What it is
An accredited investor is a person or entity that meets at least one of the definitions in SEC Rule 501(a) of Regulation D. The definition exists because certain private offerings are made without the registration and disclosure that public offerings include, so the rules limit who may take part in some of them.
For individuals, the rule has long included income and net worth tests: income above $200,000 individually, or $300,000 together with a spouse or spousal equivalent, in each of the two most recent years with the same expected this year. It also includes net worth above $1 million, either alone or together with a spouse or spousal equivalent, not counting the primary residence.
The August 2020 amendments added ways to qualify based on credentials and roles. These include holders in good standing of the Series 7, Series 65 or Series 82 licenses, and knowledgeable employees of a private fund for that fund's offerings. They also cover spousal equivalents, and entities such as certain trusts, corporations and family offices with over $5 million in investments or assets. Registered investment advisers and exempt reporting advisers are covered as well.
How it’s traditionally been approached
Traditionally, people have qualified through income or net worth. Some review their own records, such as tax returns, pay statements, and account and property statements, to see whether a test applies to them. Because qualifying is about facts rather than a choice, "becoming" accredited usually means that your circumstances meet a category in the rule.
Verification depends on the type of offering. Under Rule 506(b), the issuer may not use general solicitation, and may accept purchasers who self-certify, along with a limited number of non-accredited purchasers who meet other requirements. Under Rule 506(c), general solicitation is allowed, but all purchasers must be accredited and the issuer must take reasonable steps to verify that status.
Reasonable verification steps have often involved reviewing documents, or obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant. Practices vary, and each issuer decides what it needs within the rules. Some people hold a professional license that qualifies them directly, and others simply learn that they already fit a category.
How the right fund manager may help
The right independent fund manager or qualified professional may help you understand which Rule 501(a) category, if any, could apply to you, and what documents are commonly used to support it. A first conversation is often a general walk-through of your situation and of how private offerings work, rather than a specific recommendation.
You might ask: Which category might apply to me, and why? How is my primary residence treated in the net worth test? What does verification look like for a 506(b) offering compared with a 506(c) offering? What information would I be asked to share, and how is it kept private?
It can also help to ask about the risks of private funds, including limited liquidity, long holding periods, fees, and what documents you should read. Any offering is made only by the issuer through its own offering documents, and you should consult your own licensed attorney, tax professional and financial adviser before deciding anything.
The bigger picture
Money decisions are tied to how we feel. Wanting to qualify for something can create pressure, or a sense of being left out. Taking time to understand your finances, your comfort with risk, and your need for access to your money may bring more peace of mind than focusing on a label.
Qualifying is not a goal in itself, and not qualifying says nothing about your worth or your financial health. If stress about money is affecting your sleep, relationships or health, support from a counselor or other care professional, which you can find through Providers.plus, may be a helpful part of the picture.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results.
- This page is educational, not investment, legal or tax advice. Tax treatment, including how K-1s or Section 1202 (QSBS) may apply, depends on individual circumstances, so consult your own licensed advisers.
- The Hastings Fund is an independent directory. It is not a broker-dealer, funding portal or investment adviser, and it does not recommend, endorse or rank investments. Nothing here is an offer to sell or a solicitation of an offer to buy any security.
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Create an investor account →Frequently asked questions
How do you become an accredited investor?
You qualify by meeting at least one category in SEC Rule 501(a), such as the income test, the net worth test, or holding a Series 7, 65 or 82 license in good standing. Entities and family offices can qualify too, for example with over $5 million in investments or assets. Which category fits depends on your facts, so check with a licensed professional.
What is the income requirement to be an accredited investor?
The income test is more than $200,000 individually, or more than $300,000 together with a spouse or spousal equivalent, in each of the two most recent years, with a reasonable expectation of the same in the current year. This is one of several ways to qualify, and you only need to meet one.
What is the net worth requirement to be an accredited investor?
The net worth test is more than $1 million, alone or together with a spouse or spousal equivalent, excluding the value of your primary residence. Your own situation, including how debts are counted, is best reviewed with a qualified accountant or attorney.
Can I become an accredited investor without high income or net worth?
Yes, in some cases. Since the August 2020 amendments, people who hold Series 7, Series 65 or Series 82 licenses in good standing can qualify, as can knowledgeable employees of a private fund for that fund's offerings. These are specific categories, so confirm whether one applies to you.
How is accredited investor status verified?
It depends on the offering. Under Rule 506(b), issuers do not use general solicitation and may rely on self-certification. Under Rule 506(c), general solicitation is allowed, all purchasers must be accredited, and the issuer must take reasonable steps to verify, which may include reviewing documents or a letter from a registered professional.
Is being an accredited investor the same as being a good fit for a private fund?
No. Qualifying only means you meet a legal definition. Private fund investments are speculative and illiquid and can lose all of their value, so suitability depends on your goals, finances and risk tolerance. Consult your own licensed advisers.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.