Table of Contents
- What Types of Investments do Accredited Investors Typically get Access to?
- How to Qualify as an Accredited Investor?
b.Recent Changes to the status as an Accredited Investor in Singapore
c.Being an Accredited Investor in Singapore
- Why Some Investors Decide not to be Considered as an Accredited Investor
b. Inexperience with Higher-Risk Investments
- Frequently Asked Questions
a. What are the New Rules about Opting-in as an AI?
b. What Supporting Documents are Needed to Submit for an AI Eligibility Assessment?
c. Can Different AI Status be Chosen for Different Accounts?
d. Can Existing Investments where AI Status is Held be Subject to the Regulatory Safeguards Accorded to a non-AI after an Investor Successfully Opts-out of being an AI?
e. Can an Investor Change their Mind and Withdraw Consent to be Treated as an AI after the Opt-in Form has been Signed?
An Accredited Investor ("AI") is an individual or firm who meets the minimum financial threshold set by regulators in the country and is given access to exclusive investment opportunities with fewer regulatory constraints.
These investment opportunities are at times considered to carry an inherently greater risk because they do not require the normal disclosures that involve registration with regulatory bodies. Examples include securities-based derivatives contracts and units of collective investment schemes.
An Accredited Investor must meet at least one of the following requirements from the relevant authorities regarding their income, net worth, asset size, governance status or professional experience. Fundamentally, regulatory authorities wish to ensure that AIs are financially stable, experienced, and knowledgeable about relatively risky ventures and, therefore, have a lesser need for protection provided by regulatory disclosure filings. AIs typically include high net worth individuals (“HNWI”), banks, insurance companies, brokers and trusts.
Accredited Investors have privileged access to venture capital, hedge funds and so-called “angel investors”, with many deals involving complex and higher-risk investments and instruments.
What Types of Investments do Accredited Investors Typically get Access to?
Generally, AIs are more likely to be offered investments with the possibility of greater returns than non-accredited or retail investors.
AIs are, therefore, able to invest money directly into some of the following instruments / managers:
- Private Equity: is money raised from institutions and wealthy individuals, which is invested in buying and selling assets or businesses. After raising a specified amount, it will stop accepting new investors and the fund will close to new investors. Within a pre-set time-frame, usually no more than ten years, each fund is liquidated, selling all its assets and businesses;
- Private Placements: a private placement is a sale of stock shares or bonds to pre-selected investors and institutions instead of on the open market. It serves as an alternative to an initial public offering (“IPO”) for a company seeking to raise capital for expansion firms looking to generate funds for future growth;
- Hedge Funds: are limited partnerships that uses pooled funds and employ different investment mandates to earn active returns for their investors;
- Venture Capital: is a form of private equity where investors provide capital to start-ups with the potential to generate high returns in the long run. These companies and small businesses that are invested in, are believed to have long-term growth potential. Such capital generally comes from HNWI investors, investment banks and other financial institutions; and
- Equity Crowdfunding: a “"crowd” (of people)" invest in an early-stage unlisted company in exchange for shares in that company; usually HNWI individuals, venture capitalists, and “business angels” (i.e. those who help new or ailing businesses)
Read also: How Does Internal Rate of Return (IRR) Impact Real Estate Investors' Decision-Making Process?
Read also: Six Critical Success Factors in Direct Property Investment
Read also: An Overview of Investing in REITs
How to Qualify as an Accredited Investor?
The rules and regulations governing qualification as an Accredited Investor vary from one jurisdiction to another and are usually defined by local market regulators. Even so, no government agency or independent body reviews an investor's credentials and there is no existing certification exam or piece of paper that states a person has become an AI.
However, following the global financial crisis in 2008, the Monetary Authority of Singapore (“MAS”) took measures to strengthen the Securities and Futures Act (“SFA”). This was partly to create some sort of regulatory framework for AIs and partly in response to a number of bond defaults in the city-state in 2016.
These measures included the enhancement of regulatory safeguards for retail investors. The key intent being to clearly distinguish between retail, individual investors and non-retail investors (i.e. AIs and Institutional Investors).
The MAS also differentiates between AIs and Institutional Investors—the latter which may include licensed banks, merchant banks, finance companies, the Singapore government, statutory bodies or pension funds or collective investment schemes.
