SIE Understanding Products and Their Risks Question 23: Answer and Explanation

Question: 23

Which of the following is a characteristic of a qualified client?

• A. An accredited investor
• B. A qualified purchaser
• C. An individual who has two years of income greater than $200,000 annually and reasonably expects the same level of income to continue
• D. An individual who has two years of income greater than $300,000 annually and reasonably expects the same level of income to continue

Correct Answer: B

Explanation:

B: A qualified purchaser can be an individual who is a super-accredited investor due to having at least $5 million in invested assets; a trust, if not set up mainly to invest in the fund; or a professional person or firm controlling at least $25 million in invested assets. A hedge fund may only charge performance-based fees to qualified clients, of which a qualified purchaser is a subcategory. An accredited investor, Choice A, has different and somewhat fewer requirements, such as Choices C and D. Accredited investors may invest in a hedge fund if the fund does not plan to charge performance-based fees.