Understanding Accredited Investor Criteria

Accredited investors are individuals or entities deemed to have the capacity to absorb the risk of investing in securities that are not regulated, as are publicly traded assets. There are specific accredited investor criteria an investor must meet to be considered accredited. They include:

  • A net worth greater than $1 million USD: The value of your net worth cannot include the value of your primary residence.
  • Sufficient income level: You can be considered an accredited investor if you have earned $200,000 USD as a single individual or $300,000 USD with a spouse or spousal equivalent for the previous two years and expect to make at least the same amount in the current year.
  • Investment advisers and registered brokers: If you can establish that you have sufficient experience or professional knowledge working with unregistered securities, you can be recognized as an accredited investor.

An accredited investor can be a business entity, including specific assets with a value greater than $5 million USD, and if all the business’s equity owners are accredited.

New Accredited Investor Criteria

The SEC has made some changes to its regulations regarding accredited investors. The SEC recognized that the initial rules benefited those with considerable wealth for investing in private markets and set aside individual and institutional investors with the knowledge and experience to invest in those markets.

Some of the SEC’s updated amendments regarding the accredited investor criteria are as follows:

Knowledgeable Employees

The SEC now permits individuals who are knowledgeable employees of private funds to obtain accredited investor status. This enables private funds to offer equity to employees no matter their net worth, including general partners, trustees, directors, presidents, vice presidents, and executive officers. Additionally, accredited investors can include employees who have participated in investment activities such as a private fund for a minimum of 12 months, excluding individuals whose work is exclusively secretarial, clerical, or pertains to administrative operations.

Professional Investors

Personal with particular professional certifications – specifically Series 82, 65, and 7 licensees now qualify for consideration as accredited investors regardless of their net worth or income

The new rules increased the types of businesses that qualify as accredited investors to include LLCs having at least $5 million in assets. This includes state- and SEC-registered investment advisers, with rural business investment (RBICs) and reported advisers exempted.

Additionally, family offices with a minimum of $5 million USD in assets under management and their family clients can qualify as accredited investors.

As someone who has met the accredited investor criteria, it is crucial to understand that the investments you may participate in may include more responsibility and risk. Make sure your financial situation and portfolio are sufficient to absorb any potential losses from your investments.