The investor's adviser is a person the regime also classifies.

Many of the holders on a private-markets register act through somebody. A family office that advises the family's holding company and signs for it. A discretionary manager that subscribes for its client's account in its own name or a nominee's. A bank whose private-banking arm places its client's money through a nominee company. A trustee subscribing for a trust. A corporate treasury acting for a group of subsidiaries. In each case the person the manager dealt with and the person whose money is on the register are different, and each is classified separately by the regime, on different criteria, for different purposes. The manager that classified the person in the room and assumed the classification reached the person on the register has a record for one and a register of the other.

This note sets out how the centres' rulebooks decide who the client is where an agent acts, how the Kingdom's glossary treats the discretionary client, how the tier counts a nominee, what the file must show for an advised holder, the moments the chain is tested, why a register of advised holders changes the tier choice, the reliance arrangement with an adviser, the chain in an onshore placement, a comparison, a worked chain as a type, cases, what each party holds, the sequence, questions, terms and what to read.

Who the client is, in the centres

The conduct rulebooks address the case where a firm deals with a person who is acting for another. Where the person the firm deals with is itself a regulated firm acting on its own account for its client, under its own permission, the rulebooks treat that firm as the client for the firm's duties, and the underlying person is the agent's client and the agent's responsibility. Where the person the firm deals with is an unregulated agent, an adviser without a permission, a family member with a power of attorney, the rulebooks look to the principal, and the firm classifies the principal. Where the person deals through a nominee, the rulebooks distinguish the nominee's legal holding from the beneficial person, and the classification for the tier's investor test is of the person whose money it is, unless the nominee is itself a regulated firm holding on its own account.

The rulebooks address a particular case specifically: a professional adviser acting for a client who would be retail if approached directly. The answer is not that the adviser's status travels to the client. The firm either deals with the adviser as its client, where the adviser is regulated and acting on its own account, or classifies the principal, and a principal who fails the test is a retail client however professional the adviser.

The Kingdom's discretionary client

The Kingdom's glossary includes, among qualified clients, a client of a capital market institution under a discretionary arrangement, on the footing that the offer is made to the institution rather than to the client. The holder on the register, then, may have qualified through the standing of the institution that subscribed for it, and the regulations' logic is that the institution's own duties to its client under the conduct rules are the protection. The manager's record for that holder names the institution, the discretionary arrangement, and the category relied on, and the distributor's classification of the institution is the Kingdom's record.

The tier's count of a nominee

For the fund's tier, the investor test is applied to the person who holds the units, and the holder cap is counted as the tier's counting rule counts. A nominee that holds for several underlying persons is, for the count, either one holder or several depending on the rule and the nominee's arrangement, and for the investor test either the nominee, where it is a regulated firm holding on its own account, or the underlying persons. The constitution says which, the tier's rules govern, and a nominee recorded as one holder for the count and unclassified as to its underlying persons is a nominee that breaches the tier in one of two ways.

What the file must show

The manager's record for each holder names the person classified, the route, the criteria, the evidence and the date, and where the holder acts through another it names both persons, the rule relied on for treating one as the client, and the classification the tier's investor test relies on and why that reliance is permitted. A nominee holding is recorded as one holder for the count where the rule permits and as several persons for the provenance file, with the nominee's own confirmation of the underlying persons' standing where the tier requires it. A discretionary client in the Kingdom is recorded with the institution, the arrangement and the glossary's category.

The file is the manager's evidence, and a record that names the person in the room and not the person on the register is a record of a classification the tier did not need.

The moments the chain is tested

When a holder complains, the question is who the firm's client was and what duties it owed that person; a manager that dealt with the adviser and owed the principal the retail protections has a complaint from a person it never classified.

When a holder transfers, the question is whether the transferee's classification is the adviser's or the principal's, and whether the adviser's standing, if relied on, travels to the new arrangement.

When a holder deals directly, having been admitted through an adviser, the question is whether the holder's own classification was ever performed; a holder admitted on its adviser's standing and later dealing with the manager directly is a holder whose classification has changed, and the manager who did not notice is the party in breach.

When the regulator reviews the file, the question is whether the person on the register passed the test, and an answer that points to the adviser's standing needs the rule that permits it.

