Tired of playing it safe with your investments while your money grows at a snail’s pace? Becoming an accredited investor could very well change that by opening up a whole new world of high-risk, high-reward investment opportunities. Here’s how a financial advisor can help you on your path toward becoming an accredited investor.

Before you can become an accredited investor, you’ll need to know what it takes to join this exclusive club, and how exactly to go about joining it. If you already work with a financial advisor (or are considering doing so), you may be curious whether these professionals can provide any assistance on your path to becoming an accredited investor. Read on as we take a deep dive into the world of accredited investing, arming you with the knowledge to make informed decisions about your financial future and turn your wildest financial dreams into realities.

What is An Accredited Investor?

As defined by the Securities and Exchange Commission (SEC), an accredited investor is an individual (or sometimes a business entity, but we’ll be focusing on individuals for the purposes of this article) who is not always registered with financial authorities but who is nonetheless legally allowed to trade securities. 

Accredited investors are granted this special, important access by the SEC because they fulfill one or more criteria relating to what the SEC calls their “financial sophistication,” including income level, wealth/net worth, professional experience, as well as several others that we’ll describe in more detail in the next section.

A Disclaimer About Being an Accredited Investor

Before becoming an accredited investor, it is important to account for factors like your investment goals, risk tolerance and financial situation, in addition to consulting a financial advisor (more on this later) to determine if these types of investments are appropriate for you. 

Accredited investors have the opportunity to invest in high-risk, high-reward investments (e.g, private offerings, hedge funds) that are not available to the general public. While these investments can offer higher returns, they also come with a greater level of risk and uncertainty. 

Due to their lack of SEC regulation, investments like private offerings and hedge funds may not have the same level of transparency and built-in protection as public offerings. Private offerings are often illiquid and may be difficult to sell. As a result, the risk of losing part or all of their investments is higher for accredited investors. 

Although being an accredited investor allows access to higher-risk opportunities that have the potential to grant higher returns, these types of investments are by no means a guaranteed path to financial success. As an accredited investor, good investment decisions are still a prerequisite for investment success. As a rule, investors should always carefully consider the risks and potential rewards of any investment before they commit their funds; accredited investors in particular must perform their own due diligence and research to fully understand potential investments and accurately assess their level of risk.

Can My Financial Advisor Help Me Become an Accredited Investor?

We won’t bury the lede: the answer to the question in the title of this article is a resounding YES. It’s absolutely possible for your financial advisor to help you to become an accredited investor. That will open up the opportunity for you to participate in unique investment opportunities, which can range from investing in art with MasterWorks or get involved with a successful founder who decides to open up their own venture fund, like how Sophia Amoruso of NastyGal decided to launch Trust Fund.

Now that that’s established, we’ll spend the rest of this blog post contextualizing this topic with the details on how to become an accredited investor, explaining how your advisor can help you achieve the requisite qualifications and guiding you toward the best tool for finding a truly trustworthy financial advisor.

Qualifications for Becoming an Accredited Investor

Before we get into the question of how your financial advisor can help you achieve the coveted title of “accredited investor,” you’ll want to understand the specific qualifications required for that title. We’ll break these qualifications down into two categories: financial and professional criteria.

Financial Qualifications for Becoming an Accredited Investor

• Having a net worth of least $1 million (alone or with a spouse), not including the value of your primary residence.
• Earning an annual income of at least $200,000 individually or $300,000 with a spouse in the last two years, with the expectation that you will earn at least that much in the current year.

Professional Qualifications for Becoming an Accredited Investor

• Working in the securities industry with licenses for the titles of general securities representative, investment adviser representative or private securities offerings representative.
• Being the executive officer, director, or general partner of a company selling the securities.
• In the case of investment in a private fund, being a “knowledgeable employee” of said fund.

What Is the Purpose of These Strict Requirements?

As you’ve probably noticed, there are very specific requirements for becoming an accredited investor, and there’s a reason for that. As we’ve already mentioned, the investments that accredited investors have special access to (like private offerings and hedge funds) are generally riskier than other types of investments, and the SEC is responsible for protecting the public from these risk levels, which could frankly be catastrophic for many investors. According to Investopedia, “Regulators need to protect less-knowledgeable, individual investors who may not have the financial cushion to absorb high losses or understand the risks associated with their investments.” The requirements laid out by the SEC ensure that accredited investors are “able to fend for themselves or sustain bouts of volatility or the risk of large losses, thus rendering unnecessary the regulatory protections that come from a registered offering.” 

