QIB Certification Letters, Subscription Agreements, and Investor Questionnaires

What Does Each Document Establish?

What Does a QIB Certification Letter Establish?

• A QIB certification letter is a representation letter the purchaser delivers to establish its QIB status. The rule attaches three requirements to it:
  • It is signed by the purchaser's chief financial officer, a person fulfilling an equivalent function, or another executive officer. Where the purchaser belongs to a family of investment companies, an executive officer of the investment adviser signs instead.
  • It specifies the amount of securities the purchaser owns and invests on a discretionary basis. A letter that merely asserts the purchaser is a QIB does not meet the requirement.
  • It states that amount as of a specific date on or since the close of the purchaser's most recent fiscal year.
• A firm may reasonably rely on a purchaser's signed certification rather than independently verifying every element of the purchaser's QIB status itself.
• This unit covers the letter that documents QIB status; the dollar thresholds that define QIB status itself are covered earlier in the course.

What Must a Subscription Agreement Contain?

• A subscription agreement is the document by which an investor commits to purchase a specific dollar amount of the offered securities and makes representations to the issuer, such as that the investor received and reviewed the offering documents and understands the investment is illiquid and carries risk of loss.
• The investor signs the subscription agreement and submits funding for the subscribed amount.
• The issuer, or the fund's general partner or manager, then accepts the subscription, commonly by countersignature. The subscription is not complete until the issuer accepts it, and an issuer typically reserves the right to reject a subscription in whole or in part.
• This description reflects private-placement industry practice rather than a specific FINRA or SEC rule; treat it as standard practice, not a rule-cited fact.

Exam Tip: Gotchas

• Signing and funding a subscription agreement does not by itself complete the sale. The issuer's acceptance, commonly a countersignature, is what finalizes it, and an issuer can still reject a subscription in whole or in part.

What Does an Investor Questionnaire Collect?

• An investor questionnaire asks the prospective investor a series of questions to determine eligibility for the offering. It is sometimes packaged together with the subscription agreement.
• The questionnaire is the document a firm uses to gather the facts that support the issuer's reasonable belief that the investor fits its eligibility category; it is the instrument, not the standard itself.
• The investor questionnaire collects the financial and background information the firm needs. Using that information to build and evaluate the customer's investment profile happens afterward, as a separate step.

Exam Tip: Gotchas

• The investor questionnaire collects eligibility and background information. Using that information to build and evaluate the customer's investment profile happens afterward, and is not the questionnaire itself.

What Should You Check on Exam Day?

• Match each document to its role: certification letter for QIB status, subscription agreement for the purchase commitment, questionnaire for eligibility screening.
• Confirm a subscription is not complete until the issuer, or the fund's general partner or manager, countersigns or otherwise accepts it.
• Remember a firm may rely on a purchaser's signed QIB certification rather than independently verifying every element itself.
• Check who signed the certification and what it states. An executive officer must sign it, and it must give the dollar amount, not just a conclusion.
• Separate the questionnaire's fact-gathering role from the later step of evaluating that information as part of the investment profile.