Why it changes the tier choice

A register with many advised holders is a register whose count, whose minimum subscription and whose reporting are all computed through the advisers. Twelve nominee holdings that are twelve holders for the cap and ninety persons for the provenance file. A minimum met by an adviser aggregating clients the tier would count separately, which the tier may not permit. Reporting obligations to ninety persons, through twelve advisers, that the administrator was engaged to deliver to twelve. A tier chosen without reading the advisers' positions is chosen for a register that does not exist, and the structure reads the register through every intermediary before the tier is fixed.

Why the rulebooks draw the line where they do

The rulebooks could have treated the person in the room as the client in every case, which would have been simpler for firms, or the beneficial person in every case, which would have been simpler for regulators. They did neither, because each simple rule fails a real case. Treating the adviser as the client always would let a regulated adviser bring any retail person into any private fund on the adviser's standing, which is the circumvention the private tiers were built to prevent. Treating the principal as the client always would require a fund manager to classify the thousand clients of a discretionary manager that subscribes on its own account, which is the discretionary manager's job under its own permission. The line the rulebooks draw, the regulated firm acting on its own account as the client and the principal otherwise, puts the classification with the person best placed to perform it and keeps the tier's protection with the person who needs it.

The Kingdom's discretionary-client provision draws the same line by another route: the offer is made to the institution, and the institution's own duties to its client are the protection. Kuwait's list of professional clients by nature draws it by listing the institutions and omitting their clients, so that a client reached through an institution on the institutional route is not itself on the list. Qatar's bank route draws it by making the bank's client the bank's.

The family office, read closely

The family office is the commonest advised holder and the one most often misread. It may be a regulated firm in its own jurisdiction, advising or managing the family's assets under a permission, in which case it can be the client where it acts on its own account. It may be an unregulated company employing the family's staff, in which case it is an agent and the family's holding company or the family members are the principals. It may be both, regulated for some activities and not for others. The manager reads the family office's own status, the capacity in which it acts for this subscription, and the identity of the person whose money it is, and classifies accordingly. A family office that says "we are the investor" is asked to show whose name the units will be in and whose money funds the call, and the answer is the person classified.

The bank's book and the nominee

A bank that places its private-banking clients' money through a nominee company presents the manager with a regulated firm, the bank, a nominee, and the clients. Whether the nominee is one holder or several for the count, and whether the clients are classified by the bank under its own rules or by the manager under the tier's, depends on the tier's counting rule, the bank's arrangement and the reliance the manager documents. The arrangement that holds in most readings is that the nominee is one holder where the counting rule permits a regulated firm's nominee to be so counted, the bank classifies its clients under its own conduct rules and undertakes to the manager that each is professional under the manager's criteria or the equivalent, the manager documents reliance on the bank's classification under the rule that permits it, and the bank's provenance file for each client is available to the manager on request. An arrangement that has the nominee as one holder and nobody classifying the clients has a nominee the rule will look through.

Where it surfaces

At the first capital call, when the administrator asks whose money is being called and the answer is a person nobody classified.

At a complaint from a principal who was never the manager's client and was owed the retail protections by somebody.

At a transfer by an advised holder to a buyer the adviser found, when the adviser's standing is assumed to reach the buyer.

At the regulator's review, when the classification record names the person in the room.

At the bank's nominee, when the counting rule is applied for the first time at a breach.

The cost of getting it wrong

A misread chain costs a register that cannot be evidenced: holders classified in the wrong person, nominees counted wrongly, principals owed duties nobody discharged. The tier is breached on the day of admission; the lender's representation is untrue; the buyer at exit prices the register; and the principal who lost money has a claim against a manager that never classified it. The map of each chain costs an hour per holder at admission and a line in the file. Against a finding that the fund was outside its tier from first close, the hour is the cheapest item in the placement.

The reliance arrangement

Where the manager relies on an adviser's classification of its principal, the reliance is a documented decision under a rule that permits it. The rule, in both centres, permits reliance on a regulated firm's classification in stated circumstances, with the relying firm remaining responsible for the adequacy of the reliance. The arrangement names the adviser, its regulatory status, the scope of the reliance, the evidence the adviser supplies, and the adviser's undertaking to inform the manager of changes. A manager that relies on an unregulated adviser has relied on nothing the rule recognises and has classified nobody.

