Thoughts on using series 7 to qualify as an accredited investor?
Denver, CO · Member since 2018 · 127 posts · 97 votes
Thoughts on using series 7 to qualify as an accredited investor?
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Jim PfeiferBusiness Member
Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votesI am not an expert here, but my understanding is that the Series 7 requires you to be sponsored by a member firm - so you would basically need to be a financial advisory working with an advising firm. The Series 65 does not have that requirement - anyone can take it. That, and it is a much easier test to pass than the 7. Both will get you accredited but the Series 65 might be the way to go for anyone who is not looking to work for a financial advising firm.
27 Replies
- Chicago, IL · Member since 2017 · 175 posts · 86 votes4y
Hi Joe, I’m currently trying to do this with the series 65- I personally agree that it’s worth it- especially since we’ll be learning as we go. I’d love to connect and hold eachother accountable.
STCUSA.com seemed to be the highest value study resource in my research
- 4yDaniel DietzPro MemberRental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votesHello, just following along here
are you guys saying that if you get this certification you will be able to invest in syndication that require accredited investors, even though you do not other criteria as far as income goes?
I am in the situation where I am a real estate professional, but my net worth or my income do not qualify me as accredited. Thanks for any feedback - 4yJim PfeiferBusiness MemberInvestor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
I am not an expert here, but my understanding is that the Series 7 requires you to be sponsored by a member firm - so you would basically need to be a financial advisory working with an advising firm. The Series 65 does not have that requirement - anyone can take it. That, and it is a much easier test to pass than the 7. Both will get you accredited but the Series 65 might be the way to go for anyone who is not looking to work for a financial advising firm.
- Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes4y
Originally posted by @Account Closed:
Has anyone successfully used a series 7 in order to qualify as an accredited investor to invest in RE syndications?
If so, can you share about your experience and any potential benefits or drawbacks?
I have been considering this for the following reasons:
- The cost of $245 for the test seems very reasonable given the substantial increase in returns compared to a REIT
- The risk of investing in a RE syndication as a debt investor or even equity seems very low compared to the stock market or other asset classes right now
- I would hope that studying for a series 7 would make someone a smarter investor
As a side note, how is it considered too risky for the average investor to invest in a real estate backed investment but investing in Bitcoin or Dogecoin is considered safe for the general public?
Hi Joe,
Here is a basic article on how to become an accredited investor (basically the Rich get Richer):
Have you GP's to ask their Securities Council if you can participate due to this type of sales license.
Good Luck!
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
All of you are correct. You can go for and pass the Series 65 exam without a "sponsor". Once you pass that series 65, you are considered an Accredited Investor, irregardless of income.
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes4y
@Joe Coleman a series 7 is a pretty big deal, I worry about your passing it if you don’t know how to answer this question…
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes4y
@Joe Coleman I don’t believe you can have a series license without being sponsored by a member firm. You need to be part of a broker dealer to even qualify to take the exam so I would say the answer is no unless you work in the industry.
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes4y
@Brian Garlington I don’t believe this is correct, although you don’t need a member firms sponsorship to take the test I think the rule states you need to be licensed as an investment advisor, which you can only do by applying through a registered firm, I believe it is a state registration.
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
Thanks @Matthew M.
However, you are wrong. Google it, you can take the Series 65 exam with out being sponsored by a broker/firm.......and when you pass it, you do not have to hang that series 65 certification with a particular broker/firm. I've had several syndicators that literally told me this in writing.
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes4y
@Brian Garlington here is the rule, you can read it yourself. It states explicitly what I thought it did.
https://www.sec.gov/corpfin/amendments-accredited-investor-definition-secg
“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.).”
- 4yJim PfeiferBusiness MemberInvestor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
I think there are some gray areas here. @Matthew M. is correct that the SEC says you need to be "licensed as an investment advisor representative" but each state is different in what that means. However, the 65 is the only test that does not require you to be sponsored by a broker-dealer - this implies that you could be an RIA and hold the Series 65 and not be affiliated with a firm and perhaps qualify as an Accredited Investor.
https://www.investopedia.com/a...
