Perhaps you know that an accredited investor is a person or organization that’s permitted to trade securities that aren’t necessarily registered with financial authorities. This generally refers to shares that are not sold in the open market – to the public —but are instead issued by privately held enterprises and startup businesses. But do you know how to become an accredited investor, and what the difference is between one and a qualified purchaser? Continue reading for those answers and more.
Where Does the Term “Accredited Investor” Come From?
The Securities and Exchange Commission uses the term “accredited investor” under Regulation D when referring to financially sophisticated investors who have less need for regulatory disclosure filing protection. In addition to high-net-worth individuals, such investors mainly include brokers, trusts, insurance companies, and banks.
What is a Qualified Purchaser?
To govern which investors have access to specific investment opportunities, several regulatory classifications exist. Accredited investors and qualified purchasers are two of the most common. You already know what an accredited investor is, but what about a qualified purchaser?
Well, aqualified purchaser is a person or business that owns at least $5min investments, with the proviso that the term “investments” can’t include a main residence or any property that is utilized for business.
What’s the Difference Between a Qualified Purchaser and an Accredited Investor?
This is particularly important for all startup investors to know. For a qualified purchaser, the benchmark is not net assets, but investments. In the main, the key difference between the two classifications is that qualified purchasers are a classification for funds that seek to maximize their assets. On the other hand, accredited investors are classified for their ability to invest in specific kinds of assets, including private market securities.
What’s more, compared with the financial threshold that a qualified purchaser needs to reach, an accredited investor’s threshold is lower. Note that, for accredited investors, their threshold is assessed in terms of net worth and income, whereas a qualified purchaser’s threshold is measured in terms of investments.
How Can One Become an Accredited Investor?
To achieve accredited investor status, at least one of the requirements below must be met:
- An accredited investor must have specific professional designations or certifications or be deemed a private fund’s “knowledgeable employee.”
- An accredited investor must have a net worth of more than $1 million either individually or combined with a spouse, not counting the value of the main residence.
- During each of the last two calendar years, an accredited investor must have earned income of more than $200,000 — $300,000 if combined with a spouse or equivalent. In addition, the person must also show that those income thresholds will be maintained throughout the current year. Note that those income requirements must be met as a single or married person for allthree years.
As you now know, there are multiple ways to become an accredited investor, and you also know what classifies as qualified purchasers. To achieve either status, investors must be experienced and have the wherewithal to handle losses that potentially could be major. However, regulators in recent years have been beseeched to ease up on some of the standards to enhance the pool of individuals who are allowed to invest in certain opportunities.
At the same time, Yieldstreet already offers an array of investment strategies across a wide range of asset classes for which you only need a relatively small amount of capital to get started. Previously, such opportunities were available only to institutional and top-tier investors.You many want to consider seeing what Yieldstreet can do for you.