How to become an accredited investor

If you’re seeking access to high-risk, high-reward investment opportunities in private equity, startups, or hedge funds, you’ll need to learn how to become an accredited investor. Achieving accredited investor status allows you to participate in these exclusive markets, as it enables you to invest in financial products not available to the general public.

In this article, we’ll explore how to become an accredited investor, outline the key steps involved, and discuss alternative paths for qualifying even if you don’t meet the standard financial thresholds of $200,000 in annual income or /;[a $1 million net worth. For more details on the definition and criteria, refer to the official accredited investor guidelines from the SEC. And be sure to read our article on the 2020 accredited investor change for information on how recent regulatory updates have changed the investment landscape.

What is an “accredited investor”?

Accredited investors are individuals or entities who meet specific financial criteria that grant them exclusive access to private securities and investment opportunities not registered with the Securities and Exchange Commission (SEC). Understanding how to become an accredited investor is essential for those seeking to invest in high-potential, non-public assets. These investment vehicles are not available to the general public and include:

• Venture capital funds
• Hedge funds
• Private equity deals
• Private placements
• Angel investments

Because these types of investments are not registered with the SEC, they do not offer the same protective requirements for investors, such as mandated quarterly reporting and disclosure obligations. To participate, individuals must either possess sufficient knowledge to assess risks independently or have a level of capital that allows them to withstand potential losses. This is a core reason why the SEC established the accredited investor qualification in the Securities Act of 1933, which sets strict financial benchmarks that most individuals do not meet.

The purpose of the accredited investor requirements is to protect less experienced or less wealthy investors from the inherent risks of unregulated investments. However, these requirements can also act as a barrier for knowledgeable individuals who do not meet the income or net worth thresholds but wish to access these investment opportunities. When learning how to become an accredited investor, it’s important to note that accreditation status is a key factor firms evaluate during their screening process to verify eligibility for private investments.

Along with individual investors, several types of entities can also achieve accredited investor status, including:

• Registered Investment Advisor (RIA) firms
• Banks
• Brokerage firms
• Trusts
• SEC- and state-registered investment advisors
• Governmental bodies, entities, and funds organized under foreign laws

If you want to learn how to become an accredited investor, you must satisfy one or more of the SEC’s accredited investor requirements detailed below.

Accredited investor requirements

To qualify for accredited investor status, you must satisfy one of the following requirements:

Financial criteria

• Net worth that exceeds $1 million, excluding the value of your primary residence (individually, or with a spouse or partner)
• Income over $200,000 per year individually, or $300,000 per year with a spouse or partner, in each of the prior two years, and a reasonable expectation of the same for the current year

Do you meet the financial criteria? Congratulations! You qualify as an accredited investor.

There is a common misconception that there is a “process” to become an accredited investor that is handled by a government body or independent agency, but that is not the case. Instead, an investor’s credentials are reviewed by the individual companies offering the securities, and if you meet the requirements, you qualify for that transaction.

If you don’t qualify via the financial criteria, there are a number of professional criteria options that they can pursue.

Can you become an accredited investor without meeting income requirements?

Yes. The 2020 amendment to the accredited investor definitions expanded the ways individuals can qualify as accredited investors beyond traditional financial requirements. Notably, holding certain professional licenses, including the Series 65 license, now grants accredited investor status. These licenses are distributed by the Financial Industry Regulatory Authority, or FINRA, and often have their own eligibility requirements. Here are some of the recognized paths:

• Hold a FINRA Series 7, FINRA Series 65 (often referred to as the Series 65 license), or FINRA Series 82 license in good standing
• Act as a director, executive officer, or general partner of the company offering the securities
• Qualify as a “family client” of a “family office” that is itself an accredited investor
• Be categorized as a “knowledgeable employee” of a private investment fund
• Participate as a member in an investment entity that owns “investments” valued above $5 million and was not solely created for investing in the current offering

If you do not meet the typical net worth or income thresholds for accredited investor status, satisfying licensing qualifications can be the most straightforward path to achieving accredited investor recognition without substantial assets. The Series 65 license is especially accessible, since you can take the Series 65 exam without sponsorship from a FINRA-member firm (unlike the Series 7 exam). Below, we explain how you can achieve accredited investor eligibility by obtaining your Series 65 license.