Checking and confirming accreditation is the responsibility of the syndicator - some are very specific about how they qualify someone and others are not. Personally, I don't think being non-accredited should be an obstacle to someone investing in any syndication - having a certain salary or net worth doesn't mean you are any smarter in your investment choices, it just means you might be able to "afford" to lose more money than someone with lesser net worth or income. I think if an syndicator will accept you as accredited through having the Series 65 and your state allows you to hold the RIA designation by taking that test, that should be good enough. In my mind the status of Accredited investor is arbitrary and excludes plenty of qualified investors from these investments and if they can qualify by taking the Series 65 and sponsors are willing to accept them - people should absolutely do it. The question that has yet to be answered, is how will a sponsor react to someone with this designation?
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes4y
Originally posted by @Jim Pfeifer:
I think there are some gray areas here. @Matthew M. is correct that the SEC says you need to be "licensed as an investment advisor representative" but each state is different in what that means. However, the 65 is the only test that does not require you to be sponsored by a broker-dealer - this implies that you could be an RIA and hold the Series 65 and not be affiliated with a firm and perhaps qualify as an Accredited Investor.
https://www.investopedia.com/a...
Checking and confirming accreditation is the responsibility of the syndicator - some are very specific about how they qualify someone and others are not. Personally, I don't think being non-accredited should be an obstacle to someone investing in any syndication - having a certain salary or net worth doesn't mean you are any smarter in your investment choices, it just means you might be able to "afford" to lose more money than someone with lesser net worth or income. I think if an syndicator will accept you as accredited through having the Series 65 and your state allows you to hold the RIA designation by taking that test, that should be good enough. In my mind the status of Accredited investor is arbitrary and excludes plenty of qualified investors from these investments and if they can qualify by taking the Series 65 and sponsors are willing to accept them - people should absolutely do it. The question that has yet to be answered, is how will a sponsor react to someone with this designation?
You make some good points. I agree it is a bit grey, I would also agree there are going to be sponsors out there who play fast and loose and may say "sure" to a non-accredited investor who passed a 65 but isn't a registered advisor but I don't think thats the majority. Any sponsor with competent counsel is going to kick back this type of investor because there is too much risk involved in accepting them, and there are plenty of actual accredited investors out there. The law certainly varies state to state but but in most states that I have seen, to be an investment advisory rep, you need to be associated with an investment advisor. If you are going to be a sole prop, which I think is what you are referring to, you need to register as an RIA yourself which I suppose could be done but seems like a tremendous amount of time, money, and effort, just to skirt the intent of the law. You open yourself up to liability for any advice given even though you are not actually conducting securities business, plus you have books and records requirements, net worth requirements, other miscellaneous potholes you can step in incidentally. Long story short, seems like a bad idea to me and probably many more valuable things you can spend your time on like building your income or net worth to attain AI status.
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
Poster A. You can't do "that".
Poster B. Why am I going back and forth with someone who hasn't done what I'm already doing?
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes4y
Originally posted by @Brian Garlington:
Poster A. You can't do "that".
Poster B. Why am I going back and forth with someone who hasn't done what I'm already doing?
I'm not saying that their aren't funds out there that will take your money under these conditions, it is a new rule after all and it's possible the regulators never crack down on it, but I can tell you having raised money under reg D, that if an investor didn't check the net worth/income boxes but says they passed the 65, I would look them up on broker check and very quickly realize they aren't actually an RIA or a registered rep.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes4y
@Account Closed, as others noted, I don't know that the Series 7, or even the 65 are necessarily "easy" ways to qualify, but per the SEC rule, they do qualify you.
