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What is the difference between an Accredited Investor, a Qualified Client and a Qualified Purchaser? 

An accredited investor, a qualified client, and a qualified purchaser are all terms used in the context of securities regulation in the United States. These classifications govern which investors can access certain investment opportunities.

INVESTOR CLASSIFICATIONS • INVESTMENTS • 3(C)1 & 3(C)7 FUNDS

Why do investor classifications matter?

Individuals who meet the requirements of these classifications can participate in offerings that aren’t registered with the SEC. The reason for this is that the SEC believes the risks of these opportunities may be greater than what is allowed in public markets which are regulated by the SEC. Participation in these opportunities can provide significant diversification to investor portfolios as well as enhanced returns.

 

Accredited investors have access to 3(c)1 funds while qualified clients and qualified purchasers can typically invest in both 3(c)1 and 3(c)7 funds. 

Accredited Investor

An accredited investor is a person or entity that meets certain financial criteria that allows them to participate in certain types of private securities offerings. Specifically, an accredited investor is someone who:

  • Has an annual income of at least $200,000 (or $300,000 joint income with spouse) in each of the last two years, with a reasonable expectation of the same income level in the current year; OR
  • Has a net worth of at least $1 million (excluding the value of their primary residence)
  • Holds a series 7, 62 or 65 license that is in good standing

If an investor wants to invest through a trust, the trust must meet all of the following requirements.

  • Has total assets great than $5 million
  • Was not formed to just invest in a particular fund
  • Is directed by a person who is consider “sophisticated” or someone with knowledge and experience to make informed decisions

Qualified Client

A qualified client is a type of investor that meets certain financial criteria, which allows them to invest in certain private funds that have the ability to charge a performance fee. To be considered a qualified client you must meet one of the following criteria:

  • Has a net worth of at least $2.1 million
  • Has at least $1.1 million under the management of an advisor immediately after entering into an advisory contract
  • An individual that is considered a qualified purchaser (see definition below)
  • An individual that is an executive officer, director, trustee, general partner, or person serving in a similar capacity, or the advisor

Qualified Purchaser

A qualified purchaser is a type of investor that meets certain financial criteria, which allows them to invest in certain types of investment funds that are exempt from registration under the Investment Company Act of 1940. Specifically, a qualified purchaser is someone who:

  • Owns at least $5 million in investments (not including primary residence), OR
  • Is an entity (such as a business) that owns and invests at least $25 million in investments
  • A trust, not formed for the specific investment, that has a value of at least $5 million in investments

Summary

In summary, while there are some similarities between the terms “accredited investor,” “qualified client,” and “qualified purchaser,” each term has a specific meaning and is used in a different regulatory context. An accredited investor is able to participate in certain private securities offerings, while a qualified client is eligible to receive certain types of investment advice as well as participate in investments that charge a performance fee, and a qualified purchaser is able to invest in certain types of investment funds that are exempt from registration under the Investment Company Act of 1940.

Today is a great day to start investing in private market opportunities. If you are looking for ways to diversify your investments and compound your wealth as part of a well-diversified portfolio, review open investment offering HERE  

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