We get this question all the time. An Accredited Investor is an Individual, Entity, or Financial Institution who has proven their financial literacy by way of calculating their Net Worth and meeting certain criteria. The purpose behind the Accreditation is to ensure that the average person is protected from making poor investment decisions due to lack of experience or Net Worth.
Accredited vs. Non-Accredited
A non-accredited investor (aka Public, Retail Investors) refers to investors who do not meet the net worth or income requirements which is outlined below. These investors do not have the risk tolerance, and may not have the knowledge to fully understand the risks of the investment opportunity.
Accredited Investors have a high net worth, high income, and more financial literacy which can allow them to endure larger potential losses and make riskier investment decisions.
Simply put, the Accreditation is there to protect less experienced investors from making risky investments that they may not be able to afford.
How does an Individual or Entity become Accredited?
An Individual or Entity actually become Accredited immediately, without having to go through any official certification or accreditation process. Once a specific set of criteria is met, they are considered to be Accredited. In fact, it falls on the Investment Firm to do the due diligence on the Investor to ensure they meet the criteria. You may need to provide financial records, tax returns, and/or credit reports to prove your income/net worth.
Individuals
An individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000.
An individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year.
An individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5,000,000.
An individual who, either alone or with a spouse, has net assets of at least $5,000,000.
Entity
An investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the Securities Regulatory Authority, has issued a receipt.
A trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be.
An investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser.
A trust established by an accredited investor for the benefit of the accredited investor’s family members of which a majority of the trustees are accredited investors and all of the beneficiaries are the accredited investor’s spouse, a former spouse of the accredited investor or a parent, grandparent, brother, sister, child or grandchild of that accredited investor, of that accredited investor’s spouse or of that accredited investor’s former spouse.
Do you meet the criteria above and want to see how we can grow wealth together? Still unsure or have questions? Reach out to book a call with one of our team members today!
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