Short Cut to Accredited Investor Status – Series 65 License
One dilemma that comes up in conversations I have with investors who are passionate about investing in real estate syndication and have educated themselves about these types of opportunities, is the accredited investor hurdle and that many do not meet the accredited investor definition to invest. Most of the private placement syndications deals I review or participate in require that the investor be accredited.
The accredited investor requirements are based on income or net worth. Specifically, an annual income of $200,000 for a single person, $300,000 (if including a spouse), achieved over each of the last two years (and expected to achieve in the current year), or a net worth of $1,000,000 (minus equity in one’s personal residence), is a high hurdle for many investors to qualify for these private placement opportunities. A whole world of investment opportunities, however, open to those that are accredited.
These rules still stand today but earlier this year, the SEC added a new category of accredited investor qualification that creates a unique opportunity for those that fall short of the income or net worth requirements. You can now become accredited through education. There are three available Series licenses the SEC recently approved, the Series 7, 82 and 65. The Series 7 and 82 require being sponsored by a registered financial services firm (i.e. Broker Dealer) and are geared to the financial professional so let’s leave that aside for now as that is limiting to many unless you are seeking a career in this field. However, the Series 65 is a non-sponsored exam that is open to individuals.
The Series 65 license is now the fastest and easiest way to become an accredited investor and participate in private placement investments. It is essentially the exam and securities license required for individuals to act as investment advisors in the U.S. The exam covers economic factors and business information, investment vehicle characteristics, client investment recommendations, strategies, laws, regulations, and guidelines.
You can go online and access training companies that specialize in providing educational materials for helping you successfully prepare for and pass the Series 65. Cost of study materials are in the $350 - $400 range. Study time is estimated at 60+ hours for preparing to pass the exam. You can schedule an exam near you or take online for a cost of $175, which is administered by FINRA (Financial Industry Regulatory Authority).
The test is 130 questions (3 hours) and you need to answer 94 correctly (72%) to pass the exam. Once you pass, you can become a licensed Series 65 and officially be considered an accredited investor. This enables you to participate in real estate syndications deals, venture capital funds, angel investing, and other alternative private deals.
For serious investors who are open to investing in private placements and alternative investments, a Series 65 might also be something that should be considered regardless of your income or net worth. Also, if you are already accredited but have folks in your inner circle of family, friends, co-workers or investment peers that are sophisticated, like to learn, study investments but are not close to becoming an accredited based on income or net worth, pursuing the Series 65 is a wise investment and short cut to start investing in a wider set of investment options.
Photo by Adeolu Eletu