As far as your logic of getting into syndications versus stocks, a syndication is no guarantee that you will outperform the stock market. And depending on how you assess risk, particularly liquidity, syndications may be a bad idea. Specifically, you mention risks being lower in RE "right now". What are you assessing that makes stocks seem higher risk today versus real estate, and why higher risk today versus some other period of time?
To your final question: crypto is very volatile, yes. But there is a fairly liquid secondary market for it. This liquidity both increases volatility, but also reduces risk since you can likely get out when you want to.
But, beyond your question: many syndications have very high minimums. Some are $250k and up, many are $50k and up. From a traditional portfolio management perspective, if you do not qualify as accredited via net worth or income, are you in a position to lose that investment? One risk that comes with private offerings, and real estate specifically, is you can't get in for $1,000, typically. I can buy $500 worth of bitcoin and if it goes under, I am out $500. With syndications, if they go under (and they can faster than you may imagine) you aren't losing $500, but often times 100x that amount.
- 4yPaul MoorePro MemberCommercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
@Account Closed you got some helpful feedback here. Any progress in your thinking? Seems the consensus is to go for Series 65, which is how we’ve been advising investors for the past year or so since this info was released by the SEC. Good luck!
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
@Account Closed BOOM..........straight from Paul Moore. His company is one of many that have told me last year that passing the Series 65 exam is one way to be considered an accredited investor.
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes4y
Originally posted by @Brian Garlington:
@Account Closed BOOM..........straight from Paul Moore. His company is one of many that have told me last year that passing the Series 65 exam is one way to be considered an accredited investor.
Not to beat a dead horse and more just to clarify my statements earlier; i'm not saying that by passing the exam you aren't accredited, what I said is you have to not only pass the exam, but also be REGISTERED, and although it may be state dependent; to my experience in order to register as a rep you need to have an RIA or BD to file your U4. I would be curious if there is a different interpretation from sponsors but presumably they are checking your registration when you apply as an investor under this new definition, and if you aren't registered I would think they would not allow you to invest regardless of if you passed the 65 or not.
- 4yJim PfeiferBusiness MemberInvestor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
As evidenced by the different opinions on this post I don't think it's at all black and white. Accreditation in general is not black and white. Each syndicator makes their own decision how they are going to confirm accredited status - that might not be the intent of the regulation, but that is how it happens in practice. It's really just a CYA approach for many syndicators. Some require a letter from a financial professional, some require asset or W2 verification and others allow the investor to attest to the status. So if sponsors are willing to accept passing the 65 as a standard for showing accreditation, then the test will be all you need. Some might require a broker affiliation, or Registered or licensed by the state.
My opinion doesn't matter as far as accreditation, but it really is just an arbitrary qualification that does more to exclude investors than protect them. There is nothing that makes someone with a salary of $300,000 or assets of $1M that makes them a better or worse investor than someone with less wealth - the wealthy might just be able to "afford" their mistakes a bit better. This rule is more exclusionary than anything else, so if you can take the 65 and find sponsors who will let you invest with them - as long as you are educating yourself about the investments - I say go for it!
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes4y
This feels like a loophole everyone is already abusing and will be redacted as a result of it.
I just want to go on record as saying this now - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes4y
Originally posted by @Jim Pfeifer:
As evidenced by the different opinions on this post I don't think it's at all black and white. Accreditation in general is not black and white. Each syndicator makes their own decision how they are going to confirm accredited status - that might not be the intent of the regulation, but that is how it happens in practice. It's really just a CYA approach for many syndicators. Some require a letter from a financial professional, some require asset or W2 verification and others allow the investor to attest to the status. So if sponsors are willing to accept passing the 65 as a standard for showing accreditation, then the test will be all you need. Some might require a broker affiliation, or Registered or licensed by the state.
My opinion doesn't matter as far as accreditation, but it really is just an arbitrary qualification that does more to exclude investors than protect them. There is nothing that makes someone with a salary of $300,000 or assets of $1M that makes them a better or worse investor than someone with less wealth - the wealthy might just be able to "afford" their mistakes a bit better. This rule is more exclusionary than anything else, so if you can take the 65 and find sponsors who will let you invest with them - as long as you are educating yourself about the investments - I say go for it!