How Your Financial Advisor Can Help You Become an Accredited Investor

Unless you’re planning a career change that’ll allow you to meet the professional qualifications listed above, the most likely path to becoming an accredited investor is by meeting the SEC’s financial criteria. You can get there either by accumulating a net worth of at least $1 million, or by earning an annual income of at least $200,000 individually or $300,000 with a spouse. 

Your financial advisor can help you to lay out a realistic plan that will get you to the point of meeting these criteria, whether you decide to take the route of achieving a net worth of $1 million, or that of increasing your income to $200,000 individually/$300,000 shared. While a financial advisor may be more knowledgeable about how to get your total net worth to $1 million, they can still provide you with general career or business advice that could help increase your income. 

How Can a Financial Advisor Help You Increase Your Income and Net Worth?

Providing Investment Advice

Lots of financial advisors have specific expertise in the area of investment, which means their advice can help you make better investment decisions and craft a portfolio that will generate higher returns, greater investment income and, ultimately, a higher net worth. 

Assisting with Budgeting and Financial Planning

Unplanned, careless spending can throw you off track as you attempt to reach your financial goals, which is why budgeting should be a key component of any savings plan. This is another area where a financial advisor can be a big help – they can scour your financial situation to identify areas for improvement, help you deal with debts as efficiently as possible and establish short- and long-term monetary goals.

Keeping You On Track with Your Plan

Describing the numerous benefits of a financial advisor, Edward Jones points out that they can steer you away from impulsive, emotion-driven financial decisions and toward data-driven choices: “The stock market’s ups and downs can lead to rash investing decisions. But a financial advisor can help you to stay on track using toward your long-term goals, and course correct if necessary. And they’ll do all of this based on data and the guidance from experienced market strategists instead of simply reacting to short-term market fluctuations.”

Making advisor-approved choices based on logic and data – rather than on emotions like fear and anxiety – leads to higher net returns, which will help you reach your goal of becoming an accredited investor in a quicker time frame, as we’ll illustrate with a couple of detailed examples in the next section.

Helping You Locate Significant Tax Savings

A financial advisor can help you find ways to spend significantly less on taxes – you could end up saving thousands of dollars (or even more!) thanks to the advice of a professional. As described by Ryan Warwick, principal at Rathbone Warwick Investment Management, a “tax-efficient financial advisor” can suggest investing strategies that allow you “to keep more of what you make.” This means reaching your financial goals more quickly, as we’ll describe in greater detail in the next section.

Increasing Your Net Returns by 3 Percent on Average

A recent Vanguard report showed that, on average, working with a financial advisor increases your net returns by about 3 percent, which can help you reach your income and/or net worth goals more quickly. We’ll provide a couple of examples to illustrate how that seemingly small 3 percent can snowball into significantly greater earnings over time.

Example 1: Starting with a Net Worth of $600,000, Investing $50,000 Annually

Let’s say you’re focused on the goal of reaching a net worth of $1 million to become an accredited investor, and you’re doing so without the guidance of a financial advisor. If your net worth is $600,000, you start out by investing $50,000 and your annual return on investment (ROI) averages 10 percent, your net worth will increase to $655,000 after one year (in the absence of all other sources of income, just for the sake of this example). Continuing to invest in this way with the same 10 percent ROI can increase your net worth as follows:

• In 5 years: $688,578
• In 10 years: $742,656
• In 20 years: $970,013
• In 21 years: $1,007,014 (above $1 million)

Contrast these returns with the net worth you could reach with the investment, budget and financial planning advice of a financial advisor increasing your ROI by 3 percentage points, to a total ROI of 13 percent per year:

• In 1 year: $656,500
• In 5 years: $692,122
• In 10 years: $769,728
• In 18 years: $1,051,213 (above $1 million)

Example 2: Starting with a Net Worth of $250,000, Investing $100,000 Annually

For this example, assume that you’re starting out with a net worth of just $250,000, investing $100,000 with an ROI of 10 percent on average. Here’s how you can expect your net worth to grow over the years:

• In 1 year: $360,000
• In 5 years: $411,051
• In 10 years: $509,374
• In 20 years: $922,749
• In 22 years: $1,064,027 (above $1 million)

Compare this growth rate with that of your expected ROI once you add the advice of a financial advisor, which would be 13 percent annually:

• In 1 year: $363,000
• In 5 years: $434,244
• In 10 years: $589,457
• In 17 years: $1,048,608 (above $1 million)

In these unrealistically conservative examples, in which your investments are only limited to your initial $50,000 or $100,000 and any earnings on that money, a financial advisor increasing your ROI by 3 percentage points can get you to a net worth of $1 million – and eligibility for accredited investor status – in 18 years instead of 21 years and in 17 years instead of 22 years, respectively. Those three to five years of saved time can make a major difference when it comes to enjoying the fruits of your labor and becoming an accredited investor sooner, which will allow you to invest with the potential for even higher returns. 

