4 Easy Steps to Becoming an Accredited Investor

If you’re considering investing outside of traditional assets (stocks, bonds and cash), you’ve likely come across the term ‘accredited investor.’ 

You might be wondering what the term means, what qualifications are needed to become an accredited investor, and what’s so special about being accredited anyway–what opportunities do accredited investors gain access to?

In this article, we’ll explain all of the above, and also share how digital platforms like Heron Finance make it easy to verify that you are an accredited investor. 

What is an Accredited Investor?

In the U.S. individual investors can become accredited, which simply means they meet the financial or professional criteria necessary to invest in certain asset classes. 

Accreditation is a protective measure, meant to ensure that investors are financially sophisticated enough to invest in assets that are deemed riskier because they aren't required to make regular disclosure filings (the way public companies do). 

Given the fact that most investors gain accreditation based on their income or net worth (more on that below), the age range for accredited investors skews older. According to data from the Federal Reserve:

• The median age of accredited investors is between 60 and 64 years old
• Nearly 26% of accredited investors are in their 50s
• Only 6% of accredited investors are in their 30s or younger. 

The obvious benefit of accreditation is access to investment opportunities that are only available to accredited investors. Which brings up the question, how exactly does one become an accredited investor?

How to Become an Accredited Investor

Becoming an accredited investor might sound like joining a secret society…but the process is much less ‘cloak and dagger’ than it appears (and you won’t have to wear a funny robe, either). 

There are a few ways to qualify as an accredited investor in the U.S. The most common is to meet one of the following financial criteria:

• Individual or combined (with a spouse or partner) net worth of $1 million (or greater), excluding primary residence
• Individual income of $200,000, or joint (with a spouse or partner) income of $300,000 for the two prior years, with the same anticipated in the current year

Don’t despair if you don’t qualify financially. It’s possible to become an accredited investor if you’ve received any of the following professional qualifications:

• Series 7 – General securities representative license
• Series 65 – Investment adviser representative license
• Series 82 – Private securities offerings representative license

Both the Series 7 and Series 82 require sponsorship from a professional organization, but it’s possible to take the Series 65 on one’s own (with a comprehensive test prep book and hours of independent study, of course). 

We’ve summarized some other key characteristics in the chart below:

What Opportunities are Open to Accredited Investors?

Accredited investors can access a variety of opportunities typically reserved for institutional and HNW investors, including: 

• Venture capital
• Private equity
• Hedge funds
• Real estate investment trusts (REITs)
• Private credit
• Specialized alternative investment funds (such as fine art or fine wine)

Alternative investments are especially well-suited to accredited investors. Many alternatives are not registered with the SEC, instead falling under Regulation D (RegD), which specifies exemptions to a company’s SEC registration offerings. 

These types of investments are deemed riskier by the U.S. government because the underlying companies aren’t required to make the normal disclosures that come with an SEC registration. Of course, SEC-registered assets also carry risk, underscored by 2008’s Great Recession, the 19% drop in the stock market during 2022, and bankruptcies of publicly-traded companies.

If you’re considering investing in alternative assets, read on for how to become an accredited investor… 

A Simple Process for Verifying Your Status as an Accredited Investor

There’s no badge or secret handshake (that we know of, anyway…) to verify your accreditation status. The process on Heron Finance, which offers access to private credit investments, is actually pretty straightforward and painless.

• Step 1: Create your Heron Finance account
• Step 2: Upload (or even screenshot) the relevant documents from your brokerage or bank accounts.
• Step 3: Heron Finance’s verification partner will review your documents
• Step 4: Once approved, you’ll be able to invest in private credit deals via the Heron Finance platform.

It’s as simple as that.

How Heron Finance Works with Accredited Investors

As an accredited investor, it’s easy to get started investing in private credit with Heron Finance. 

FYI–if you’re considering alternative investments, private credit should be on your radar for a number of important reasons.  

Typically, this asset class was reserved for institutions and high net worth investors, but thanks to digital platforms like Heron Finance, accredited individual investors can participate in the private credit market (the sector is riding a multitude of tailwinds, so now is a great time to gain exposure to this asset class).

For more information on verifying your accredited investor status through Heron Finance, join our private beta waitlist–you'll also receive our monthly Private Credit Newsletter, to help you stay on top of all things private credit.

Sources: SEC.gov, Federal Reserve, Investopedia, P&I