How to become an accredited investor
Updated: September 06, 2024
While nearly anyone in the United States can invest in stocks, bonds, mutual funds, ETFs and other common investments offered through a brokerage account, the Securities and Exchange Commission (SEC) regulations restrict some investors from investing in what the SEC calls exempt offerings. These less-regulated investments often carry higher risks and minimum investment requirements than more commonly purchased stocks and funds.
If you want to learn more about becoming an accredited investor to access these sometimes lucrative investments, read on to learn how to become an accredited investor.
What is an accredited investor?
An accredited investor is someone defined by the SEC as an individual or household meeting specific financial or professional criteria, which the agency believes makes them suitable to invest in sometimes higher-risk offerings that are not appropriate for the general public.
If your income, net worth, professional licenses or job give you the ability to take on more significant risks or more adequately assess the risk of less-common investments, you may qualify as an accredited investor.
Learn more in our full article: What is an accredited investor?
Accredited vs non-accredited investor
Here’s a quick glance at some requirements and differences between accredited and non-accredited investors.
| Action | Accredited investor | Non-accredited investor |
|---|---|---|
| Can invest in unregistered securities | Yes | No |
| Considered financially stable by the SEC | Yes | Potentially |
| Considered able to take on additional financial risk by the SEC | Yes | No |
| Financial or job-related requirements | Yes | No |
| Can invest in registered stocks, bonds and funds | Yes | Yes |
How to become an accredited investor
If you want to become an accredited investor, the process is simple, but not always easy. You must reach a minimum net worth, annual income or professional investor requirements to qualify.
Even if you’re an accredited investor by definition, you may need to prove your status to investment companies. Here’s a look at the detailed requirements to become an accredited investor.
SEC accredited investor requirements
Here are the nitty-gritty details of what makes someone an accredited investor. Requirements can change occasionally, as they did in 2020.
Financial requirements
- Net worth. You're considered an accredited investor if you have a net worth of at least $1 million, not including your primary residence. Add the value of your bank and investment accounts to get an idea of your status based on net worth.
- Income. You're considered an accredited investor if you earned at least $200,000 last year as an individual or at least $300,000, including your spouse or partner’s income. You must also reasonably expect to earn at least the same amount this year.
Professional requirements
- Professional licenses. If you work in the investment industry and hold a professional license in good standing, you may qualify for accredited investor status. Allowed licenses are the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82).
- Investment company executives. If you work at a company offering securities and hold the title of director, executive officer or general partner, you are considered an accredited investor for the company’s securities, even if you don’t otherwise qualify.
- Family office. If a family office manages your funds, which makes you a family office client or family client, you are qualified as an accredited investor.
- Knowledgeable employees. If you’re a “knowledgeable employee” of a fund company, you can invest in those private funds even if you’re not an accredited investor through other qualifications.
Example of an accredited investor
Here's an example to better understand how someone becomes an accredited investor.
Let’s say Pat is single, works as an accountant and has these financial details:
- Cash in the bank: $100,000
- Retirement funds: $700,000
- Other investments: $200,000
- Home value: $500,000 (no mortgage)
- Annual income: $180,000
In this case, Pat’s annual income isn’t qualified as an accredited investor thorough income, as it’s below $200,000. But if you add up Pat’s cash and investments, they total $1.1 million, which makes Pat an accredited investor.
Can entities qualify as accredited investors or only individuals?
While we’ve been focused on individual investors and families, some entities can qualify as accredited investors. While not all businesses and organizations count as accredited investors, these qualifications make a business or nonprofit entity an accredited investor.
- Investment assets. If an organization holds at least $5 million in investment assets, it’s considered accredited and can invest funds in securities reserved for accredited investors. This applies to corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, employee benefit plans, “family offices” and any “family client” of that office.
- Accredited owners. If a small business is owned by one or more owners who are all accredited investors on their own, the entity is an accredited investor.
- Investment advisers. SEC-registered broker-dealers and licensed financial advisers are accredited.
- Financial entities. Banks, insurance companies, and some investment companies are considered accredited investors by the SEC.
What can you invest in as an accredited investor?
When you’re an accredited investor, you can buy into many less-traditional assets. Some include:
- Private real estate: Private real estate investments and funds operated by companies such as Fundrise, YieldStreet and AcreTrader.
- Private equity: Private equity funds buy and sell other businesses looking to earn a profit. Shares are typically reserved for accredited investors.
- Hedge funds: Hedge funds can take on riskier investments with less oversight than traditional mutual funds and ETFs, and they’re generally restricted to accredited investors.
- Venture capital and startups: Private companies are riskier places to invest than larger, established companies on the stock market. Venture capital funds and startups are typically available only for investments from accredited investors.
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Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.
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