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What is an accredited investor and how does one know if I am one? Is there a certain checklist of things that one needs to make sure one has?

Jul 10, 2013 by John from Manhattan, NY in  |  Flag
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Andy Tilp, CFP® Level 16

Hi John, I am assuming you are interested in the definition as an individual. The SEC defines an accredited investor as : - A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;

  • A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

There are other ways to be an ‘accredited investors’, such as a trust with assets greater than $5M. You can see the specifics on the SEC website at http://www.sec.gov/answers/accred.htm.

Hope this help

Andy Tilp, CFP ® Trillium Valley Financial Planning, LLC

3 Comments   |  Flag   |  Jul 10, 2013 from Sherwood, OR
John

Yes - but when investment advisors ask me if I am an accredited investor, which I am, they never seem to ask for any documentation. Which seems a bit weird.

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Flag |  Jul 10, 2013 near Manhattan, NY
John

Thanks for answering btw

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Flag |  Jul 10, 2013 near Manhattan, NY
Andy Tilp, CFP®

John, I'm not sure of the actual law and I don't deal with the selling of products to accredited investors. But I agree. If a financial advisor is rather loose on their side of the transaction, I would suggest you do careful due diligence about them and their product. Always remember, if is sounds too good to be true, it probably is.

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Flag |  Jul 10, 2013 near Sherwood, OR

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John, Andy's response is spot on. My firm asks for documentation for our files but many firms can be lax on these requirements. If an advisor does not asks for documentation this may be a sign you should conduct further due diligence before you use them as an advisor.

Comment   |  Flag   |  Jul 11, 2013 from Leawood, KS

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Hi John! I am just thinking out loud here. Since the definition of accredited investor is a SEC term based on numerical facts, it would seem that the advisor should be able to answer that question. Not sure why they asked you as he should know if you qualify based on your assets/tax returns. I can't imagine asking someone if they were an accredited investor as people outside the industry would not necessarily know or understand what that is. Love the answers above - go with more documentation.

Comment   |  Flag   |  Jul 11, 2013 from River Hills, SC

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John, investments sold to the public typically need to be registered with the SEC. they allow for specific exemptions from registration if the investment is being sold to 'accredited investors'.

My experience with accredited investors has been with "Reg D' offerings; typically from smaller companies that might not be able to assume the cost of registration. They may be good investments, but they also may have a higher degree of risk, simply because of the nature of their business.

Your advisor may or may not be doing his due diligence. The good news is that you are at least attempting to. If you are looking at a Reg D offering, I would recommend that you consider it as a small portion of an overall well balanced portfolio.

Here is a link to the SEC website relating to private placements http://www.sec.gov/answers/accred.htm

Comment   |  Flag   |  Jul 15, 2013 from Delray Beach, FL

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