Not every investor is comfortable participating in higher than normal risk investments. Some are, however, and some of these investments are only available to a certain subsection of investors, referred to as accredited investors. These investments may involve purchasing into real estate portfolios, investing in start-up companies, or diversifying investments through hedge funds. Investors wishing to take part in these investment opportunities must meet the accredited investor definition.
Per SEC regulations, investing in these riskier opportunities is permitted, but only by persons or entities that have met the SEC accredited investor criteria, much of which involves the attainment and possession of a significant amount of financial wealth and/or knowledge.
These accredited investors have access to numerous unregistered securities – these are different than the stock market opportunities available to the general public. SEC rules require businesses endeavoring to raise capital to verify if their potential investors fulfill specific requirements. If investors meet the accredited investor definition requirements, they are legally allowed to invest in these financial securities.
Common qualification for to Become an Accredited Investor
An investor must meet one of the conditions below to be called an accredited investor:
- Yearly income greater than $200,000 USD as an individual or $300,000 USD with a spouse or spousal equivalent for the past two years, anticipating the same or greater income level in the current year. Net worth over $1 million USD, either individually or jointly with a spouse or spousal equivalent – cannot include the value of your primary residence.
- Registered investment adviser or broker.
- General partner, director, executive officer, or knowledgeable employee at the company offering the security.
- Possess Series 82, 65, and 7 licenses.
There are other ways to qualify recently authorized by the SEC as well.
If an entity has assets in excess of $5 million USD, it may be classified as an accredited investor. If the equity owners of an entity are accredited investors, then the entity may qualify as meeting the accredited investor definition with the caveat that the entity may not be created for the singular purpose of buying a certain security.