Speak To A Live Person: 888.302.4594 Request A Demo

Accredited Investor

Monday, December 21, 2015

On July 10, 2010 Barak Obama signed The Dodd-Frank Wall Street Reform and Consumer Protection Act into federal law. The law brought numerous changes to the financial services industry. As many already know, one of these changes was the definition of accredited investor. What some may not know is that the law also requires the SEC to review the definition “as it relates to natural persons” every four years to determine if the definition is still relevant and determine if it needs to be modified or adjusted. As of December 18, 2015 the SEC’s report is available for public review. A full copy of the report can be found here. The SEC is also requesting members of the public provide comments on their findings. You can follow this link if you wish to comment on their recommendation.

One note, please remember that the definition of accredited investor is different than that of a qualified client, which is the definition a client must meet in order for an investment adviser to be able to charge that client a performance based fee. The current definition of an accredited investor is an individual with an annual income of at least $200,000 per year ($300,000 with their spouse) or a net worth of at least $1 million. The definition of a Qualified Client is:

  1. A natural person who, or a company that, immediately after entering into the contract has at least $1,000,000 under the management of the investment adviser;
  2. A natural person who, or a company that, the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract, either:
    1. Has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $2,000,000. For purposes of calculating a natural person‘s net worth:
      1. The person‘s primary residence must not be included as an asset;
      2. (2)Indebtedness secured by the person‘s primary residence, up to the estimated fair market value of the primary residence at the time the investment advisory contract is entered into may not be included as a liability (except that if the amount of such indebtedness outstanding at the time of calculation exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess must be included as a liability); and
      3. Indebtedness that is secured by the person‘s primary residence in excess of the estimated fair market value of the residence must be included as a liability;
    2. Is a qualified purchaser as defined in section 2(a)(51)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(51)(A)) at the time the contract is entered into; or
  • A natural person who immediately prior to entering into the contract is:
    1. (A)An executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser; or
    2. (B)An employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser) who, in connection with his or her regular functions or duties, participates in the investment activities of such investment adviser, provided that such employee has been performing such functions and duties for or on behalf of the investment adviser, or substantially similar functions or duties for or on behalf of another company for at least 12 months.

The definition of Qualified Client will be adjusted by the SEC on or about May 1, 2016.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.