What Is a Non-Accredited Investor?
A non-accredited investor isany investorwho does not meet the income or net worth requirements set out by the Securities and Exchange Commission (SEC). The concept of a non-accredited investor comes from the various SEC acts and regulations that refer to accredited investors.
An accredited investor can be a bank or a company but is mainly used to distinguish individuals who are considered financially knowledgeable enough to look after their own investing activities without SEC protection. The current standard for an individual accredited investor is a net worth of more than $1 million excluding the value of their primary residence or an income of more than $200,000 annually (or $300,000 combined income with a spouse).
A non-accredited investor, therefore, is anyone making less than $200,000 annually (less than $300,000 including a spouse) that alsohas a total net worth of less than$1 million when their primary residence is excluded.
On August 26, 2020, the U.S. Securities and Exchange Commission amended the definition of an accredited investor. According to the SEC's press release, "the amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth.The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify." Among other categories, the SEC now defines accredited investors to include the following: individuals who have certain professional certifications, designations or credentials; individuals who are “knowledgeable employees” of a private fund; and SEC- and state-registered investment advisers.
Understanding Non-Accredited Investors
Non-accredited investors make up the bulk of investors in the world. When people speak of retail investors, they often mean non-accredited investors. Basically, this term covers everyone that holds less than $1 million in assets, aside from the value they may have in their house, and earns under $200,000,i.e., the vast majority of Americans.
Key Takeaways
- A non-accredited investor is any investor who does not meet the income or net worth requirements from the Securities and Exchange Commission (SEC).
- Non-accredited investors are anyone who makes less than $200,000 annually ($300,000 including a spouse) with a total net worth of less than $1 million when their primary residence is excluded.
- The SEC regulates what a non-accredited investor can invest in and what those investments need to provide in terms of documentation and transparency.
Even though those numbers are not as far away as when the definition was set, accredited investors are still in the 95th percentileaccording to 2015 statistics from the U.S. Census Bureau. The SEC does have the ability to change the definition of accredited investor should inflation and other factors result in too much of the general population meeting the standard.
Non-Accredited Investors and Private Companies
Non-accredited investors are limited in their investment choices for their own safety. After the speculation around the 1929 Crash and the resulting depression, the SEC was created to protect regular people from getting intoinvestments they couldn't afford or understand.
The SEC uses acts and regulations to set out what a non-accredited investor can invest in and what those investments need to provide in terms of documentation and transparency. Private funds, private companies, and hedge funds can do things with investor money that mutual funds cannot simply because they deal primarily with accredited investors.
The SEC assumes that all parties involved know the risks and rewards involved, so they have a lighter regulatory touch where these funds are concerned.
That said, these funds must pay close attention to their compliance and make sure their investor counts stay within the rules becausethey can losetheir regulation status. For some types of private investment, they are only allowed non-accredited investors when they are employees or fit a specific exemption.
Other funds and companies can have unrelated non-accredited investors, but they must keep the number below a certain level. This is the case with Regulation D, which keeps the number of non-accredited investors in a private placement below 35.
FAQs
What Is a Non-Accredited Investor? A non-accredited investor is any investor who does not meet the income or net worth requirements set out by the Securities and Exchange Commission (SEC). The concept of a non-accredited investor comes from the various SEC acts and regulations that refer to accredited investors.
Who is an accredited investor under SEC rules? ›
To qualify as an accredited investor, you must have over $1 million in net worth, or more than $200,000 in earned income in the past two calendar years, with the expectation of the same earnings. Financial professionals with Series 7, 65 or 82 licenses also qualify.
Has the SEC changed the definition of accredited investor? ›
On August 26, 2020, the U.S. Securities and Exchange Commission (“Commission”) adopted amendments to the definition of “accredited investor” under the Securities Act of 1933 (“Securities Act”).
What are the restrictions for non-accredited investors? ›
Nonaccredited investors have less than $1 million in assets, outside of their primary residence, and an annual income below $200,000. They make up the clear majority of potential investors. The SEC limits investment choices for unaccredited investors to protect people from getting into investments over their heads.
