An accredited investor is a person or company authorized to trade securities even though they are not officially registered with the financial authorities. By meeting at least one criterion related to their net worth, governance status, income, asset size, or professional expertise, they are qualified for this privileged access. Click this link to know more about these criteria.
The Securities and Exchange Commission (SEC) in the United States uses the term “accredited investor” under Regulation D to describe individuals who are financially competent and have no need for the protection offered by regulatory disclosure reports. Banks, high-net-worth individuals (HNWIs), brokers, insurance firms, and trusts are examples of accredited investors.
Description Of An Accredited Investor: Recent Amendments
The term “accredited investor” has recently been expanded by the US Congress to cover investment advisors and registered brokers. The SEC revised its description on August 26, 2020. According to the revision, “In addition to the current requirements for income or net worth, the modifications now allow people to become such investors based on specific measures of professional expertise, experience, or certificates. The revisions further increase the number of organizations that may be accredited investors, among other things, by permitting any organization that satisfies an investing requirement to do so.”
The SEC has extended its definition to include people with specific titles, professional credentials, qualifications, and investment advisors registered with it and state securities agencies.
What Are The Privileges Available To Accredited Investors?
Only accredited investors can participate in particular investment securities under federal securities laws. Among others, these could include securities from structured products, private placements, hedge funds, or private equity. There are certain other investments that offer privileged access to these investors.
Why Is Accreditation Required For Investing In Complex Financial Instruments?
Specific financial offerings are restricted to accredited investors only to ensure that all involved individuals are financially savvy and capable of handling periods of volatility or the danger of significant losses. This eliminates the need for regulatory protection measures like the ones associated with a registered instrument.
How To Invest In High-Profile Investment Instruments If Non-Accredited?
The criteria are quite steep to be accredited. It is pretty much an exclusive club for affluent investors. But this doesn’t imply that high-profile investment opportunities are out of reach for you as a non-recognized investor. You can still invest in asset classes such as high-end artwork.
Non-accredited investors today can access various platforms that push for the democratization of high-value investing so that everyone can benefit from returns on this lucrative alternative asset. From 2020 to 2021, this asset class gave an average return of 28%, far greater than any other secure financial instrument can offer.
Final Thoughts
Being an accredited investor brings in a myriad of investment opportunities. These financial instruments promise great returns, but the risk associated with these opportunities is significantly higher than secured investments, so investing in these without knowledge can bring significant financial losses. If you are a non-accredited individual, you still have the opportunity to invest in high-value asset classes like high-end art and fine wine through the right platforms.
