Achieving accredited investor status is not part of an extensive application or submission process. It is not similar to applying for a mortgage or other type of bank loan. To be recognized as an accredited investor, individuals, their spouses and spousal equivalents, or investment firms must fulfill one of the requirements established by the SEC for becoming such an accredited investor. The requirement to be an accredited investor for certain investment opportunities is designed to ensure investors are prepared for the financial risk associated with these opportunities.
So how do you prove you are an accredited investor?
SEC Qualification Tests
To obtain accredited investor status, the SEC has established several tests of which the individual only needs to pass one. The most common tests are:
- Income
- Net worth
- Professional certifications or designations
- Knowledgeable employees of private funds
The income and net worth tests are the financial tests, while the other two tests fall under the category of knowledge tests.
Proving You Qualify
There are some steps to follow if you want to invest in opportunities only available to accredited investors. When a company offers securities under Rule 506(c) of Regulation D, the managing firm of the opportunity must take reasonable steps to verify your status as an accredited investor. They can verify income or net worth through the established Regulation D rules.
As a prospective accredited investor, you will need to provide proof in the form of documents that demonstrate you meet the SEC requirements.
These documents may include one or more of the following:
- W-2s
- Bank statements
- Brokerage accounts
- Business ownership documents, including tax filings and an operating agreement
- Credit report
- Third-party statements from relevant institutions
- Proof of professional certification or knowledge
After you have submitted the necessary documentation to qualify as an accredited investor by means of the income test or net worth test, the managing firm will take reasonable steps to review your submissions. Then, they will either approve or reject your request.
