Are you eager to jump into the world of private investing? 

If so, it’s crucial to grasp the fact that many private investment opportunities are exclusively available to accredited investors.

Now, you might be wondering, what exactly is an accredited investor? And more importantly, do you meet the criteria? If not, how can you work your way towards achieving accredited investor status?

By the end of this article, you’ll have an understanding of what it takes to become an accredited investor and how this designation can unlock exclusive opportunities in the world of private investing.

Let’s dive in!

What is an Accredited Investor?

An accredited investor is an individual or entity that meets certain financial requirements, as defined by securities regulations in the United States. These requirements are set by the U.S. Securities and Exchange Commission (SEC) under Regulation D of the Securities Act of 1933.

As an accredited investor, you are granted certain privileges and access to investment opportunities that are not available to non-accredited investors.

The criteria to qualify aims to ensure that you have the financial means, experience, and knowledge necessary to assess and bear the associated risks.

How Do You Qualify as An Accredited Investor?

To qualify as an accredited investor, you must meet at least one of the following requirements.  

The Income & Net Worth Tests

If you meet one of these tests, you will be considered an accredited investor. 

• Income Test: You have an annual income of at least $200,000 ($300,000 for married couples) for the past two consecutive years, with a reasonable expectation of reaching the same income level in the current year.
• Net Worth Test: Your net worth (or joint net worth with your spouse) exceeds $1 million, excluding the value of your primary residence. Net worth is calculated by subtracting liabilities from assets.

The income and net worth tests are the traditional ways of qualifying as an accredited investor. In the past, this made most private investment opportunities available exclusively to high-income earners and high-net worth individuals. 

However, new regulations over the last few years have paved the way for alternative ways to qualify for those who have the knowledge and expertise to participate in private capital markets. 

Holding Securities Licenses 

On August 26, 2020, the U.S. Securities and Exchange Commission (SEC) implemented amendments to the definition of “accredited investor” as outlined in the Securities Act of 1933.

The amendments introduced a new category within the accredited investor definition, allowing certain individual investors with specific professional certifications, designations, and other credentials to qualify as an accredited investor. 

• Licensed General Securities Representative (Series 7)
• Licensed Investment Adviser Representative (Series 65)
• Licensed Private Securities Offerings Representative (Series 82)

Thanks to this legislation, if you hold any of these three designations in good standing, you are deemed to have sufficient knowledge of the private capital markets and now qualify as an accredited investor.

It is important to be aware that obtaining the Series 7 and Series 82 certifications generally requires you to be sponsored by a financial services firm, such as a securities brokerage firm or registered investment advisor. 

However, you can hold the Series 65 license without being sponsored by an organization by passing the Series 65 exam and becoming an individual investment advisor. As of this writing, this is the most viable path to qualifying as an accredited investor if you don’t meet the income or net worth tests. 

More on that here. 

Another Way to Qualify Is Coming Soon

On May 31, 2023, the U.S. House of Representatives voted 383-18 in favor of H.R. 2797, also known as the Equal Opportunity for All Investors Act of 2023. 

The legislation directs the SEC to establish an exam program within one year of enactment and aims to “unlock opportunities for knowledgeable investors that may not come from means” by creating a “fair examination for investors that want to become accredited investors.”

The exam would certify you as accredited based on your demonstrated knowledge and understanding of various securities, private and public company disclosure requirements, corporate governance, financial statements, potential conflicts, and risks associated with unregistered securities. 

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