How Do You Get an Accredited Investor Verification Letter for a Syndication?

Question

Before starting the verification process, I'd first ask the sponsor exactly what they're looking for.

The requirements can vary depending on the offering. For example, Rule 506(b) and Rule 506(c) operate under different standards. In a Rule 506(c) offering, the issuer is generally required to take reasonable steps to verify that purchasers are accredited investors, so investors may be asked for additional documentation or a verification letter depending on the process being used.

One thing I've learned from researching this topic is that it's usually best to ask the sponsor or verification provider which method they're using and what documentation they will accept before sharing sensitive financial information. That can help avoid unnecessary back-and-forth and reduce the amount of personal information being shared.

I also wouldn't assume that a verification letter obtained for one offering or through one provider will automatically be accepted by every sponsor. Verification requirements and review processes can differ.

For those who have invested in 506(c) syndications, what verification process did you go through, and did the sponsor accept an existing verification letter or require a new one?

Divin Kanyama · Answer

This is solid advice, @Narasimha Alwala. Asking the sponsor what method they use before sending anything is a simple way to protect your privacy and avoid duplicate work.

It also helps to know the usual routes in a 506(c) offering. Verification commonly happens through income documents such as tax returns or W-2s covering the past two years, net worth documents such as bank, brokerage and credit statements, or a letter from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a CPA confirming they've verified your status. Those letters are often only valid for a limited window, commonly around three months, so timing matters if you plan to invest in more than one deal.

It's also worth knowing that the SEC has said that, in some cases, a high minimum investment amount combined with written representations from the investor can be enough for the issuer's reasonable steps. Not every sponsor uses that approach, so it's another thing to ask about. I'd check the current rules or talk to your attorney or CPA, since this area gets updated.

And I agree that you shouldn't assume a letter will carry over. Some sponsors accept a third-party letter from a provider they already work with, and others want to run their own process. Asking up front can save a lot of back and forth. Hopefully some folks who've been through it will share their experiences.

Narasimha Alwala · Answer

Thanks, Divin. I appreciate you expanding on the different verification paths.

One thing that stood out to me is your point that investors shouldn't assume the same verification letter or documentation package will work for every offering. It seems like a lot of confusion can be avoided by understanding the sponsor's process upfront rather than gathering documents first and finding out later that something else is needed.

The timing aspect is also interesting, especially for investors evaluating multiple opportunities over a relatively short period of time.

For investors who participate in several syndications, have you found that sponsors are becoming more consistent in what they'll accept, or is there still quite a bit of variation from one offering to the next?

How Do You Get an Accredited Investor Verification Letter for a Syndication?

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