What is the difference between an accredited investor and an eligible investor? ›
Being eligible means you can invest a certain amount in the Exempt Market. To be considered an “accredited” investor, you still have to meet one or more similar types of requirements as above, but they are considerably higher. – In this case, your financial assets, not net assets, have to be greater than $1 million.
Who is an accredited investor under the SEC rule 501? ›
For most cases, an Accredited Investor is an individual whose income is over $200,000/year (for single persons) or $300,000/year (for married couples) or has a net worth over $1,000,000 not including equity in their principal residence.
How do you prove an investor is accredited? ›
Verified Investor: How to Prove you are an Accredited Investor?
- Bank and brokerage statements.
- Evidence of an IRA.
- Credit report.
- A letter from a CPA, lawyer, registered broker-dealer, or registered investment advisor.
- Tax returns or W2 forms.
A non-accredited investor is any investor who does not meet the income or net worth requirements set out by the Securities and Exchange Commission (SEC). The concept of a non-accredited investor comes from the various SEC acts and regulations that refer to accredited investors.
What happens if an investor is not accredited? ›
Non-accredited investors are limited by the SEC from some investment opportunities for their own financial safety. The SEC also set regulations on the disclosure and documentation of the investments available to the investors. For example, non-accredited investors are eligible to invest in mutual funds.
Can non-accredited investors invest in Reg A? ›
Regulation A+ offerings have different investment limits for different investor types as well. There are no limits to how much accredited investors can invest in Reg A/A+ offerings, while non-accredited investors can invest up to 10% of their net worth or annual income per offering, whichever is greater.
Requirements of Rule 506
While Rule 506 is one of the most common methods of private placement because there is no cap on how much the issuer can offer, the issuer must meet several restrictions: Securities may not be sold to more than 35 non-accredited investors.
Do non US investors need to be accredited? ›
No, you do not have to be accredited, but we do require all foreign investors to use a US bank account and complete either a W-8BEN or W-8BEN-E form.
Can hedge funds accept non-accredited investors? ›
You generally must be an accredited investor, which means having a minimum level of income or assets, to invest in hedge funds. Typical investors include institutional investors, such as pension funds and insurance companies, and wealthy individuals.
What is the difference between accredited and non-accredited? ›
Bulletins - Accredited vs Unaccredited: What is the difference? An accredited course will have been developed to a set of regulated standards and will have received regulated approval. An unaccredited course will be developed by a company or individual without approval against regulated standards.
What is the difference between accredited and non-accredited investing? ›
An accredited investor has to meet certain income or net worth requirements to invest in certain investments non-accredited investors don't have access to. While I don't consider myself the king of investing, I have been around the block a few times.
What counts towards being an accredited investor? ›
In the U.S., an accredited investor is anyone who meets one of the below criteria: Individuals who have an income greater than $200,000 in each of the past two years or whose joint income with a spouse is greater than $300,000 for those years, and a reasonable expectation of the same income level in the current year.
What qualifies someone as an accredited investor? ›
In the U.S., an accredited investor is anyone who meets one of the below criteria: Individuals who have an income greater than $200,000 in each of the past two years or whose joint income with a spouse is greater than $300,000 for those years, and a reasonable expectation of the same income level in the current year.
How do I become an accredited investor UK? ›
have an annual income in excess of £100K or. have net assets in excess of £250K beyond your pension fund assets and your private residence.
What is the legislation for accredited investors? ›
H.R. 1579 would expand the definition of an accredited investor under the Securities Act of 1933 to include individuals with certifications, designations, or credentials that the Securities and Exchange Commission (SEC) determines are in the public interest.
Is an accredited investor under Rule 501 of Regulation D of the securities Act? ›
The federal securities laws provide companies with a number of exemptions. For some of the exemptions, such as Rule 506 of Regulation D, a company may sell its securities to what are known as accredited investors. The term accredited investor is defined in Rule 501 of Regulation D.