How to become an accredited investor through a Series 65 license

Pass the Series 65

The Series 65 license is a key certification for professionals pursuing a career as an investment advisor representative in the financial services industry. The Series 65 exam, administered by FINRA, is a comprehensive test that evaluates your knowledge of investment principles, regulations, and ethics. The exam fee is $187. Candidates must complete 140 questions, 130 of which are scored and 10 that are experimental, within a three-hour time limit. To earn your Series 65 license, you need to achieve at least a 72% score (94 out of 130 correct answers). For a detailed breakdown and full overview of the Series 65 exam structure and requirements, visit our complete Series 65 exam guide.

A quick recommendation: Achievable’s Series 65 course stands out as the top choice for preparing for the Series 65 exam, especially for individuals without a formal background in finance. Our course material is designed to make complex investment concepts accessible, using real-world examples and straightforward explanations. Preview the Series 65 course for free to determine if it aligns with your study needs.

It’s important to note that simply passing the Series 65 exam does not automatically grant you accredited investor status. To fully obtain your Series 65 license and become an investment advisor representative in good standing, you must also meet additional licensing requirements. This includes becoming licensed as an investment adviser representative (IAR) with either your state’s securities regulator or the SEC at the federal level. You will need to fulfill all regulatory obligations, such as registration and applicable fees. This licensing process involves two main steps:

1. Join an existing registered investment adviser (RIA) firm or register your own RIA firm.
2. Register yourself as an investment advisor representative (IAR) affiliated with that RIA.

These steps ensure you are fully compliant and officially recognized as a licensed investment advisor representative after passing the Series 65 exam.

Join, or create your own, registered investment adviser (RIA) firm

To become an IAR and secure accredited investor status, you must complete the Uniform Application for Securities Industry Regulation, commonly called Form U4, through the FINRA Gateway. Only RIA firms are authorized to file Form U4s for individuals, which means you need to be affiliated with an existing RIA firm or take steps to start your own registered investment advisory firm for the purpose of registration.

If you’re already associated with a registered investment adviser, their compliance or registration department will typically assist you after you’ve completed Form U4. This streamlined process means you’re nearly finished once the form is submitted.

Conversely, if your goal is to become an investment adviser representative and gain accredited investor status without joining an existing RIA, you’ll need to learn how to start a registered investment advisory firm independently. Establishing your own RIA is essential for those seeking direct registration as an IAR without firm affiliation.

How to start your own Registered Investment Adviser (RIA) firm

1. Incorporate your business

First, to understand how to start a registered investment advisory firm, you must establish and incorporate your new RIA business. Industry experts commonly recommend forming your firm as either an S-Corporation (S-Corp) or a Limited Liability Company (LLC). This approach helps protect your personal assets from liabilities associated with your registered investment advisory firm’s operations. While liability concerns may be less significant if your main goal is simply to qualify as an accredited investor, forming an LLC still offers meaningful tax advantages over operating as a Sole Proprietorship. Remember, regardless of which corporate structure you select for your RIA, you will not be insulated from enforcement actions if you violate the law.

2. Register with the SEC or your state

After successfully passing your FINRA Series 65 exam, the next crucial step in how to start a registered investment advisory firm is choosing how you’ll register your RIA business. You can elect to register as an investment advisory firm at the federal level with the SEC, or at the state level with your local state regulatory authority.

It’s important to understand that starting a registered investment advisory firm is a complex and essential process before entering this highly regulated field. Many aspiring RIA owners work with experienced consultants during this phase, although even with expert assistance, initial RIA registration commonly takes 2 - 3 months. Be prepared for these typical costs when you register:

• Forming a company: ~$250
• Initial RIA Firm regulatory fees plus annual state filing: ~$250 (varies by state)
• Individual Adviser Representative (IAR) fees: ~$100 per employee, including yourself

If your goal is limited to forming an RIA firm just for accreditation, your needs will be relatively minimal. However, if you plan to operate as an investment adviser serving clients, you must equip your new RIA business with certain infrastructure required to start a registered investment advisory firm. These include domain names, computers, client billing software, marketing tools, CRM solutions, compliance reporting, and more.

Once your foundation is established, you’re ready to officially register your new RIA firm with regulatory authorities.

