Pass One of These Tests and Meet the Accredited Investor Qualifications

The SEC has established specific criteria and rules that prospective investors in certain private unregistered securities must follow in order to meet the accredited investor qualifications. In December 2020, the SEC instituted new and revised regulations that open the door to even more people to qualify as accredited investors.

In order to become an accredited investor, you must pass one of two “tests” – the financial test or the knowledge test.

1. Pass the Financial Test
   The financial test involves either the income or net worth of the individual. One of the most common ways to qualify as an accredited investor is to have a net worth of more than $1 million USD (not including the value of the primary residence) or a yearly income in the last two years of over $200,000 USD (or $300,000 USD jointly with a spouse equivalent) with a reasonable expectation of making the same level of income in the current year. Regarding the net worth calculation, you may include any vacation homes or investment properties (that is not a primary residence) in the calculation provided you can verify your ownership and the valuation.
2. Pass the Knowledge Test
   The knowledge test includes two types – certain credentials and status as a knowledgeable employee. So, certain types of credentialing and employment can equate to you meeting the accredited investor qualifications.

The knowledge test is broken down into these categories:

• Knowledgeable Employees (only in private funds)
Employees of private funds can qualify as accredited investors, but only for the fund itself.. These employees with the title of partner, executive officer, director,function have an elevated position at a private fund or affiliate. These persons may be employees of private funds who have participated in their employer’s investment activities for at least a period of 12 months.

or

• Credentials and Certifications
Another way to meet the accredited investor qualifications by passing the knowledge test is to do so by obtaining specific professional certificates or credentials from an accredited institution such as Financial Industry Regulatory Authority (FINRA) – for instance, Series 7, 65, and 82 licenses. And they have to be in good-standing.

Once you obtain accredited investor status, you will be free to invest in private small businesses and startups, generate a diverse private investment portfolio, and have the opportunity to achieve more profitable returns.