Accredited Investor Definition

Securities regulations around the world contain guidelines to designate entities as wealthy or knowledgeable investors, a status that offers specific benefits.

Names for this designation include, but aren't limited to:

• Accredited Investor in the US, Canada and Singapore
• Sophisticated Investor in Australia and the UK
• High Net Worth Individual in the UK
• Wholesale Investor in New Zealand
• Qualified Investor in Israel and the European Union (EU Prospectus Regulation)
• Professional Client in the EU (MiFID II)
• Professional Investor in Hong Kong

Accredited investor status provides access to private markets, including options like hedge funds, pre-IPO private companies and the private placements frequently used by junior mining companies and tech start-ups to raise capital.

As these carry higher risks and lower disclosure requirements, accredited investor status tells governing bodies such as the US Securities and Exchange Commission (SEC) that the investor is knowledgeable or wealthy enough to handle those risks.

The following definitions of accredited and sophisticated investors specifically cover regulations for individuals. Information on how entities such as businesses, funds, trusts and more can qualify for these designations can be found in the links below.

Accredited Investor – USA

In order to be classified as an Accredited Investor, an individual in the United States of America (US) must meet one of the below criteria as defined under Title 17, Section 230.501(a) of the Securities Act of 1933. These regulations use the term "natural person" to refer to individual human beings, differentiating them from corporations, which have corporate personhood.

• Any natural person whose individual net worth, or joint net worth with that person's spouse or spousal equivalent, exceeds US$1,000,000:
  • Their primary residence is not included as an asset when calculating net worth
  • Indebtedness that is secured by the person's primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability.
  • See here for further rules on net worth calculations.
• Any natural person who had an individual income in excess of US$200,000 in each of the two most recent years or joint income with that person's spouse or spousal equivalent in excess of US$300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
• Any natural person holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status, namely:
  • the general securities representative license (Series 7)
  • the investment adviser representative license (Series 65)
  • the private securities offerings representative license (Series 82)
• Any natural person who is a "knowledgeable employee," as defined in rule 3c-5(a)(4) under the Investment Company Act of 1940, of the issuer of the securities being offered or sold where the issuer would be an investment company, as defined in section 3 of such act, but for the exclusion provided by either section 3(c)(1) or section 3(c)(7) of such act.

Accredited Investor – Canada

For an individual in Canada to be classified as an Accredited Investor, they must fall under one of the exemptions set out for individuals in the definition of “Accredited Investor” of National Instrument 45-106 – Prospectus Exemptions Part 1.1.

Although securities regulations are managed at the provincial level in Canada, the rules for individual investors in NI 45-106's Accredited Investor definition are harmonized across all provinces and territories, and are as follows:

• (j) 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 C$1,000,000.
• (j.1) An individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds C$5,000,000.
• (k) An individual whose net income before taxes exceeded C$200,000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded C$300,000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year.
• (l) An individual who, either alone or with a spouse, has net assets of at least C$5,000,000.