# Accredited Investor ### [Accredited Investor](https://www.investopedia.com/terms/a/accreditedinvestor.asp) *An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.* [[Investopedia]] ### Key takeaways - Sellers of unregistered securities are only allowed to sell to accredited investors, who are deemed financially sophisticated enough to bear the risks.  - Accredited investors are allowed to buy and invest in unregistered securities as long as they satisfy one (or more) requirements regarding income, net worth, asset size, governance status, or professional experience.1 - Unregistered securities are considered inherently riskier because they lack the normal disclosures that come with SEC registration. ## [Becoming an Accredited Investor with the Series 65](https://andrewrea.tech/blog/how-to-become-an-accredited-investor-through-the-series-65) **Accredited Investor Definition** First, let's define the traditional accredited investor. Meeting one or all of the following gets you through the front door in the US: ⬇️ - Income of $200,000 annually ($300,000 if married) - Net Worth of $1,000,000 or greater (excluding the value of your primary residence) This is all well and good but many investors don't meet these criteria. You might understand angel investing, have great deal flow, and great judgment, but legally you're unable to invest in startups. **Accredited Investor Side-Doors 🚪** In August 2020, [the SEC updated the accredited investor regulations](https://www.sec.gov/corpfin/amendments-accredited-investor-definition-secg), adding the following side doors. ⬇️ 1. Professional Certifications & Licenses - The Series 65 - The Series 7 - Series 82 2. Knowledgeable employees of a fund - Employees (deemed knowledgeable) of investment funds can be considered accredited investors. However, this only applies to investments in the fund itself, not other funds or direct investments in the portfolio of that fund. 3. Spousal Equivalents of another accredited investor 4. Family offices with at least $5 million in assets under management and their family clients 5. Limited Liability Companies (LLCs) - LLCs with $5 million-plus in assets - State-registered Investment Advisers - Exempt Reporting Advisers - Rural Business Investment Companies (RBICs) 6. Additional “Other Entities” - Indian Tribes - Government Bodies - Government Funds - Entities organized under the laws of foreign countries that own investments in excess of $5 million. The most notable and accessible of the above side doors is the Series 65. Unlike the [[Series 7]] and [[Series 82]], the [[Series 65]] can be taken by anyone without the need for a sponsor firm. It’s also generally considered to be an easier exam. For a deeper dive into the differences between these exams, [check out this article](https://medium.com/the-innovation/you-no-longer-have-to-be-a-millionaire-to-be-an-accredited-investor-96d698d0e5d7) by [Cassandra Rivera](https://rivera-cassy.medium.com/). ### Introduction and Overview of the [[Series 65]] The Series 65 is an exam & securities license taken by Registered Investment Advisors (RIAs). These are the people that give broad portfolio management advice at companies like Edward Jones, Charles Schwab, most large banks, and thousands of local practices. The Series 65 costs $175-187 in fees, is comprised of 130 multiple choice questions, and can be taken IRL at a local testing center or virtually through an online test-proctor. You get 3 hours to take the exam them. To pass, you need to achieve a 72% or 94/130 questions. Passing the exam alone is not currently enough to achieve accreditation. After passing, you'll also need and ensure you're in "good standing" in your state. For the Series 65, that means being registered in your state. Each state has different regulations and fees governing this. Most average between $125-300. > "Individuals holding any of these three designations in good standing can qualify as accredited investors. Whether a person holds one of the designations in good standing is specific to that designation, and persons seeking accredited investor status under this category should consult FINRA rules and any state rules applicable to them. For example, a person seeking accredited investor status by passing the Series 65 exam would also need to be licensed as an investment adviser representative in her state and would need to comply with all state-specific licensing requirements (e.g., paying annual fees, etc.)." - [[SEC]] I'd check with [your state's specific securities regulator](https://www.nasaa.org/contact-your-regulator/securities-regulator/) and/or legal counsel to ensure compliance. The paperwork is more complex for some states than others. Once you've established "good standing" with your state, you can set up accredited investor authentication for free on [Accredited.AM](https://accredited.am/) by [North Capital](https://www.northcapital.com/). ### How to pass the [[Series 65]] Scoring a 72%+ on the Series 65 comes down to a combination of two things. ⬇️ 1. Studying 2. Smart Test-taking. **1. Studying** It's widely recommended that you study for 60 hours to pass the test. If you have a background in finance or law, you can probably cut that by at least 50%. I studied for about 10 hours. Your options for Series 65 studying are as follows: ⬇️ - Buy a textbook 📔 - Buy a study guide 👨‍🦯 - Google tons of sh*t 🔍 - Wing it 🕊 - Combination of all the above **My recommendation:** Skip the textbook and buy a study guide instead. Make sure the guide includes practice questions. I used the [Test Geek Study Guide](https://testgeekexamprep.teachable.com/p/series-65) ($99). This guide also comes with a few hours of lectures that made navigating the trickier aspects of the exam a lot easier. Google anything that doesn't make sense in the study guide. [Investopedia](https://www.investopedia.com/) is going to be your best friend for any information that doesn't make sense in the study guide. [Youtube](https://www.youtube.com/watch?v=ZgGpInOniG0) is always a great resource too. **2. Smart Test-Taking** The Series 65 is broken down into four different categories of questions. Here's a breakdown of those categories: ⬇️ - Economic Factors = 20 Qs (15%) - Investment Vehicles = 32 Qs (24%) - Client & Investment Strategies = 39 Qs (30%) - Risk = 39 Qs (30%) If all goes well, the combination of studying and smart test-taking will pay off and you’ll pass the exam on your first try. If not, you can retake the test in 30 days. There's no limit on how many times you can re-take it. ### TL;DR - The Series 65 is a new side door to achieve accredited investor status. - This is a great option for knowledgeable investors with the desire, knowledge, judgment, and access to invest in startups. - To pass the Series 65, use a study guide and google searches to learn the materials. Then, drill with multiple practice tests so you don't get tripped up on exam day.