Accredited investors may participate in certain unregistered securities offerings. Individuals with sufficient income, net worth, and other requirements can access investment products not available to some retail investors.
The U.S. Securities and Exchange Commission (SEC) seeks to protect unsophisticated investors from potentially risky and opaque products. Unregistered securities are thought riskier than traditional assets like stocks, bonds, ETFs and mutual funds. Those wishing to own unregistered securities should work with an experienced financial advisor so that all the risks are understood.
Accredited Investors Have the Access
These risky assets offer high-net-worth individuals the chance to grow their wealth quickly. A significant risk of extreme downside exists, however. Hedge funds, private equity products, venture capital, and crowdfunding activities are just some of the common products available to accredited investors. Unregistered securities also typically feature high minimums, many disclosures, big fees, and a lack of liquidity.
What Does “Accredited Investor” Mean?
According to the SEC, an accredited investor includes anyone who:
- Has an income above $200,000 (or a couple earning more than $300,000) in each of the past two years and expects to earn that amount in the current year
- Has a net worth of over $1 million on their own or with a spouse. It is important to know that your primary residence does not count toward that figure.
- Is a financial professional in good standing with a Series 7, 65, or 82 license. FINRA licenses require passing an exam and often go along with working for an investment firm. (Source: Investor.gov)
- Fits one of the categories the SEC added in 2020, such as a “spousal equivalent” who can pool assets and income with a partner, a “knowledgeable employee” of a private fund, or certain family offices and entities with more than $5 million in investments
Other categories of accredited investors include trusts, companies, and private funds. The SEC simply wants to help ensure that the investor or entity has sufficient knowledge and experience in analyzing prospective investments. In today’s landscape of elevated stock market valuations and low bond yields, there’s growing interest in tapping different investment choices.
There Are More Accredited Investors Today
The financial requirements listed above have not changed in decades. Hence, there are now more accredited investors. Moreover, there’s an increased count of licensed securities representatives today versus decades ago. Growth in registered investment advisory firms (RIAs) also means more individuals are accredited. According to a December 2023 SEC staff report, about one in five U.S. households qualified as accredited investors as of 2022, up from fewer than 2% in 1983.
How Accredited Investors Fit In
Accredited investors play a key role in today’s capital markets. High-net-worth investors finance startup activities like new business formation and are sometimes angel investors. The SEC wants to create a financial environment conducive to capital expansion. Thus, high-risk entrepreneurial ventures need investors who have a high ability and willingness to take risks.
The Process of Becoming Accredited
What’s interesting about the accreditation process is that the responsibility is on a firm to verify the status of its investors. Individuals interested in proving their status usually must complete questionnaires asking for specific financial documents.
A person’s income statement and balance sheet are typical pieces of information needed to confirm that they meet the net worth and income requirements. A credit report is often disclosed too. Individuals and entities should also expect to disclose annual tax returns and other forms. Finally, anyone employed in the securities industry must prove their licensing status. An unregistered security can be sold once all this information is provided. Performing independent research is still a prudent move to ensure you know what you’re getting into.
Knowing Your Accredited Investor Status
Income is quick to find since it is listed on your tax return each year. It is tougher to accurately determine your net worth. It might also be easier to have more than $1 million in net worth than to earn such a large income in a single year. The SEC explicitly states that an investor’s net worth must be above $1 million at the time of the sale of unregistered securities. Your net worth is all assets minus all liabilities (not including your primary residence). Also, a mortgage or other loan on the primary residence does not count as a liability up to the fair market value of the residence, per the SEC.
Assets included in the calculation are bank accounts, 401(k) and IRA accounts, and other investments. Common liabilities are student debt and auto loans, any amount of underwater mortgage, and home equity lines of credit. So long as the positive difference between the sum of your assets and liabilities is greater than $1 million, you meet the net worth requirement.
Conclusion
Companies seeking to bypass cumbersome SEC registration can offer unregistered securities to accredited investors. An accredited investor can access potentially high-risk, high-return investments that can also diversify a portfolio of typical stocks and bonds. The onus is on the firm to perform due diligence on its investors. Since there are more accredited investors than ever before, working with a financial advisor is critical to ensuring that proper due diligence is performed on unregistered securities.
Frequently Asked Questions
What are the requirements to become an accredited investor?
An individual generally qualifies by meeting one of three tests: income above $200,000 (or $300,000 with a spouse or spousal equivalent) in each of the last two years with a reasonable expectation of the same this year; net worth above $1 million, alone or jointly, excluding your primary residence; or holding a Series 7, Series 65 or Series 82 license in good standing. Certain insiders of the issuing company, knowledgeable employees of a private fund and family clients of a qualifying family office can also qualify. There is no application or certificate; status is confirmed for each offering you invest in.
Does my home count toward the $1 million net worth test?
No. The value of your primary residence is excluded from the net worth calculation. A mortgage on that home is also excluded as a liability up to the home’s fair market value, but any amount owed above the home’s value counts against your net worth. Second homes, rental properties and other investments do count as assets.
Can I combine my income or assets with my spouse or partner?
Yes. You can use joint income of more than $300,000 in each of the past two years, or a combined net worth above $1 million excluding your primary residence. Since 2020, the SEC also allows a spousal equivalent, meaning a cohabitant in a relationship generally equivalent to a spouse, to be counted the same way. The assets do not have to be held jointly for the net worth test.
How do I prove I am an accredited investor?
It depends on the offering. In many private offerings you can self-certify by completing a questionnaire, but in offerings that are publicly advertised under SEC Rule 506(c), the issuer must take reasonable steps to verify your status. Verification often means reviewing tax returns or W-2s for the income test, brokerage and bank statements plus a credit report for the net worth test, or a written confirmation from your CPA, attorney, registered investment adviser or broker-dealer.
Is the SEC changing who qualifies as an accredited investor?
The income and net worth thresholds have not changed since the 1980s, but the SEC expanded the definition in 2020 to include certain securities license holders, knowledgeable employees, spousal equivalents and family offices. In September 2026 the SEC requested public comment on possible new credential-based pathways, such as the CFA, CFP and CPA designations and a new FINRA exam, but no new credential has been approved yet. Congress has also considered bills to add test-based pathways, and none has become law as of November 2026.
About the author
Contributing Writer, Wealthtender
Mike is a freelance writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program.