Accredited investors are both individuals and entities that qualify per SEC rules to invest in sophisticated or unregulated securities or long-term investment holdings. Qualified purchasers have access to a larger swath of investment opportunities than accredited investors and thus face even higher barriers to entry. There are some different requirements for accredited investor verification and qualified purchaser verification which we cover below.
Accredited Investors
Investors who meet specific financial (net worth, income), license, or investment history requirements are given accredited investor status and the opportunity to access certain private equity opportunities.
Qualified Purchasers
Obtaining the status of qualified purchaser is often more challenging for the average investor than obtaining accredited investor status. In fact, qualified purchasers are sometimes called super-accredited investors. The higher barrier of entry for qualified purchasers gives them access to Regulation D assets, such as private real estate.
Verification Comparisons
Qualified purchaser verification depends on a person’s investment portfolio as opposed to net worth or income. To obtain qualified purchaser status, one must have more than $5 million USD in net worth as an individual or $25 million USD as a group.
The reasons for distinguishing between qualified purchaser and accredited investor are as follows:
First, qualified purchasers are able to demonstrate a higher level of financial security and capability, giving them access to the most unregulated classes of assets, such as 3(c)(7) funds and funds having more than 100 investors.
On the other hand, accredited investors must demonstrate they have the designated yearly income, net worth, or other qualifications to handle the risks of investing in privately listed real estate and sophisticated security opportunities, such as 3(c)(1) funds.
The statuses of qualified purchasers and accredited investors can be verified by any issuer of unregistered securities. Prior to meeting with the issuer, the prospective investor will need various documents for verification purposes, such as W-2 forms for the previous two years, tax returns from the previous two years, and bank statements from last year.
Qualified purchaser verification always requires the investor to show the returns of their most recent investment portfolio and prove it is worth more than $5 million USD.
A securities officer can examine the documents you provide and check if your income, net worth, or portfolio of investments fulfills the minimum financial requirements to become a qualified purchaser.
The status of either category of investor may be desirable based on your particular investment goals. An accredited investor may only want to invest in private security offerings or privately listed commercial real estate, while a qualified purchaser may want to invest in funds having over 100 investors.
