The EIS and SEIS regulatory regime is straightforward for IFAs and investment Intermediaries as these two product types are excluded from the definition of Non-Mainstream Pooled Investments, and as such they are not considered to be “collectives” and are not subject to some of the more stringent promotion rules. Accordingly an IFA can simply introduce certain types of individual (see 1-3 below), and no advice is required to be given given to the individual investor. The current FCA regulatory regime directs IFAs and Intermediaries to satisfy themselves that the individual investor is included within one of the following groups, and that they have signed a High Net Worth Certificate in the form shown as a download at the bottom of this page:
- A “Certified high net worth individual” is one who has signed, within the period of twelve months ending on the date of this document, a statement (in the format set out in page 12 of this document) that he or she is of high net worth and understands that he or she may receive financial promotions which have not been approved for the purposes of section 21 of the FSMA. For these purposes, “high net worth” means having either (i) an annual income of at least £100,000 or (ii) net assets (excluding the value of his or her primary residence and any insurance or pension rights) of at least £250,000
- A “Sophisticated investor” is one who has a current certificate signed by an authorised person to the effect that he or she is sufficiently knowledgeable to understand the risks associated with the type of investment described by the Information Memorandum and who has signed, within the period of twelve months ending on the date of this document, a statement that he or she is qualified as a Sophisticated Investor in relation to such investments and accepts that he or she may receive financial promotions which have not been approved for the purposes of section 21 of the FSMA
- A “Self-certified sophisticated investor” is one who has signed, within the period of twelve months ending on the date of this document, a statement that he or she understands that he or she may receive financial promotions which have not been approved for the purposes of section 21 of the FSMA and that he or she (i) is a member of a network or syndicate of business angels and has been so for at least the six months preceding the date that such statement is made; or (ii) has made more than one investment in an unlisted company in the two years preceding such date; or (iii) is working, or has worked in the two years preceding such date, in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises; or (iv) is currently, or has been in the two years preceding such date, a director of a company with an annual turnover of at least £1 million.
Should the IFA or Intermediary wish to provide advice on the suitability of the EIS or SEIS for a High Net Worth individual, Sophisticated investor of Self-certified sophisticated investor, they should ensure that they assess the individual’s suitability for investments of the nature covered, when compared to the overall circumstances and the agreed “ attitude to risk”. In looking at specific investment opportunities for the purposes of making a recommendation, an IFA should carry out a sufficient level of due diligence on each EIS/SEIS opportunity to assess whether it reflects the individual’s suitability requirements, as documented.
To address this process VN-ADS has provided an in-depth Due Diligence pack in the form of a download link below, such that the IFA/Intermediary can satisfy themselves that the two match and can advise the client appropriately.