The journey toward acquiring greater wealth for many people involves participating in new financial opportunities. However, some of these opportunities are restricted to only certain individuals, in particular, accredited investors. These are individuals who have demonstrated they possess a certain level of financial stability and sophistication. Although it is not always necessary to verify one’s status as an accredited investor, in some cases it is necessary to prove accredited investor status.
Who Requires Proof of Accredited Status?
When the requirement to verify one’s accredited investor status is present, it often occurs in the context of crowdfunding investments, private equity funds, hedge funds, real estate syndications, angel investor group participation, and working with investment advisors. These institutions and individuals are often intent on verifying your accredited investor status prior to giving you access to any of their securities offerings. The purpose of the verification process is to ensure owners of equity make the best financial decisions possible as they allow new investors into their offerings.
Investors who intend on making investments of considerable size may be required to verify their accredited investor status through submitted documentation such as credit reports, tax returns, financial documents provided to a CPA, or reliable third-party verification services.
Protecting Investors and Entities
Accredited investor status protects entities and investors. It reduces the possibility of investors participating in overly risky investments based on their knowledge and financial capabilities by helping them comply with accredited investor regulatory criteria. This is important for not only the investors, the entities, and the businesses involved, but for the greater investment landscape and economy as well.
Although many investment opportunities do not require the investor to prove his or her accredited investor status, some do make it an essential requirement. As stated, this requirement is typically applicable when participating in hedge funds, private investment funds, syndications, private equity, and other similar or associated investment activities.
When the investor provides the required documentation for proving his or her status as an accredited investor, it demonstrates financial capability and adds to the security and transparency of the entire investing landscape. Therefore, when considering various opportunities available to accredited investors, always be prepared to prove your accredited investor status.
