What Is An Accredited Investor?
An accredited investor is a person or entity that meets certain criteria defined by the SEC. They are considered to be sufficiently knowledgeable or possess enough financial means to be able to take on more complicated, risky, and illiquid investments.
How Do You Become An Accredited Investor?
- What you have
- A net worth exceeding $1M, excluding any equity in your primary residence
- This can be $1M individually, or a combined net worth for married couples
- What you make
- An individual income of at least $200,000 in each of the last two years
- For married couples, a combined income of $300,000 for the two prior years
- Both individuals and married couples must also have a reasonable expectation to be able to continue earning at these levels in the future
- What you know
- You are an investment professional with a qualifying type of license
- Alternatively, for specific opportunities meet certain special criteria for knowledge of the company or investment fund
- $5M+ of investments
- Specific types of entities, such as an LLC, with $5M+ of assets
- All owners of the entity are accredited
- Broker-dealers registered with the SEC or other qualifying or exempt investment advisors
- A specific type of financial entity from a qualified list
How Do You Prove You’re An Accredited Investor?
What you need to provide will vary based on the platform. In some cases, an investment platform will allow you to self-certify that you are accredited. That is the simplest method. In other cases, companies will require more proof.
Some platforms will allow you to upload documents like W2s, 1099s, and other income-related tax forms directly to them. After you have uploaded the documents, they will review them, verify that you meet the criteria, and grant access. Other platforms will only accept an Accreditation Verification Letter from a reputable third-party.
Parallel Markets is one of the easiest ways to get an Accreditation Verification Letter. In our experience, everyone has accepted the letter from Parallel Markets for verification.
Why Become An Accredited Investor?
The simple answer is to have more opportunities.
As you can see from our growing list of alternative investment platforms, some platforms only allow accredited investors to use the platform. In fact, we do not know of a single platform that allows non-accredited investors to make fractional investments in farmland. That’s an entire asset class that’s off-limits unless you’re accredited!
Additionally, many platforms support both types of investors. Some opportunities are available to non-accredited investors, while others are exclusive to accredited investors.
An example of this would be Republic. This equity crowdfunding platform contains a regular flow of deals for the unaccredited. However, they also have their “Deal Room” with private opportunities for accredited users. Accredited investors on the platform are also not subject to the investment limits of their non-accredited counterparts.
Conclusion
While it is a high bar to meet, it is worthwhile to strive to become an accredited investor. Doing so will open up more opportunities to invest in the vast world of alternative assets.
If you already meet the criteria to become accredited, Parallel Markets, or another similar service, is an easy way to get a verification letter. That letter is the simplest way to verify your accreditation across multiple platforms and start making new investments.
