What it means
Companies often raise money privately from institutions and wealthy individuals instead of listing shares on a stock exchange. These private placements are exempt from some of the registration steps required of public offerings, but they still carry rules on who can invest and what information they must be given.
The Series 82 exam tests a representative's knowledge of these rules. Topics include the exemptions that allow private offerings, the definition of an accredited investor, the content of offering documents, restrictions on reselling the securities, and the duty to treat investors fairly.
A representative must also understand why private investments are riskier and less liquid than listed ones. The registration is narrow by design.
It lets a person sell private placements without learning the full range of public market products, which suits firms that act as placement agents for start-ups and funds. It does not permit selling mutual funds, listed shares or other products outside its scope.
For business owners, this matters when raising capital. A placement agent usually earns a fee on the money raised, and the staff who contact investors must hold the right registration.
Using unregistered or unqualified agents can create legal problems for the issuer as well as the intermediary. Eligibility and prerequisites are set by FINRA and revised from time to time.
Firms should confirm the current requirements and the conditions that apply to the individual before allowing anyone to start selling. Marketing rules apply too.
Communications about private offerings must be fair and balanced, must not promise returns and must not be shown to investors who are not eligible. Many firms have compliance review every pitch deck and email template before it is used.
In practice
Real-world examples.
Example
A placement agent is hired to raise $12,000,000 for a private real estate fund. Its representatives who contact investors all hold the private placement qualification. The firm keeps a list of each person approached and the documents provided. The agent also gives investors a written summary of the main risks, including the fact that private investments are hard to sell.
Example
A founder meets an intermediary offering to find investors for her start-up. She asks which registrations the intermediary's team holds and which securities rules apply. The intermediary shows that the representative is qualified, and she signs the engagement. She also asks for a sample of the documents that investors would receive, so she can see how the risks are described.
Example
A broker-dealer wants to add a private placements desk. The compliance head confirms that its sales staff will need the limited registration. She plans training on accredited investor checks and record keeping. She also asks that sales staff keep a log of every investor conversation, so the firm can show what was said.
Formula
Calculation
Placement fee = amount raised x fee percentage
Suppose a start-up raises $5,000,000 in a private placement and pays its placement agent an assumed fee of 4%. The fee is 5,000,000 x 4% = $200,000. The company keeps 5,000,000 - 200,000 = $4,800,000, before legal costs. If legal costs are $60,000, the net amount available for the business is 4,800,000 - 60,000 = $4,740,000, or 94.8% of the headline raise.Case study
Seen in the real world.
Oakhaven Growth Partners is an illustrative, fictional placement agent that raised funds for small technology companies. Its team included two former founders who were good at pitching but had no securities registration. The firm had grown quickly on the strength of personal networks, and the founders had never needed to think about formal qualifications.
The compliance officer stopped them from contacting investors until they had passed the private placement exam. She also introduced a checklist that confirmed each investor's accredited status before sending documents. She explained that an unregistered person soliciting investors could expose both the agent and the start-up to legal action.
The delay cost about six weeks of fundraising, but the firm avoided the risk of breaching offering rules. The illustrative lesson is that enthusiasm for a deal does not replace the qualifications and checks the rules demand.
Watch out
Common mistakes.
- Assuming private placements are unregulated, when they follow detailed rules on investors, documents and resales.
- Treating all investors as eligible, when many private offerings are restricted to accredited investors.
- Believing private investments can be sold easily later, when most are illiquid and may have resale restrictions.
Questions
People also ask.
What is an accredited investor?
It is a person or institution that meets income, wealth or professional criteria set by regulators, which allows them to take part in certain private offerings.
What is a placement agent?
It is a firm that finds investors for a company's private offering in return for a fee, usually a percentage of the money raised. The agent may also help prepare the offering documents and organise meetings with investors.
Can a Series 82 holder sell mutual funds?
No, the registration is limited to private securities offerings, and other products need their own registrations.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related