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Education

Accredited investors: who they are, and what they can do

Education

March 08, 2023

We created Arta to help more people get access to the wealth-creating opportunities often reserved for the ultra-wealthy, including easier access to private markets and sophisticated ways to invest in public markets.

Some people, by virtue of their total assets, advanced knowledge, or income, qualify for an investor status that could offer access to more financial opportunities. Their status as Accredited Investors (AI), Qualified Purchasers (QP), or Qualified Clients (QC) means they can access investments such as private equity, private credit, real estate, venture capital, and foreign direct investment. Although these investments tend to be riskier and more illiquid, these asset classes can offer advantages such as greater diversification from public markets, potentially higher returns, and exposure to industries or markets that aren’t available in the United States.


Key Takeaways


  • Most investors are only able to invest in those that are publicly listed and registered with the SEC.
  • Based on your salary or total net worth, however, there’s a chance you could qualify for an investor status that could open up more financial opportunities.
  • If you qualify for one of the following investor statuses, you can take advantage of a wider range of asset classes and options that are exempt from SEC registration: Accredited Investors (AI), Qualified Clients (QC) and - Qualified Purchasers (QP). See if you qualify.
  • In this post, we unpack these investor statuses for tax payers in the United States and clarify what they can get access to.
  • Arta is available today to US Accredited Investors and above, but our goal is to make a “digital family office” available to more people over time.

So, who is an accredited investor?

Being an accredited investor simply means you're in a position of financial stability to handle the risks of certain investments.

Even though the bar is high, you may be surprised at who qualifies for accreditation status based on salary alone. Nearly 25 million Americans have a net worth of $1m or more, which roughly equates to about 12% of the adult population (Credit Suisse, Global Wealth Report 2022).

Here are some examples found on Glassdoor.com and levels.fyi1:


  • A software engineer or data scientist at a big tech firm, with about 3 - 5 years of work experience
  • A junior legal partner or in-house counsel, with about 3 - 5 years of work experience
  • A manager or consultant who works at a top finance or banking firm, with about 5 - 7 years of work experience
  • A resident doctor or physician who is 3 - 7 years out of medical school

For a growing number of investors who qualify as an accredited investor, investment options can grow substantially.

Being an accredited investor simply means you're financially stable enough to handle the risks of certain investments.

How do you know if you qualify?

Accredited Investors must meet at least one of the following conditions:


  1. Have an annual gross income that exceeds $200,000 ($300,000 when filing jointly with your spouse or partner) for the last two years and expect to earn the same or a higher income in the current year
  2. Have a net worth that exceeds $1 million, either individually or with a spouse or partner, not including the value of their primary residence
  3. A financial professional holding a Series 7, 62, or 65 qualification (see FINRA for more details)

Qualified Clients must meet either of the following conditions:


  1. Have a net worth that exceeds $2.2 million, either individually or combined with a spouse or partner
  2. Over $1,100,000 combined assets under management with Arta

Qualified Purchasers have a single qualification requirement:


  1. Have an investment portfolio with a value of $5 million or more, excluding the value of their primary residence

This gets a bit more complicated when you layer on entities such as Trusts or LLCs.


Investor class Examples of possible eligible investment opportunities (not exhaustive)
Retail investors

Stocks

ETFs

Index funds

Bonds

Accredited investors

Foreign direct investment (like international bonds)

IPOs from companies

Private placement offerings, such as investing in a start ups

Hedge or capital funds

Select real estate project investments

Qualified purchasers & Qualified clients

Additional tiers of private equity, private capital, and venture capital funds

These differ due to the structure of fees charged by fund managers, which may include performance fees.

For a growing number of investors who qualify as an accredited investor, investment options grow substantially.

How do you prove you are an accredited investor?

These investments are meant to be exempt from SEC registration, so there is no official process for verifying status. Each firm has its own method for proving accreditation and it’s generally a variation of providing personal details and documentation.

Companies might ask for any of the following documents:


  • Credit report (for information about your net worth)
  • Financial statements of your investments
  • Tax return or form (you’ll usually need to show them for the past three years)
  • Relevant professional certifications from the Financial Industry Regulatory Authority (FINRA)

Arta is available today for all AIs, QCs and QPs in the US

Arta membership is available today to Accredited Investors, Qualified Clients, and Qualified Purchasers in the United States - but this is just the beginning of our journey. We look forward to bringing the wealth-building opportunities that were traditionally available to the ultra-wealthy to many more people. With this first step, we’re working to make Arta available to more investor types and countries in the future.

If you’re interested in access to wealth-building opportunities like private investments, you can get started by becoming an Arta member today.

Footnotes

  1. These examples are for illustrative purposes only. Arta cannot guarantee that any specific employment position, title, or tenure can guarantee accredited investor status.


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