The chain in an onshore placement

In the Kingdom, the distributor classifies under the glossary, and an advised holder is read on the discretionary-client provision or on its own category. In Kuwait, the licensed person reads the holder against the list of professional clients by nature, and an adviser's standing does not put its client on the list. In Qatar, a bank's client is the bank's under the central bank's route, and a person approached directly is a person in the count. Each onshore classification is a record beside the centre's, and an advised holder may have three.

By chain · by classification	The person in the room	The person on the register	Which the tier relies on	The record
Regulated adviser, own account	The adviser, as client	The adviser, as holder	The adviser's	The adviser's licence and classification
Regulated adviser for a principal	The adviser	The principal	The principal's, or reliance on the adviser's classification of it	Both persons; the reliance arrangement
Unregulated adviser or attorney	The adviser	The principal	The principal's	The principal's classification
Nominee, regulated, own account	The nominee	The nominee	The nominee's; the count as the rule counts	The nominee's licence; the provenance of the persons behind
Nominee for several persons	The nominee	The persons	The persons'	Each person's classification; the count as the rule counts
Discretionary client in the Kingdom	The institution	The client	The institution's, under the glossary	The distributor's record of the institution

A timeline, as a type

Month one: the register is mapped chain by chain; six holders are direct, four are advised, two are nominees for banks' books, one is a trust. Month two: each chain's person to classify is identified; the reliance arrangements with the two banks and the one regulated adviser are drafted and signed; the trust's trustee is classified on the connected-person provisions. Month three: first close; the file holds, for each holder, the persons, the rule and the record. Year two: an advised holder's adviser ceases to be regulated; the reliance arrangement's undertaking to inform operates; the principal is classified directly. Year three: a bank's nominee is reorganised; the counting rule is applied and the nominee's new arrangement drafted to it. Year five: the regulator's review asks for the chain of each advised holder and receives the map.

The structure paper's page

The structure paper carries a chain page: each holder, the person in the room, the person on the register, the beneficial person, the rule applied, the classification relied on, the reliance arrangement where used, the count treatment, the provenance file's scope, and the onshore classification where the holder sits in a Gulf state. The page is the administrator's register annotated with the law, and it is read by the lender for the borrowing base, by the buyer at exit for the register, and by the regulator for the tier. A manager that has it classifies the right person every time, because the page says who.

Reading the chain with the tier's minimum

The minimum subscription is tested against the holder on the register, and an advised holder's adviser cannot aggregate its clients to meet it unless the tier's rule permits aggregation for that kind of holder. A bank's nominee subscribing the minimum on behalf of twenty clients each of whom holds a twentieth has met the minimum for the nominee and for nobody else, and whether that is permitted depends on the counting rule's treatment of the nominee. A manager that reads the minimum through the chain knows before the close which advised holders can subscribe and which cannot, and the tier is chosen to the answer.

The trust and the connected person

A trust subscribes through its trustee, and the trustee is the person in the room and on the register. The rulebooks classify the trustee as the client where it acts in its own right, on the trustee's own deemed or assessed route: a professional trustee company is a regulated firm and deemed; an individual trustee is assessed on the two limbs or on the connected-person provisions where the trust is connected to a professional client. The beneficiaries are not classified, because they are not the client and not on the register, but the provenance file reaches them as the persons behind the trust. A family trust with an individual trustee who fails the two limbs is a holder the tier does not admit, and the cure is a professional trustee or a holding through a vehicle that passes.

The corporate group

A treasury company subscribing for several subsidiaries is one holder on the register and one person classified, and the subsidiaries are the persons behind it for the provenance file. A group that wants each subsidiary on the register separately has several holders, each classified on its own accounts, each counted, each meeting the minimum. The choice is the group's, and the manager reads the consequence for the count before the close.

The administrator's reporting through the chain

The constitution names the persons to whom the fund reports, and for an advised holder it names the holder on the register and, where the holder requests it, its adviser. The administrator sends the periodic report to the named persons and to nobody else, because a report sent to an adviser's other clients, or to a bank's book, is a communication to persons the tier did not admit. A nominee's underlying persons receive what the nominee passes on under its own arrangement with them, and the fund's report to the nominee is the fund's discharge of its duty. The service schedule lists the recipients per holder, and a change in an advised holder's chain changes the list.

