What Is a Non-Accredited Investor?

A non-accredited investor is an investor who does not meet the income or net worth requirements set out by the Securities and Exchange Commission (SEC). This term applies to the majority of investors who participate in the market, who are commonly referred to as retail investors. Non-accredited investors are contrasted with what the SEC calls accredited investors.

Understanding Non-Accredited Investors

As noted above, non-accredited investors are commonly referred to as 澳洲幸运5官方开奖结果体彩网:retail investors. Although it isn't ꩲeasy to pinpoint an exact number, there are significantly more non-accredited investors in the United States because of the strict criteria that define accredited investors. A non-accredited investor isℱ anyone with:

• Annual income of less than $200,000 or $300,000 if combined with a spouse/partner
• A 澳洲幸运5官方开奖结果体彩网:net worth of less than $1 million (excluding their primary residence)

Non-accredited investors are limited to the types of investments from which they can choose. Regulators put these restrictions in place to protect them from excessive risk and large financial losses that may result from complex financial instruments they may not understand. As such, the SEC uses acts and regulations to set out what these investors can invest in and what documentation and 澳洲幸运5官方开奖结果体彩网:transparency investment companies need to provide.

The majority of investment options available to non-accredited investors are publicly traded, including stocks, bonds, mutual funds, and 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs). They can also invest in alternative investment options, such as r澳洲幸运5官方开奖结果体彩网:eal estate investment ♓trusts (REITs), real estate, and commodities.

Non-Accredited vs. Accredited Investors

An accredited investor can be an entity like a bank or company or an individual who doesn't need SEC protections for their investments. This investor has a net worth exceeding $1 million (excluding their primary home) and an annual income exceeding $200,000 (or $300,000 with a spouse/partner) for each of the past two years with the expectation of the same for this year.

The SEC now defines accredited investors to include the following:

• Individuals with certain professional certifications, 澳洲幸运5官方开奖结果体彩网:designations, or credentials
• Individuals who are “knowledgeable employees” of a private fund
• SEC- and state-registered investment advisors

Keep in mind that the SEC can change the definition of an accredited investor should 澳洲幸运5官方开奖结果体彩网:inflation and other factors result in too much of the general population meeting the standard. This was the case on August 26, 2020, when the SEC said:

"The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth. The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify."

Non-Accredited Investors and Private Companies

Private funds, private companies, and hedge funds can do things with investor money that mutual funds (and other investments) can't do simply because they deal primarily with accredited investors. The♍ SEC assumes that all parties involved know the risks and rewards involved, so they have a lighter regulatory touch where these ﷽funds are concerned.

💦 That said, these funds must pay close attention to their compliance and make sure their investor counts stay within the rules because they can lose their regulatory status. For some types of private investment, they are only allowed﷽ non-accredited investors when they are employees or fit a specific exemption.

Other funds and companies can have unrelated non-accredited investors, but they must keep the number below a certain level. This is the case with 澳洲幸运5官方开奖结果体彩网:Regulation D, which keeps the number of non-accredited investors in a 澳洲幸运5官方开奖结果体彩网:private placement below 35.

The Bottom Line

The SEC's classification of investors into accredited and non-accredited is intended to protect investors who have lower net worths and salaries, and those who may not understand all types of investments; particularly riskier ones. Accredited investors may be able to take more risks simply because they have more money.