In theory, an accreddited investor that loses all of his investment doesn't wind up on welfare and is less of a burden to the rest of us. Also, an accredited investor, in theory, knows how to make money and recover and is sophisticated enough to deal with the ups and downs of life. The accredited investor also has friends and family who have the means to get him out of trouble. Most people have $500 total in the bank and can't handle an emergency using cash. Accredited investors typically have assets they can liquidate if need be. It's a mind set as much as it's a dollar amount.
- 4yJim PfeiferBusiness MemberInvestor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
I guess I would say that anyone that qualifies for Accredited status using the Series 65 test and is planning to invest $25,000 or $50,000 into a syndication probably has more than $500 in the bank and has all of those things you are saying most accredited investors have.
We have many sophisticated people in our Community who are not accredited but can certainly afford to invest - and do invest - in syndications, they just have severely limited options because most syndicators allow only accredited investors. My point is that it’s an arbitrary designation with arbitrary amounts. What makes someone with $1,000,000 in net worth a better investor than someone with $800,000? Or someone that has income of $150,000 living in Ohio is a smarter investor than someone making $250,000 living in California? It’s likely that the Ohio investor is in a better financial position to invest - but won’t qualify as accredited for arbitrary reasons.
I really don’t think there are a lot of people with only $500 in the bank who are going to spend the time and money to take the Series 65 and even if they do, they need significantly more than $500 to invest in typical syndications.My opinion is that the Accreditation status hurts more people than it helps and if syndicators are willing to allow people to get in their deals with the 65, then it’s up to the investor to do the due diligence and make their investment decision.
- Member since 2019 · 2 posts · 1 vote4y
I'm currently dealing with this now and I'm looking at taking the series 65 exam so I'm allowed to invest my money how I choose. I appreciate this thread and how it shows that this is all just made up junk so people can CYA. In my state, it mentions on the attorney general site that an investment advisor without a place of business in the state and not more than five clients in the state during the previous twelve months is not required to register. Based on that statement I would think I could take the series 65 and be accredited at that point, but again this all comes back to it all being made up and up to interpretation. I'm having to look at this option because there are investments I want to make this year for tax purposes. My income for 2021 and 2022 have met the income requirements but I have to arbitrarily wait until next year to meet the past 2 years definition.
- Member since 2019 · 7k+ posts · 4k+ votes4y
Quote from @Account Closed:
risky for the average investor to invest in a real estate backed investment but investing in Bitcoin or Dogecoin is considered safe for the general public?
I 100% agree with your assessment. I've researched a lot on this and most accredited-investor-only investments are much lower risk than any public availability investment *but* only if you know what you're doing. Even if you are on the bad sponsor, if the economy goes well, you may not receive the promised cash-flow but you can still gain mostly.
There's a possibility of wiping out though or zero return, but only if you invest in the wrong sector at the wrong time (let's say you invest in the A-Class hotel sector in 2019).
The key is because (-) you actually buy the economy (-) accredited investor only investment usually has lot of deals that's being underwritten and scrutinized very carefully ; so it all depends on the sponsor credibility (track record/vertical scaling/management/local experience)
So in accredited investments, the challenge is finding good reliable sponsors.
In my opinion, you should not compare real estate to crypto. For me, crypto is not worth more than a napkin. Only because greedy Silicon Valley VC that thing getting popularized. - Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes4y
Risks are WAY higher in syndications then stock index investing or simple buy/hold deals. You are investing the riskiest part of capital stack typically and paying a ton of fees. Deals flop all the time even on bigger sites theres been a few total losses. Unless you can afford to lose 25-50k you shouldn’t be participating. I would actually say in 2022 stocks have more upside from current levels then real estate syndications even on a non-risk adjusted basis.
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