FAQ
Frequently Asked Questions
What is an Accredited Investor?
An accredited investor is an individual or institution that has earned special status, allowing them to invest in unregulated securities.
Accredited Investor Requirements
According to the SEC, an accredited investor can be anyone who meets one of the following criteria:
An individual or joint net worth of more than $1 million, excluding your primary residence
An individual income above $200,000 in each of the past two years, or joint income with a spouse or spousal equivalent above $300,000, with the expectation of maintaining the same level of income
For individuals who do not meet the income or net worth requirements, there are alternative paths to qualification. You may be eligible if you can demonstrate that you:
Are employed by a fund that distributes private investments
Hold a Series 7, 65, or 82 license in good standing. These certifications, issued by FINRA, require passing a qualifying exam
In 1982, only 1.8% of American households qualified as accredited investors. By 2020, that figure had grown to 13.85%, due to the static nature of the income thresholds and the expanding definitions and exceptions. For instance, licensed brokers and investment advisors were added in 2016, and accredited finance professionals were included in 2020.
Accredited investors also include institutions such as banks, brokerage firms, insurance companies, employer-sponsored retirement plans, and trusts, provided they possess assets exceeding $5 million.
How Do Firms Determine Whether You’re Accredited?
In the absence of standardized SEC regulation, firms are responsible for verifying an individual’s accredited investor status before granting access to private securities. You will typically be asked to complete a questionnaire and submit supporting documentation such as:
Financial statements to show where your assets are held, how much is there, and for how long
Credit report to assess your net worth
Tax forms and returns from the past three years to confirm your earnings, either individually or jointly with a spouse
Professional credentials such as FINRA-issued Series 7, 65, or 82 licenses
Once your documentation is reviewed and approved by a firm, you will be eligible to invest in unregistered securities that are not available to the general public.
Investment Opportunities for Accredited Investors
Becoming accredited grants access to exclusive investment opportunities not available to the general public. These include Pre-IPO investments, hedge funds, venture capital funds, private equity funds, and angel investing.
The SEC views these investment vehicles as complex and higher-risk. For example, hedge funds use strategies such as leverage and short-selling, which are considered more speculative than mutual funds. Because of this, the SEC requires investors to demonstrate a sufficient understanding of the associated risks before participating.
IPO CLUB offers a service to help you determine whether you meet the SEC’s accredited investor criteria.