A chain, as a type

A family office, itself unregulated, approaches a manager for the family's holding company. The manager identifies the holding company as the principal and the person on the register, classifies it on the assessed route on its accounts and its director's experience, gives the notice to the holding company and obtains its acknowledgement, and records the family office as the agent through which it dealt. The holding company is one holder for the count and one person for the provenance file. Three years later the holding company's director deals with the manager directly on a further subscription; the classification is the holding company's own and is re-run on its current accounts. The chain is two persons, one classified, one recorded as agent, and the file shows both.

The same family office treated as the client: the family office is classified, the holding company is not, the holding company's director deals directly in year three, and the register has carried an unclassified holder since first close.

Four cases, as types

A manager admits a nominee company for a bank's private-banking clients as one professional holder. The tier's counting rule looks through nominees that are not regulated firms holding on their own account; the clients are two hundred retail persons; the fund is over its cap on the day of admission and outside its tier, and nobody counted because the nominee was "one investor".

A family office subscribes for the family's holding company on the family office's own professional standing, which it holds as a regulated firm in another jurisdiction. The manager treats the family office as the client. The holding company later deals with the manager directly on a transfer; its own classification was never performed; the manager's record names a person who is not on the register.

A manager relies on a discretionary manager's classification of its clients, under a reliance arrangement naming the manager, its regulatory status and its undertaking to inform. One client's circumstances change; the discretionary manager informs; the fund's manager re-classifies. The reliance was documented, the rule permitted it, and the change was caught.

A manager records, for each advised holder, both persons and the rule relied on, counts nominees as the tier counts them, takes the principals' representations where the rule requires, and holds the reliance arrangement for each regulated adviser. The register is what the file says it is, on every day it is asked about.

What each party holds

The manager holds the map of each holder's chain, the classification of the right person, the reliance arrangements and the two or three records per advised holder.

The adviser holds its own classification of its client, its undertaking to inform, and its own duties to its client under its own regime.

The nominee holds the legal title and the provenance of the persons behind it.

The administrator holds the count as the rule counts and the reporting to the persons the constitution names.

The onshore intermediaries hold their own classifications under their own rules.

The regulator holds the rule on who the client is and the review.

The sequence

1. Every intended holder's chain is mapped: who signs, who holds, who is the beneficial person, and which is classified for which purpose.
2. The tier's counting rule is applied to nominees and feeders before the tier is chosen.
3. Representations are taken from the right person in the chain, under the rule that permits reliance where reliance is used.
4. Reliance arrangements with regulated advisers are documented with scope, evidence and the undertaking to inform.
5. The onshore classifications are recorded beside the centre's for each holder placed there.
6. A holder is re-classified when the person the manager deals with changes.

Questions a manager asks

If the adviser is regulated, can the manager deal with it alone. Where it acts on its own account for its client under its own permission, yes, and it is the client; where it acts as agent for a named principal, the principal is classified or the adviser's classification of it is relied on under the rule.

Does a nominee count as one holder. Under some rules and in some circumstances; the rule is read and the nominee's arrangement drafted to it.

What about a power of attorney. The attorney signs; the principal is the client and is classified.

Can the adviser's professional status be used for the minimum subscription. The minimum is per holder on the register, and an adviser aggregating clients to meet it has met it for nobody unless the tier's rule permits the aggregation.

What does the reliance arrangement need. The adviser's regulatory status, the scope, the evidence the adviser supplies, its undertaking to inform, and the manager's own assessment that the reliance is adequate.

Does the onshore classification replace the centre's. No. The tier is the centre's and its test is applied by or relied on by the manager; the onshore classification is the placement's record in that state.

Terms used

Advised holder: a holder that acts through an adviser, agent, attorney or nominee.

Principal: the person whose money is on the register and who is classified for the tier.

Reliance: the manager's documented decision to rely on a regulated firm's classification of its client, under a rule that permits it.

Nominee: a person holding legal title for others; counted as the tier's rule counts and classified as the rule requires.

Discretionary client: in the Kingdom's glossary, a client of a capital market institution under a discretionary arrangement, to whom the offer is made through the institution.

Chain: the sequence of persons between the manager and the beneficial holder.

What to read

Each centre's conduct rulebook on who the client is where an agent or nominee acts, and on reliance on other firms' classifications; the Kingdom's glossary on the discretionary client; the tier's counting rule for nominees and feeders; the constitution's provisions on nominees and on the persons to whom reports are given. On this site, the perimeter room under Jurisdictions, the DIFC conduct room and the Kingdom's marketing room.