According to the MAS, AIs are:
- Individuals with personal net assets in excess of $2 million;
- Individuals with net financial assets in excess of $1 million;
- Individuals with an income of not less than $300,000 over the preceding 12 months;
- Corporations with net assets exceeding $10 million on their most recent balance sheet;
- Trustees of trusts approved by MAS;
- Other persons approved by MAS
In essence, the primary qualification to be an AI is wealth, although the source of such wealth is not a factor. Since these requirements imply that AIs are more financially capable and knowledgeable, such investors do not have the same regulatory safeguards as retail investors.
Read also: Guide to Investments in SingaporeSign Up at RealVantage
Recent Changes to the status as an Accredited Investor in Singapore
MAS has recently introduced a number of key measures to redefine and regulate the criteria relating to a person to be considered an AI.
The definition has been amended to tighten eligibility requirements and to also allow a wider class of persons to be eligible to be classified as AIs. This is pursuant to the SFA and the Securities and Futures (Classes of Investors) Regulations 2018 ("SF(CI)R 2018").
With effect from January 8th, 2019, upon the implementation of the relevant regulations of the SF(CI)R 2018:
- an individual’s primary main residence can only contribute up to make up at most $1 million - half of the required $2 million in personal net assets net asset value of $2 million required. In the past, the full entire sum of $2 million could have been solely from an individual’s home value. However, this was considered an inappropriate way to assess if someone was an AI or not. They may have wealth, but not have suitable investment experience;
- individuals must “opt-in” as an AI. In the past, a person could have simply been treated as an AI without his or her knowledge and being offered complex and risky financial products;
- an “opt-out” process for existing clients of financial institutions ("FIs") to opt-out of being treated as an AI;
- certain statutory boards, such as local councils, educational bodies or religious bodies, will no longer be automatically classified as AIs. They now have to opt-in.
Being an Accredited Investor in Singapore
The update to regulations regarding AIs gives eligible investors the choice whether to consent to being treated as an AI or not.
Eligible investors may choose to become an Accredited Investor to unlock a larger pool range of investment products opportunities, at the expense of lower levels of regulatory protection but at an increased risk due to less regulative securities.
It is ultimately the investor's choice on whether having easier access to a larger pool of investment products is worth the increased investment risk.
Indonesia does not distinguish between accredited investors and other investor types, without any particular regulations for accredited investors. This means that all investors are equally protected and do not gain more or less risk due to the lack of an accredited investor status.
Why Some Investors Decide not to be Considered as an Accredited Investor
One of the key benefits of being an AI is to have the opportunity to invest in riskier investments not usually available to the public. Low risk investments will almost certainly have to go through the regulatory processes necessary to be made available to the general population who may not be AIs. However, some investors may have a much lower risk appetite than what is made available through these instruments.
Inexperience with Higher-Risk Investments
As AIs are not afforded the same regulatory protection as retail investors, they may be offered investments which are complex in nature. It may be difficult to fully comprehend how the investment is structured or appreciate the amount of risk being taken to earn the returns being offered.
Frequently Asked Questions
What are the New Rules about Opting-in as an AI?
After April 8th, 2020, all new accounts are required to sign an opt-in confirmation before being treated as an AI.
From July 8th, 2020 investors are required to opt-in with their financial service providers as an AI.
What Supporting Documents are Needed to Submit for an AI Eligibility Assessment?
Examples of supporting documents
For Net Personal Assets / Net Financial Assets:
- latest bank statement;
- latest statement from the Central Depository (Pte) Ltd (CDP) showing personal assets;
- latest statement from brokerage houses showing net personal assets;
For net equity of property:
- title deeds free of encumbrances;
- latest housing loan statement
- salary slip;
- latest Notice of Assessment or overseas tax authorities’ returns;
- letter from employer certifying individual’s income in the preceding 12 months
Can Different AI Status be Chosen for Different Accounts?
AI status is applied independently and consistently within a particular financial institution. If an investor opts-in for AI status, this will be applied to all account(s) which are held in their name with their financial services provider. AI status cannot be individually modified on a transactional basis.
Can Existing Investments where AI Status is Held be Subject to the Regulatory Safeguards Accorded to a non-AI after an Investor Successfully Opts-out of being an AI?
No, they will not benefit from regulatory safeguards accorded to a non-AI. Only investments where an opt-out choice has been processed will be subject to the regulatory safeguards accorded to a non-AI.
Can an Investor Change their Mind and Withdraw Consent to be Treated as an AI after the Opt-in Form has been Signed?
Yes, there is a right to withdraw consent at any time.
Sign Up at RealVantage
RealVantage is a real estate co-investment platform that allows our investors to diversify across markets, overseas properties, sectors and investment strategies.
Visit our main site to find out more!
Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.