What Does it Mean to Invest as an Accredited Investor or Qualified Purchaser?

As public markets have become increasingly volatile, wealth management firms, like Richard P. Slaughter Associates, have been looking to more specialized investment vehicles with strategies intended to broaden portfolio allocation and potentially improve return for the risk taken. Many of these strategies can only be offered to individuals who are considered an Accredited Investor (AI) or Qualified Purchaser (QP), because of government regulatory differences and minimum investment requirements. While the terms may sound similar, they are distinct with different requirements for qualification.

Accredited Investors

Accredited Investors are individuals or entities that meet certain financial criteria established by the U.S. Securities and Exchange Commission (SEC). To qualify, you must satisfy at least one of the following:

• Net worth of at least $1 million (excluding the value of your primary residence).
• Annual income of at least $200,000 for the past two years ($300,000 if married filing jointly) with a reasonable expectation of maintaining this level.
• Entities, such as corporations or trusts, can qualify as accredited investors if they have assets of at least $5 million or if all of their equity owners are accredited investors.

Qualified Purchasers

Qualified Purchasers are a subset of Accredited Investors, and to qualify, you must meet at least one of the following:

• At least $5 million in investments, either individually or jointly with a spouse.
• At least $25 million in investments (either individually or jointly with a spouse) if a family-owned company or a trust.
• For entities, the requirements to qualify are the same as for Accredited Investors.

Difference Between the Two

The main difference between Accredited Investors and Qualified Purchasers is the level of investment opportunities available. While Accredited Investors have access to types of investments not available to the general public, Qualified Purchasers have access to additional exclusive, refined, and high-risk opportunities in specific parts of the market. For example, a hedge fund with less than $150 million in assets under management is, under SEC rules, only allowed to accept investments from Qualified Purchasers.

Special Investments: Benefits and Risks

As an Accredited Investor or Qualified Purchaser, you have a broader opportunity set of investments built for you within the regulatory landscape. As with anything, this has benefits and downfalls.

Advantages of Being Accredited or Qualified

The main benefit of being an AI (or, subsequently, QP) is access to types of investments not available to the general public. Access to significantly more options offers the potential to increase your return and diversify your portfolio. This includes private equity funds and hedge funds, for example, investments that are relatively less regulated compared to public investments like a stock or a bond. This broadened set of opportunities provides benefits for increasing your return. While some alternative investments offered to AIs and QPs can have increased risk due to concentrated holdings or investment type, a good Wealth Manager will balance the risks to match your needs, and implement strategies that diversify your portfolio to your greatest advantage.

AI and QP Considerations

Like all investments, offerings that require you to be an Accredited Investor or Qualified Purchaser have unique features and risks. Because your opportunity set is broader and less regulated, you must go in with the understanding that your ability to lose is potentially increased depending on the investments you select, and especially for offerings that are highly concentrated. Making the best investment selections with an appropriate level of risk generally requires more research, time, and effort as an AI or QP. A common characteristic of investments offered to AI or QP is decreased liquidity, meaning you may not be as free to access or sell these investments on demand as you would be with a daily traded, public market investment. Usually, quarterly, or annual liquidation opportunities are available for investments in the AI category and QP investments can extend for 10 or more years.

Support from a Wealth Manager

When you’re an Accredited Investor or Qualified Purchaser, working with a wealth manager can be beneficial. Because of the more complex nature of these strategies, researching options becomes a more laborious process requiring a higher level of expertise. At Richard P. Slaughter Associates, we work with each client to build a portfolio aligned with their goals and needs. We use our expertise in researching and vetting investments and can balance your portfolio selections across the three investment levels (accredited investor, qualified purchaser, or non-accredited) to provide the appropriate risk, manage liquidity, and maximize your return.

Investing as a Qualified Purchaser or Accredited Investor is different from public investing. When investing as an Accredited Investor or Qualified Purchaser, you aren't just investing in the opportunity; you’re also investing in the expertise of a wealth manager to support you and help you maximize your potential return. At the end of the day, these two investment types are just part of the comprehensive portfolio and framework we build for our clients at Richard P. Slaughter Associates to help each achieve their financial goals.