To qualify as an accredited investor, an individual must meet certain requirements as laid out by the SEC, allowing that investor to invest in regulated securities – hedge funds are just one example. The question may be asked as to whether someone can apply to be an accredited investor. We will answer the questions later below.
SEC Criteria to Obtain Accredited Investor Status
In the meantime, here are the various SEC criteria to meet that will qualify you as an accredited investor.
- Having an earned income greater than $200,000 USD individually or $300,000 USD jointly with a spouse or spousal equivalent over the previous two years, with the reasonable expectation of earning the same or more in the current year; or
- Possessing a net worth of more than $1 million USD, individually or with a spouse or spousal equivalent jointly, excluding the value of your primary residence.
Or, meeting any of the following criteria:
- Serving as a general partner, director, executive officer, member of an advisory board, or in another related capacity of the issuer or affiliated management person; or
- Functioning as a knowledge employee in a private securities fund.
- Holding a Series 7, 65, or 82 licenses in good standing.
Fulfilling any of the criteria above tells the SEC that you have the required financial resources, know-how, and tolerance for risk when it comes to investing in minimally-regulated investment opportunities.
The Accredited Investor Verification Process
The SEC does not issue a certification that declares someone an accredited investor. Neither can you apply to be an accredited investor with the SEC or any other organization. To obtain accredited investor status, you must simply meet one of the criteria established by the SEC and obtain accredited investor verification.
Rule 506(c) of SEC regulations requires the issuer of a securities offering to verify that an individual qualifies as an accredited investor. This means the issuer is required to perform “reasonable steps” to verify the prospective investor’s status.
Rule 506(c) offers a solution to the complexities and excessive time involved in taking “reasonable steps” through the process of a third-party verification method.
Instead of performing a manual review of the documents submitted by the investor, the issuer can work with third-party verification services that will provide a letter to the issuer attesting to the accredited status of the investor. The issuer can utilize the letter as a “safe harbor” long as the person providing the letter is one of the following:
- Registered investment adviser
- Register broker-dealer
- Certified public accountant
- Licensed Attorney
The SEC does not provide specific requirements for what the investor verification letter should look like. However, it should typically include information indicating the test the investor passes, how the signer of the letter qualifies to evaluate the investor’s qualifications, and the date of the review.
With that said, since no one needs to apply to be an accredited investor, but only fulfill the established SEC criteria, a prospective investor can seek the optimum pathway to qualify as an accredited investor.
