Becoming an accredited investor allows individuals to access private investment opportunities that are typically unavailable to the general public. The designation is based on financial criteria set by the Securities and Exchange Commission (SEC), primarily focusing on net worth, income or professional certifications. Individuals can qualify by earning at least $200,000 annually ($300,000 for joint filers) or having a net worth exceeding $1 million, excluding a primary residence. Certain financial professionals and entities may also meet the requirements through their credentials or assets under management.

Whether you qualify as an accredited investor or not, a financial advisor can help you manage your investments and meet your financial goals.

What Is an Accredited Investor?

The accredited investor designation exists to identify investors who are presumed to have the financial sophistication and risk tolerance to participate in higher-risk, less regulated investments. Unlike publicly traded securities, private offerings often lack the same level of disclosure, making them less accessible to the general public.

Accredited investors gain access to opportunities such as:

Hedge funds
Venture capital funds
Private equity deals
Equity crowdfunding
Angel investing
Other private placements

So while the ordinary investor may have experience with investing in securities like stocks, bonds and mutual funds, the SEC sees alternative assets like hedge funds as entirely different animals. Accredited investors need to demonstrate they can understand the risks involved with these types of investments. Firms selling or offering access to unregistered products engage in their own screening process to verify an individual’s accredited investor status.

Requirements for Becoming an Accredited Investor

To claim accredited investor status, you must meet at least one of the following requirements:

Have a net worth exceeding $1 million individually or combined with a spouse or spousal equivalent (excluding the value of the primary residence)
Have earned income exceeding $200,000 ($300,000 if combined with a spouse or spousal equivalent) during each of the last two calendar years. The individual also must demonstrate credibly that they will at least maintain these income thresholds during the current year
Hold (in good standing) a Series 7, 65 or 82 license

However, it’s important to note one specific rule about that last bullet point: You must meet those income requirements based on the same method for all three years: single or joint.

So let’s imagine a married individual made $250,000 two years ago, but their spouse did not work. Last year, he made $160,000 and his wife earned $200,000 (totaling $360,000). The couple can easily demonstrate it has the capacity to earn the same amount or more this year.

The above example may make it seem like the couple met the requirements to become accredited investors. However, the pair did not calculate income using the same method for all three years. To gain accredited investor status, an individual must meet those thresholds for all three years either individually or with a spouse. The only exception applies if the individual was single and then married or vice versa during that three-year period.

There are also a few other non-traditional categories of accredited investors. These include:

Entities that are exclusively owned by accredited investors.
Entities with total investments of $5 million or more that weren’t formed to purchase the securities in question.
Trusts with total assets of $5 million or more that weren’t formed to purchase the securities in question. The trust must also be managed by a “sophisticated person,” meaning someone who has “sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investments,” according to the SEC website.

How Do Firms Determine If You’re an Accredited Investor?

An investor learns how to become an accredited investor.

In 2013, the SEC put out some guidelines to help firms confirm an individual’s accredited investor status. Those guidelines were expanded in 2020. So let’s say you want to invest in an unregistered fund. The firm that manages it may put you through a screening process before deciding whether you can legally invest. It may start with handing you a questionnaire to see if you meet certain qualifications. You can also expect to provide one or more of the following for evaluation:

Financial statements and details of other accounts
A credit report for confirming financial history
Tax returns
W-2 forms and other documents indicating earnings
“Knowledgeable employees” of the issuing fund
Professional certifications, designations or credentials administered by the Financial Industry Regulatory Authority (FINRA).

Regarding that last bullet point, an investor holding FINRA’s Series 7, Series 65 or Series 82 designations qualifies as an accredited investor.

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Who Can Be an Accredited Investor?

So far, we’ve discussed accredited investor requirements for individuals. However, certain entities can claim accredited investor status, as well.

The SEC defines accredited investors in Section 501 under Regulation D. The following entities that meet the requirements outlined in this document can claim accredited investor status:

Banks
Brokerage firms
Employer-sponsored retirement plans
Certain trusts
Registered Investment Advisor (RIA) firms
Limited liability companies with $5 million in assets
SEC- and state-registered investment advisers
Exempt reporting advisers
Rural business investment companies
Indian tribes, governmental bodies, funds and entities organized under foreign laws
Family offices with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act

Accredited Investor Exceptions

As mentioned above, the net worth requirement to claim accredited investor status excludes primary residence. The only exception to this rule applies if you have an underwater mortgage or a home equity line of credit (HELOC).

It’s also important to note that the Dodd-Frank Act introduced the primary residence exclusion. While certain provisions of Dodd-Frank were rolled back during the Trump Administration, the primary residence exclusion remains intact.

Bottom Line

A man researches how to become an accredited investor.

Individuals who want to become accredited investors must fall into one of three categories: have a net worth exceeding $1 million on your own or with a spouse or its equivalent; have earned an income surpassing $200,000 ($300,000 if combined with a spouse or its equivalent) during the last two years and prove an ability to maintain this income level; or possess certain credentials, certifications or designations as recognized by FINRA. As an accredited investor, you can invest in hedge funds and other unregistered securities not available to the general public.

Investing Tips

As you can see, accredited investors have special access to several complex investment products. If you’re venturing into this area of the investing world, a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you don’t qualify for claim accredited investor status, you still have access to a vast universe of investment options. Your options include equities, different types of bonds and real estate.