Are the Accredited Investor Requirements Difficult to Achieve?

The SEC regulations that control the participation in certain types of investment opportunities were brought about as a result of past fraudulent activity. This involved various actors taking advantage of investors by promising them high returns. As a result, the SEC instituted certain accredited investor requirements.

Originally, the accredited investor qualifications involved high net worth and high income as the governing criteria. The thought was that these types of investors could handle any losses that accrued from investments gone bad compared to lower income or net worth individuals. However, this rationale left many investors excluded from many opportunities. It allowed the rich to gain more wealth, but left the less wealthy without the opportunity to participate.

There are now three main ways to become an accredited investor today. These are:

  • Financially
  • Through Knowledge
  • As an Entity

Investors can qualify and meet the accredited investor requirements based on these above three criteria.

Financial Qualification

The financial qualifications to become an accredited investor are well known and are based on the net worth and income criteria – i.e. $1 million USD net worth and $200,000 USD (or $300,000 USD with a spouse or spousal equivalent) annual income in each of the previous two years.

Knowledge Qualification

The SEC has added a knowledge qualification. You can qualify this way by having certain professional designations, certifications, or other credentials issued by an accredited educational institution.

Entity Qualification

The following entities and persons may also now be designated as accredited investors:

  • Limited liability company (LLC) or corporation, not created for the specific purpose of getting the offered securities, and having $5 million USD in total assets
  • Financial institutions
  • Certain categories of insurance firms

How to Become an Accredited Investor Without Net Worth or High Income

The knowledge route is the best option to qualify under the accredited investor requirements if you do not now qualify under the traditional net worth and income criteria.

Individuals can qualify through the Series 65 license and gain the opportunity to participate in private investments. This is an exam given by the Financial Industry Regulatory Authority (FINRA) and authorizes individuals to operate as investment advisors in the United States.

Although there are many options to meet the accredited investor requirements, they can be overcome by pursuing the best avenue based on your financial or other capabilities.

Author: Victoria Garcia

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