Accredited Investors

An accredited investor is defined under Rule 501(a) of the Securities Act of 1933 as someone who meets one or more of the following criteria:
Income: An individual who has had an income exceeding $200,000, or $300,000, together with a spouse or spousal equivalent, for the past two years and expects the same for the current year.

• Net Worth: An individual with a net worth over $1 million, alone or with a spouse or spousal equivalent, excluding the value of their primary residence. 
• Professional Credentials: Possession of a Series 7, Series 65, or Series 82 license in good standing, which are credentials issued by FINRA that denote a deep understanding of various financial securities and regulations.
• Sophisticated Trusts: Trusts with assets in excess of $5 million that were not formed specifically to purchase unregistered securities. These trusts must be guided by someone with sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.

These criteria ensure accredited investors have the financial capacity and/or knowledge necessary to engage in transactions involving complex and potentially higher-risk investments, such as private placements. The standards aim to protect individuals by confirming they possess the experience or resources needed to understand and handle the potential consequences of their investment decisions.

What securities require accreditation?

Investors must meet either accredited investor or qualified buyer status in order to invest in certain securities. Below are securities that generally require this status:

• Hedge funds
• Private equity investments
• Private Credit investments
• Convertible securities
• Private Real Estate funds
• Equity crowdfunding
• Venture Capital funds 
• Collectibles

What Securities Require Accreditation?

At Friends Wealth Management, we help clients navigate the complex landscape of investment opportunities that require either accredited investor or qualified buyer status. These special statuses are essential for engaging in investments not generally accessible to the public. Here are some of the key types of securities that typically require these qualifications:

• Hedge Funds: These funds use varied and complex strategies to invest in and trade financial instruments. They are often only open to accredited investors due to their risk, complexity, and potential for significant returns.
• Private Equity Investments: These involve capital investment made into companies that are not publicly traded. Accredited investor status is typically necessary due to the size of the investments and the level of risk involved.
• Convertible Securities: These are bonds or preferred stocks that can be converted into a predetermined number of common stock or equity shares. The complexity and risk associated with these securities generally require an investor to be accredited.
• Private Real Estate Funds: These funds invest in various real estate properties and are not usually available to the general public. They require investors to be accredited, owing to the large capital outlays and the sophisticated nature of the investments.
• Equity Crowdfunding: This newer form of investment allows investors to engage in early-stage funding of startups through online platforms. Certain types of equity crowdfunding offerings are restricted to accredited investors because they can carry significant risk.
• Venture Capital Funds: Investors in these funds provide capital to start-up companies with high growth potential. Due to the high risk and long-term commitment involved, these funds usually require investors to be accredited.

Understanding the accreditation requirements can enhance your investment strategy and open up a broader spectrum of investment opportunities. At Friends Wealth Management, we provide the guidance necessary to assess whether these investment options align with your financial goals and risk tolerance, and access to strategies and management teams who specialize in Alternative Investments.