The U.S. Securities and Exchange Commission (SEC) created the accredited investor requirements in order to protect investors from incurring losses in riskier opportunities for which they may lack sufficient financial cushion and/or knowledge. Firms offering unregulated securities often check the accredited status of investors prior to accepting their investment.
There are various ways to achieve accredited investor status. They include:
- Meeting a Financial Qualification
Qualifying financial status has been the most common way to obtain accredited investor status. The requirements are as follows:
- Having income greater than $200,000 USD per year individually (or $300,000 USD per year with a spouse or spousal equivalent), during the previous two years, with the reasonable anticipation of earning the same or more in the current year.
- Having a net worth greater than $1 million USD (individually or with a spouse or spousal equivalent), not including the value of the one’s primary residence.
There is no formal process to becoming an accredited investor, such as a formal body issuing a certificate or declaring one to be such an investor. Meeting the accredited investor requirements and obtaining accredited investor status is done when companies offering securities review the credentials of prospective investors. An investor qualifies as an accredited investor if he or she or the entity meets the established requirements.
- Meeting Other Accredited Investor Requirements
Beyond qualifying through the financial tests, there are other ways to now qualify for accredited investor status that involve knowledge, position, education, and credentials.
Here are the other ways to qualify:
- Hold one of the following licenses in good standing: FINRA Series 7, 65, or 82.
- Hold the position of a general partner, director, or executive officer of a firm selling securities.
- Be a knowledgeable employee of a private fund in which investments are made.
- Be a member of an investment firm that owns investments exceeding $5 million USD in value and was not created specifically for investing in the securities offered by the firm.
- Be a family client with prospective investments directed by their family office.
To be in good standing with a Series 65 license, which is the easiest license to obtain and maintain for achieving accredited investor status, one must first pass the exam. Secondly, the prospective investor must join or register one’s own registered investment advisor (RIA) firm and then register as an investment advisor representative (IAR) of said firm.
As you can see, there are various ways to fulfill accredited investor requirements. The path of least resistance may be the best way to pursue this goal.
