million mark, they immediately change their status to a qualified client.
Due to the fact that companies trade unregistered private offerings comes the necessity to verify qualified clients and stay on guard against the malicious characters hiding behind the status. It is demanded by law for each firm to verify the eligibility of a qualified client or any other investor. Companies usually do it via requesting documented proof of individual’s financial situation: bank statements, tax returns, W-2s and other information.
To catch up on all of three stages of obligatory investor verification, follow the link to our short step-by-step guide.
The eligibility of your business partners and clients has to be among many major concerns faced by financial sector companies. Make sure that before any monetary transactions and investor qualifications aside there is a clear and definite “yes” to the question “do you trust them with your money and reputation?”