2.1. Registering federally with the SEC

If you’re considering how to start a registered investment advisory firm at a federal level, registration with the SEC is typically available only to firms that manage at least $100 million in assets under management (AUM), or those who qualify via the SEC’s “internet investment advisers” exemption (Rule 203A-2(f)). To initiate this process and comply with requirements for starting a registered investment advisory firm, you will need to file Form ADV.

The “internet investment adviser” exception applies only to RIA firms that provide all investment advice solely through an “interactive website,” where software-based platforms provide advisory recommendations directly to clients based on personal inputs. Please note: simply relying on video conferencing or communicating via website platforms does not meet this criterion. The SEC specifies that using websites merely as marketing tools or for basic communication won’t allow firms to qualify.

For those looking to start a registered investment advisory firm as a pathway to accredited investor status, with no plans to advise others, this SEC registration path may provide a viable option. In this scenario, you would develop a website to satisfy requirements and file the SEC application. Several individuals have successfully become accredited by registering their own RIA firms using this approach; see these helpful experiences from Natecation and Tyler McMurray. Registering federally means you only deal with the SEC fee and can avoid future re-registration if you move states.

2.2. Registering with your state

For most individuals seeking guidance on how to start a registered investment advisory firm, state-level registration is often the most suitable choice, mainly because of the $100M SEC AUM minimum. State-level registration enables you to launch and operate your RIA business without federal AUM requirements or needing the internet-only exemption. Review your local state’s process and regulations, which may have unique compliance obligations for starting an RIA in your jurisdiction.

To facilitate this process when starting your registered investment advisory firm, here are resources profiling RIA filing requirements in major states:

• California: RIA registration requirements
• New York: RIA FAQS
• Florida: Investment adviser registration steps
• Texas: Filing as an RIA
• For other states, comply.com offers a complete clearinghouse of RIA requirements.

Regardless of whether you register your RIA firm federally or at the state level, you must file Form ADV as part of establishing your registered investment advisory business.

2.3. SEC registration: Filling out Form ADV

One of the pivotal steps in how to start a registered investment advisory firm is submitting Form ADV, which serves as your application with the SEC or for certain state registrations. You’ll submit this form electronically on the Investment Advisor Registration Depository (IARD) platform.

Form ADV includes five key sections:

1. Part 1A: Collects details about your registered investment advisory firm structure, including ownership detail s, operations, control persons, executive officers, and any individuals providing advice. It also requires disclosures regarding firm personnel and any disciplinary history. If your RIA firm operates as a solo entity, this section is typically straightforward. Use publicly available examples from Wealthfront and Compound for reference.
2. Part 1B: Additional questions and disclosures mandated by specific state securities authorities, which are required if you’re applying at the state level only (SEC registrants on IARD skip this by default).
3. Part 2A: Requires “narrative brochures” about your firm practices; refer closely to these SEC instructions.
4. Part 2B: Involves “brochure supplements” detailing professional backgrounds of individuals providing advisory services; essential for all principals of your new RIA firm.
5. Part 3: Calls for a “relationship summary,” providing straightforward information meant for retail investor clients. See the official completion guide.

Upon submission, the SEC generally responds within 45 days (often sooner) to your application to start a registered investment advisory firm. If revisions or clarifications are needed on your filed Form ADV, you’ll be given an opportunity to update materials accordingly.

If launching an RIA firm simply to satisfy accredited investor requirements and not to handle client assets or provide ongoing investment advice, incorporate these best practices into your ADV submission:

• State explicitly in Form ADV that you won’t take custody or control of client funds; advice is informational only, and no discretionary trades are performed by your RIA.
• Show assets under management (AUM) as $0 to reduce ongoing compliance or reporting obligations.
• Create a generic code of ethics based on SEC directions. See the model from Natecation.

By following these steps on how to start a registered investment advisory firm and getting through the Form ADV filing, you will have overcome one of the most significant milestones of the RIA formation journey. Congrats, you’re almost ready to open for business.

If you plan to handle others’ funds, set up a custodian

If you plan to handle client funds and make investments on their behalf, your new RIA firm will now need to have a custodian, which is essentially another firm that holds your clients’ actual assets and performs transactions on your and your clients’ behalf. This is typically a large firm like BNY Mellon or Charles Schwab. Charles Schwab has a nice page on choosing a custodian, and you should do your own research to find the best fit custodian for you.

If you do not plan to handle client funds and only plan to use this RIA firm as a vehicle for accreditation, then you do not need a custodian. You just need to ensure that you never handle someone else’s money.

