1. Compliance
  2. Financial advice
  3. Eligible persons & eligible investors

Eligible persons & eligible investors

 

Eligible investors

Financial markets legislation provides greater protections for retail investors than it does for wholesale investors. For instance, an offer of financial products to a wholesale investor does not require disclosure under Part 3 of the Financial Markets Conduct Act 2013 (FMC Act).

There are different types of wholesale investors. One of these is eligible investors. An ‘eligible investor’ is a person who has sufficient knowledge and experience dealing in financial products that enables them to sufficiently assess the merits and risks of a transaction.

An ‘eligible investor’ needs to satisfy a number of criteria. It is important that financial market participants understand these criteria, and are aware that slightly different requirements apply under each of the financial markets legislation.

Financial Markets Conduct Act 2013

To be an ‘eligible investor’ under the FMC Act a person must, before making an investment, certify in writing that they are an eligible investor.

The certificate must:
state that the person has sufficient previous experience in acquiring or disposing of financial products that allows them to assess:
  • the merits of the transaction (including assessing the value and risks of the financial products involved) the information they need to assess the transaction
  • the adequacy of the information provided by any person involved in the transaction
that the person understands the consequences of certifying themselves to be an eligible investor.
include

the basis for the person’s certification (ie, an outline of the nature and extent of their previous experience)

a signed confirmation of the certificate by an authorised financial adviser, chartered accountant or lawyer. The confirmation should note that the financial adviser, chartered accountant or lawyer is satisfied that:

  • the person has received sufficient advice about the consequences of certifying themselves to be an eligible investor; and 
  • there is no reason to believe the certificate is incorrect (or that further information or investigation is needed to determine this).

a warning statement, at the front and in a prominent position, that contains the required wording as set out in the Financial Markets Conduct Regulations 2013.

The certificate may be for a particular offer of financial products or for a class of offers.

Further information on ‘eligible investors’ and eligible investor certificates can be found in the FAQ section of our website: 

Financial Advisers Act 2008

To be an ‘eligible investor’ under the Financial Advisers Act a person must, before being provided with a financial adviser or broking service, certify in writing that they are an eligible investor.

The certificate must:
state

that the person has sufficient knowledge, skills, or experience in financial matters that allows them to assess:

  • the value and risks of financial products 
  • the merits of the service or services to be provided (including the value and the risks involved)

that the person understands the consequences of certifying themself to be an eligible investor (ie, they know that the competency standards and requirements of the code of professional conduct will not be applicable (if relevant) and that the financial adviser or broker may not belong to an approved dispute resolution scheme).

include

the basis for the person’s certification (i.e., an outline of the nature and extent of their previous experience)

a signed acceptance of the certificate by a financial adviser, a qualifying financial entity (QFE) or a broker. This acceptance should note that the financial adviser, QFE or broker is satisfied that:

  • the person has received sufficient advice about the consequences of certifying themselves to be an eligible investor; and
  • there is no reason to believe the certificate is incorrect (or that further information or investigation is needed to determine this).

Section 5D of the Financial Advisers Act provides detailed information on who are 'eligible investors' under that Act.

NOTE: Where the service being provided only relates to FMC Act financial products, a financial adviser or broker may also rely on a compliant eligible investor certificate provided under that Act.