Key Takeaways
- An accredited investor is an individual or entity who meets specific criteria set by the SEC to invest in unregistered securities
- Accredited investors can invest in private market alternative investments that aren’t available to the public
- There are several different criteria that can be met for an investor to be considered accredited, all of which are meant to categorize them as a sophisticated investor who should be able to assess an investment’s risk and opportunity within the context of their unique financial situation
An accredited investor has access to more investment opportunities than investors who don’t meet accreditation criteria—like private market alternatives. Do you meet the criteria? Find out…
What is an accredited investor?
An accredited investor is an individual or entity who meets specific criteria to invest in securities that are not registered with the Securities and Exchange Commission (SEC) or available to the public. They have access to more investment opportunities than investors who don’t meet accreditation criteria.
In August 2020, the SEC amended the definition of an accredited investor and broadened it to qualify investors’ sophistication based on factors other than wealth and income. As per the amendment, the following individuals can now be classified as accredited investors:
- Individuals with specific professional qualifications, certifications, or credentials
- “Knowledgeable employees” of a private fund
- SEC and state-registered investment advisors, among others
Based on the criteria outlined, the following may be considered accredited investors:
- High-net-worth individuals (HNWIs)
- Large banks
- Insurance companies
- Brokerage firms
- Employer-sponsored retirement plans
- Certain trusts
- Registered Investment Advisor (RIA) firms
- Limited liability companies with $5 million in assets
- SEC and state-registered investment advisors
- Exempt reporting advisers
- Rural business investment companies
What are the benefits of being an accredited investor?
Accredited investors are able to access investment opportunities that aren’t generally available to the public.
Assets available to accredited investors include many private market alternatives, such as:
- Venture capital
- Private equity
- Hedge funds
- Private startups
- Fine art and collectibles
- Real estate, including farmland
- Certain real estate investment funds
- Specialty investment funds
How do I become an individual accredited investor?
All individual accredited investors must meet specific requirements regarding income, net worth and investment experience:
- An income of more than $200,000 (or $300,000 if combined with a spouse’s or spouse-equivalent’s income) the past two years with the expectation of the same minimum level of income in the current year
- A net worth (assets minus liabilities) of over $1 million, either alone or with a spouse or spouse-equivalent (excluding the value of a primary residence, but including the value of retirement accounts)
- Any of the following securities licenses: Series 7, 65 or 82
Apart from individuals, certain entities can also qualify as accredited investors (like banks, insurance companies and registered investment companies).
Additionally, businesses with total assets exceeding $5 million are considered accredited investors.
How do I prove accreditation?
No formal agency confirms accreditation status or issues certification, but in connection with certain securities offerings, the SEC requires those issuers selling to accredited investors to verify the investor’s status. Failing to do so could result in their offering being disqualified under securities laws.For some private offerings, self-certification on the issuer’s website is sufficient. But you may sometimes be required to prove you qualify for accreditation by submitting:
- Bank or brokerage statements
- Balance sheets
- W-2s
- Credit reports
- Letters from an accountant or attorney
The bottom line
Accredited investors are afforded a lot of interesting opportunities that investors who don’t meet accreditation requirements cannot access. That’s because given their qualifications, the SEC deems them better able to navigate the complexities of private market alternatives. Investors interested in tapping into private market alternatives with their retirement funds can explore Alto’s numerous opportunities, some of which require accreditation.
Invest in alternative assets using tax-advantaged retirement funds.