Register yourself as an investment adviser representative (IAR) of the firm

Once you become part of a registered firm, whether it’s your own RIA or another, you can begin the registration process as an investment advisor representative by submitting Form U4 through the FINRA Gateway and paying all required registration fees. Depending on whether your RIA is SEC-registered or state-registered, you will need to pay registration fees to either the SEC or your state authority as part of becoming an investment advisor representative.

Form U4 for Investment Advisor Representatives requires the following information:

• General information: Including your date of birth, your firm’s CRD number and billing code, employment address, and other basic details.
• Fingerprint information: Involves providing a fingerprint as part of the background check. Some states allow an exception for investment advisor representative-only registration, meaning that if you only plan to act as an investment advisor representative (not a broker-dealer), you may be able to bypass this step in certain jurisdictions.
• Registration with unaffiliated firms: Ensures you’re not registering as an investment advisor representative under multiple unrelated firms. If dual registration applies, you must disclose it; note that some states prohibit dual registration.
• SRO Registration: Applicants seeking investment advisor representative-only status may skip this section.
• Jurisdiction Registration: Here you’ll specify your registration type, whether as a broker-dealer agent or investment advisor representative, and indicate the jurisdictions where you intend to register.
• Registration requests with affiliated firms: Asks if there are any affiliated firms (such as related corporate entities) with which you also wish to be registered as an investment advisor representative. This is common at large organizations with multiple related entities.
• Examination requests: Relevant if you need to schedule or reschedule a FINRA or North American Securities Administrators Association (NASAA) exam during your registration as an investment advisor representative.
• Professional designations: Where you list any credentials like Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) that you hold as an investment advisor representative.
• Identifying Information: Requesting further personal identification details.
• Other names: Where you provide any alternate names you have used.
• Residential history: Where you record your residential addresses for the past five years.

Once you have completed and submitted Form U4 for your investment advisor representative registration through your RIA firm, you are officially recognized as an accredited investor advisor, ready to serve your clients in compliance with regulatory requirements.

Maintain your RIA firm’s compliance

Be sure to keep your firm compliant year-to-year by filing an update amendment to the SEC or your state annually (and paying the associated filing fees) and keeping your individual IAR registration up to date as well. As long as there are no changes to your firm’s structure, this can be a very simple update that basically says “no changes.”

Accredited investor verification

While there is no physical certification or license for being an accredited investor, security-issuing firms practice due diligence in verifying who has the ability to invest in their business. The criteria are dependent on the type of security invested. Generally, the SEC requires firms to conduct a verification process involving the following steps:

1. The potential investor must fill out a questionnaire.
2. The potential investor will be asked to attach supporting documents (financial statements, proof of asset ownership, proof of net worth, written recommendation from financial advisors, etc.).
3. The firm will conduct additional credit report assessments to check for any outstanding debt.

For income-based investors, firms will likely require proof of wages incurred, such as tax returns, W-2 forms, and the like.

Prospective investors can skip the above steps by having their CPA, a third-party licensed attorney, an SEC-registered investment adviser, or a registered broker-dealer certify that you are accredited in a letter dated within the last 90 days.

Some platforms, such as Angellist Syndicates, ask for proof of accreditation upfront so that they can handle the verification burden.

Pros and cons of being an accredited investor

Being an accredited investor has its own set of advantages and disadvantages. Here’s a table to give you a clearer idea of what these are:

The obvious pro to being an accredited investor is that you have privileged access to opportunities that public investors do not have. You get access to unregistered funds, angel investments, and syndicates, all of which are high-growth opportunities.

However, accredited investors also have to vie for shares with other wealthy investors or investment firms, and as a result, significantly higher minimum investment amounts are needed. This could then lead to bigger losses should the investment fail: the higher the reward, the higher the risk.

Ready to score high-earning investments? Get accredited!

Being an accredited investor provides unique access to high-risk, high-reward investment opportunities that are typically unavailable to most individuals. If you do not currently meet the net worth or income thresholds required for accredited investor status, pursuing the Series 65 can be an excellent alternative. As mentioned above, the Series 65 offers a viable path to becoming a qualified investor through licensing rather than financial criteria. Explore Achievable’s Series 65 course for free to determine if preparing for the Series 65 exam is the right first step for you.