Quick Answer
An individual qualifies as an accredited investor by clearing a net worth test (over
Quick Answer: An individual qualifies as an accredited investor by clearing a net worth test (over $1,000,000, excluding the primary residence), an income test (over $200,000 individually or $300,000 jointly for two years running, with a current-year expectation of the same), or by holding, in good standing, an SEC-designated professional license, or by a qualifying employment role.
,000,000, excluding the primary residence), an income test (over $200,000 individually or $300,000 jointly for two years running, with a current-year expectation of the same), or by holding, in good standing, an SEC-designated professional license, or by a qualifying employment role.Unlike the entity categories, the natural-person paths in this lesson are a dollar test, a credential test, or a job-role test at one specific fund. No institution-status shortcut applies to individuals. The net worth and income tests exist side by side; an investor only needs to clear one.
Regulation D reaches two more natural persons alongside the entity categories: an issuer's own director, executive officer, or general partner, and a family client whose investment a qualifying family office directs.
How Does the Net Worth Test Work?
- Individual net worth, or joint net worth with a spouse or spousal equivalent (a cohabitant in a relationship generally equivalent to a spouse's), exceeds $1,000,000.
- Joint net worth is the couple's combined net worth. The assets do not need to be held jointly, and the securities do not need to be purchased jointly.
What Counts (and Doesn't Count) in the Net Worth Calculation?
- The person's primary residence is excluded as an asset.
- Mortgage debt secured by the primary residence, up to the home's fair market value, is excluded as a liability.
- An increase in that mortgage debt during the 60 days before the sale, other than debt taken on to buy the residence itself, is included as a liability.
- Mortgage debt that exceeds the home's fair market value is included as a liability.
Exam Tip: Gotchas
- The 60-day lookback exists to stop an investor from borrowing against a home right before a sale purely to look wealthier on paper. A fresh home-equity loan taken out in that window still counts against net worth, even though the mortgage itself would normally be excluded.
- The primary residence is excluded as an asset, but its mortgage is only excluded up to the home's fair market value. Once the mortgage balance passes that value, the excess flips back to a liability.
How Does the Income Test Work?
- Individual income exceeding $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent exceeding $300,000 in each of those years.
- Plus a reasonable expectation of reaching that same income level in the current year.
Exam Tip: Gotchas
- The joint threshold is $300,000, not simply double the $200,000 individual figure.
- The current-year expectation is part of the test, not an afterthought. Two years of qualifying income alone is not enough without it.
Who Qualifies Through a Professional Certification or Employment?
- A natural person holding, in good standing, a professional certification, designation, or credential designated by the Securities and Exchange Commission (SEC) qualifies as accredited. Regulation D delegates the naming of qualifying credentials to a separate SEC order rather than listing them in the rule. That order named three licenses: the Series 7 (General Securities Representative), the Series 82 (Private Securities Offerings Representative), and the Series 65 (Investment Adviser Representative).
- A "knowledgeable employee" of a private fund that relies on the Investment Company Act's exclusion for funds with 100 or fewer investors, or the exclusion for funds sold only to qualified purchasers, is an accredited investor for purposes of investing in that same fund.
Exam Tip: Gotchas
- A Series 82 license is itself an SEC-designated credential. A registered representative holding one in good standing qualifies personally as an accredited investor, independent of net worth or income.
- The knowledgeable-employee path only works for that employee's own fund. It does not make the employee accredited generally, or for any other fund.
What Should You Check on Exam Day?
- Confirm which test a scenario is testing: net worth ($1,000,000) or income ($200,000/$300,000). They are independent paths, not stacked requirements.
- Check for the 60-day mortgage lookback whenever a scenario mentions a recent home-equity loan or refinance.
- Remember the income test requires both the two-year history and a current-year expectation.
- Recognize that holding a Series 7, Series 82, or Series 65 license in good standing makes a person accredited on its own, with no dollar test attached.