It’s likely that in the real world, with sources of income in addition to your investments also helping to grow your net worth, that average 3 percent increase in returns (with the potential to be even greater, depending on how helpful your advisor is!) will go even further. For instance, if your advisor finds areas where you’re able to save over $10,000 on taxes each year, you will reach your goal much more quickly than you would have from your investment returns alone, without their tax expertise. Not to mention your financial advisor may be inclined to maneuver your money through investments that carry more risk, yet a higher return, to help expedite those goals even quicker than you originally planned.

How Long Will It Take Me to Become an Accredited Investor?

The answer is: it depends. More specifically, how long it takes you to fulfill the financial criteria for becoming an accredited investor will depend on how much money you already have. 

If your goal is to meet the net worth criterion by growing your total wealth to $1 million, it will take a lot longer to get there if you start out at a net worth of $200,000 than if you start with $500,000. This makes sense logically because you’re starting out closer to your goal, but it’s also because in general, the more money you have, the easier it is to earn higher returns on your investments. When you’re working with a larger pool of funds, you can diversify your investments to distribute your risk, thereby maximizing overall returns.

Let’s say you start out with a net worth of $200,000. If you start out by investing $100,000 and your ROI is as high as 15 percent, here’s how you can expect your net worth to grow:

• In 1 year: $315,000
• In 5 years: $401,136
• In 10 years: $503,988
• In 17 years: $1,008,614 (above $1 million)

But if you invest the same amount, with the same ROI, and your net worth starts out at $600,000, you’ll reach that $1 million threshold a whopping 7 years more quickly than if your net worth started at $200,000:

• In 1 year: $715,000
• In 5 years: $801,136
• In 10 years: $1,004,556 (above $1 million)

Meet with Your Advisor, Set Goals and Create a Plan to Become an Accredited Investor

When you decide to become an accredited investor and work with your financial advisor to make that goal a reality, it’s time to schedule a meeting. If you haven’t already, you and your advisor should sit down together to clearly establish your financial background and goals more generally. Once that important context has been established, the two of you can get into the question of how much you can afford to invest and how soon you hope to achieve the status of an accredited investor. 

As part of this process, your advisor will evaluate whether your goals are realistic; if they aren’t, a seasoned professional has the insight to help you manage expectations and adjust your timeframe for becoming an accredited investor to be more achievable. Finally, you’ll work together to create a realistic and highly personalized financial plan that will get you to the point of either having a $1 million net worth, or having a $200,000 individual or $300,000 joint income. 

The Most Effective Tool for Finding a Skilled, Dependable Financial Advisor

The informed advice of a good financial advisor can be an asset in your effort to become an accredited investor. A financial advisor can help you accurately assess your investment goals, risk tolerance and overall financial situation to decide whether becoming an accredited investor and taking on high-risk, high-reward investments makes sense for you. These professionals can also help you become an accredited investor and their advice may even help to accelerate the process.

As you seek a financial advisor, you’ll be doing your best to avoid the most common mistakes that people make in this process. Deciding who handles your money and advises you about it is always a high-stakes decision, so why not use a tool that significantly streamlines this process by granting access to info about potential advisors that you might not have even known was out there? AdvisorCheck is that tool, with a massive database of more than one million registered representatives (RRs) and investment advisor representatives (IARs). It’s also entirely free to use the site and create an account.

Because you can search the database by location, AdvisorCheck is a great way to find prospective financial advisors in your area. It’s also an equally effective tool for researching advisors you’re considering hiring to determine whether they are genuinely reliable, trustworthy and free of major red flags like significant disclosures on their record. AdvisorCheck sources its info from a wide-ranging constellation of reliable sources to assemble the most complete background checks possible.

AdvisorCheck also comes with a couple of additional functions that make it particularly helpful at all stages of the process of working with an advisor, from seeking out and hiring someone new to monitoring an existing advisor. Once you’ve created a free AdvisorCheck account, it’s easy to save listings to your “Saved Advisors” page, allowing you to easily keep track of prospective hires. You can also sign up to be alerted when events like disclosures or bankruptcy are added to your advisor’s record.

AdvisorCheck helps you ensure that you have selected an honest, reliable advisor to manage your finances, direct your investments and support you in reaching financial goals – like becoming an accredited investor and putting your money into higher-risk, higher-reward investments.

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Written by Billy Quirk

Fact checked by Luke Jara

Reviewed by Leonard Kim

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