Do You Qualify as an Accredited Investor and Does It Matter?

Many more opportunities are promoted to Accredited Investors. Those that qualify are not even aware of the doors this opens or how to qualify.

Being an accredited investor opens up the new opportunities which are not available to the non-Accredited Investor.

Here are some examples:
  1. Private placements
  2. Real estate syndications
  3. Hedge funds
  4. Venture capital funds
  5. Private equity deals
  6. Equity crowdfunding
  7. Angel investing

With the ability to invest in alternative asset classes such as commercial real estate, private equity funds, or syndications that invest in commercial real estate is highly sought after.

Why?

Because alternative assets, like real estate, have proven to provide better risk-adjusted annual returns over time than the S&P 500.

That’s why qualifying as an accredited investor will avail new investment options to you, which previously were not.

Being an accredited investor not only opens up new doors of opportunities but also higher-quality investments, particularly in the alternative investment class.

What is an accredited investor, and why does it matter?

An accredited investor is an individual that meets one of the following criteria:
  1. Have a net worth exceeding $1 million individually or combined with a spouse (excluding the value of the primary residence).
  1. Or have earned income exceeding $200,000 ($300,000 if combined with a spouse) during each of the last two calendar years, with the reasonable expectation of maintaining these income thresholds during the current year.
Now that you know what an accredited investor, why does it matter?

It matters because the SEC sets the rules of who can and cannot sell and purchase securities via advertising or general solicitation. There are particular rules for securities that are not sold publicly on a stock exchange. Anyone can buy those stocks. Companies that sell on the NYSE, Nasdaq, or other public exchange, go through a rigorous and expensive process. All this to be able to go public and offer their securities through an IPO.

Many small and midsize companies can’t afford to go public, so the SEC provides a way for these companies to raise money through a private offering without the costly expense of an IPO. For a company to offer securities through a private offering, the SEC has established very strict rules surrounding the manner in which these private offerings are conducted to prevent fraud and to protect investors.

One of the ways the SEC protects investors is through accredited investor qualification.

The thinking is that individuals meeting the income or net worth requirements have the financial sophistication to understand and undertake risks and have the financial wherewithal to absorb a potential loss.

Although certain exemptions allow for a limited number of non-accredited investors to participate in a private offering, many companies avoid these exemptions. This is because of the heightened disclosure requirements, the requirement to provide audited financial statements and prohibition against advertising and general solicitation. That’s the appeal of being an accredited investor.

It opens up many more opportunities to invest in the alternative asset class because, with advertising, many of these opportunities come to you.

For a certain class of private offerings – ones that allow advertising – it’s not enough to claim accreditation status, but your status must also be verifiable. This is accomplished in one of two ways.

  1. Accreditation can be verified by a qualified, independent third party familiar with the Investor. Qualified parties include a CPA, attorney, or wealth adviser attached to a registered broker-dealer. These qualified third-parties can verify an investor’s accreditation status simply through a one-page letter. I prefer to use a CPA since they are already familiar with my financials.
  2. Verification can also be verified through a third-party commercial provider such as www.verifyInvestor.com and www.earlyiq.com. They will review personal documentation such as W-2s, tax returns, and account balance statements to ensure the satisfaction of the financial criteria for qualifying as an accredited investor.

While there are hurdles to qualification, the access to higher qualify investments with above-average returns is worth the effort.

Take control of your portfolio and invest with intention.

Kyle Jones

About the author

Investor, writer, speaker, and founder. Kyle Jones, key principal of TruePoint Capital, is accountable for investment decisions, asset management, and overseeing financial activities, operations, and investor relations. Kyle additionally is a Global Sales Leader for a large Fortune 100 technology company. Kyle received a Bachelor of Science degree from Texas State University – San Marcos.