When you deal with investment products, you may stumble upon the term “Accredited Investor”. Accredited investors (AI) are often referring to High Networth Individuals. They have access to some of the untraditional or sophisticated investment products which are out of touch by the retail investors. What is so good about products for Accredited Investors?
In this article, I will explain
- Who qualifies as an Accredited Investor?
- How to qualify?
- What are the special types of products available to Accredited Investors?
Why some products are sold for Accredited Investor only
There are generally three types of investors in the market:
- Retail Investors
- Accredited Investors
- Institutional Investors
The term originates from the English word ‘accredited’ which literally means someone who has been given special authority or sanction if they meet certain recognized standards. Accredited investors are most popular for purchasing securities that are not “regulated”.
There are two extreme misconceptions of Accredited Investor products:
- Accredited Investor investment products are superior because they are scarce, and for the high net worth people only.
- You should not declare yourself as an accredited investor even if you qualify because you will be sold toxin products and you enjoy no regulation protection
Both concepts are wrong. Accredited Investor products are neither good nor bad. You need to scrutinize them just like any other products. For example,
- Vanguard’s index funds (the most popular and one of the largest passive investing strategies) are Accredited Investor products just because they don’t want to go through a complex and costly process such as regulatory filings and capital outlay in Singapore
- On contrary, Lehman’s Minibond, the famous toxin products were sold as a retail product where any Mom-and-Pop can buy.
Therefore, it is best for you to seek advice from a qualified investment adviser for more information before you write the cheque.
How to qualify as an Accredited Investor
As defined in Section 4A of the Securities and Futures Act (Chapter 289), there are two main types of accredited investors
- Individual accredited investor.
- Institutional accredited investor.
You may be more interested in the definition of an individual accredited investor.
An individual accredited investor
To qualify as an Accredited Investor as an individual, you need to fulfil any of the following criteria:
- Your net personal assets > S$2 million; or
- Your financial assets (cash & investment) > S$1 million; or
- Your income > $300,000
Below are the detailed explanation of the qualification criteria:
(A) Net personal asset: you can qualify if the value of your net personal assets exceeds S$2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount. If you have a property, the net asset refers to the market value minus the outstanding loan.
As an asset rich, cash poor nation, many Singaporeans used to qualify themselves using their properties. With effect from December 2018, an individual’s primary residence (Registered Residential Address) will only account for up to S$1 million of the individual’s net personal assets, after deducting outstanding amounts e.g. mortgage loan. For example:
If you have two apartments (assuming no loans)
- One for your own stay with a market value of $1.2 million
- One for investment with a market value of $1.4 million
Your qualified property net worth for Accredited Investor declaration purpose is S$1 million + S$1.4 million = S$2.4 million.
(B) Income: you can qualify if your income in the preceding 12 months is more than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount.
(C) Financial asset: you can qualify if the value of your financial assets exceeds S$1 million (With effect from December 2018)
Below is the list of qualified financial assets:
- A deposit (e.g. Fixed Deposit) as defined in section 4B of the Banking Act or
- An investment product (e.g. Stocks, Bonds, CIS, Options, Life Policy) as defined in section 2(1) of the Financial Advisers Act or
- Any other asset (e.g. Gold) as may be prescribed by regulations made under section 341
A corporate accredited investor
A company can also be qualified as an accredited investor if its net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by
(A) the most recent audited balance-sheet of the corporation; or
(B) where the corporation is not required to prepare audited accounts regularly, a balance-sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet which date shall be within the preceding 12 months;
An accredited investor can only be the trustee of such trust as the Authority may prescribe, when acting in that capacity; or such other person as the Authority may prescribe.
Documents required to qualify as an Accredited Investor
By net personal assets
You can prove that your net personal assets
- Property title deed
- Property valuation report less than 6 months old from recognized valuers
Using Owner’s Equity
- Latest audited annual accounting report of the company (audit report by the Big Fours and/or recognized registered audit company in the country)
Using Personal Investment/Savings
- Latest investment portfolio statement (as at market value)
- Latest bank statement
To prove income in the preceding 12 months is not less than S$300,000 (or its equivalent in a foreign currency)
For Singapore Citizen and Permanent Residents
- Last 12 months’ original computerized salary slip or
- Latest Notice of Assessment
- Last 12 months’ CPF contribution statement
For foreigners, in addition to the above documents
- A copy of your employment pass
What are the typical products for Accredited Investors?
As mentioned earlier, products for accredited investors are neither good nor bad. It is just a classification. If you are a Singapore investor, you are likely to required to declare as an accredited investor before purchasing the following products:
- Most direct corporate bonds.
- Participate in Bond IPOs. For example, the IPOs of Astrea Bond, Aviva Singlife bond, SIA bond, Temasek Bond etc.
- Certain mutual funds which are not registered as a retail fund. For example, Vanguard Index Fund, Fundsmith Equity Fund etc.
- Hong Kong Stock IPOs.
- Structured Products.
- Fixed Maturity Products.
As a licensed financial adviser, I help my client evaluate these products. If you have any questions, simply leave your comment or contact me via the form below.