To obtain accredited investor status, it is necessary to fulfill specific net worth or income requirements determined by the Securities and Exchange Commission (SEC). You must also persuade investment firms of your financial qualifications to invest in certain securities offerings. Below we explain the process of how to get accredited investor status.
Accredited Investor Requirements
To qualify for accredited investor status as an individual, you must fulfill one of the following requirements:
- Earn an income in excess of $200,000 USD per year ($300,000 USD with a spouse) in each of the two previous calendar years, with the expectation that the income level will be maintained within the current year.
- Possessing a net worth in excess of $1 million USD as an individual or with a spouse, not including the value of the primary residence. Those with underwater mortgages or home equity lines of credit (HELOC) are not subjected to this requirement.
It is important to note that the income requirements mentioned above must be met using the same method for each of the three years, as single or joint.
Verifying Accredited Investor Status
Is there formal training or testing in the process of how to get accredited investor status? The answer is no. To obtain this status, there is also no certification exam to take. No particular agency provides this status to an investor. Also, there is no document provided that confirms you as an accredited investor.
Instead, companies that sell unregistered securities perform their own screening process to verify whether an individual qualifies as an accredited investor.
You may be handed a questionnaire to find out if you meet particular qualifications for accredited investor status. You will likely have to provide the following documents as part of your evaluation:
- Credit report revealing your liabilities
- W-2 forms and/or other documents showing your earnings
- Tax returns
- Financial statements and documents about other accounts
Who or What Qualifies as an Accredited Investor?
Individuals may qualify as mentioned above, but some entities may qualify as well.
Under Regulation D, Section 501, the SEC defines accredited investors. The entities that may meet the requirements of an accredited investor include certain trusts, brokerage firms, banks, registered investment advisor (RIA) firms, and employer-sponsored retirement plans.
In some instances, individuals can purchase unregistered securities if they are able to demonstrate education or experience in the financial markets, particularly associated with unregistered securities.
The answer to how to get accredited investor status explained above is just the beginning step in potentially participating in a new marketplace of potentially highly profitable investments you have never had access to before.