Being an accredited investor opens up a lot of new opportunities, because it gives you
access to exclusive investments like start-ups, private companies and private investment funds.
Unfortunately, this status has always been difficult to reach, because the SEC has strict
income and net worth requirements for eligibility.
These include bringing in an annual income of $200,000 or more for both of the last two
years, or, having a net worth over $1 million, not including the value of your home.
However, I recently learned of a new update to this rule that expands the definition of
accredited investors, giving people access to the status without meeting the net worth
or income requirements.
With these changes, certain licensed professionals are now considered accredited investors regardless
of their net worth or income.
This is particularly exciting because this includes individuals who are Licensed Investment
Advisor Representatives, or IARs, which requires passing the Series 65 exam.
Unlike other licensing exams on this list, the series 65 exam is open to anybody, which
means you can take it without any professional experience or affiliations.
Let me clarify - anyone, regardless of education or professional experience, can sign up and
pass the Series 65 exam to become a licensed investment advisor representative, and subsequently
an accredited investor.
The best part is, the exam only cost $187 at the time of writing.
But, this isn’t quite as easy as it sounds.
In this video, I’m covering the step-by-step process of becoming an accredited investor
through the Series 65 exam.
It is true that you can get started with only $187, but the process might be longer and
more expensive than you expect depending on how you approach it.
It all starts with the Series 65 Exam, which as it turns out, might be the easy part of
the process.
After passing the exam, you’ll need to register for your license to officially become accredited.
This is easy for people working at an investment firm, but if you’re someone like me who
only wants the license for the accreditation, you’ll have to create your own investment
firm to register under.
We’ll talk about the processes and costs involved in getting started this way, as well
as how you maintain the status.
Finally, we’ll consider whether the designation of being an accredited investor is actually
worth all the trouble.
I personally sunk a couple hundred dollars into the process before I realized it wasn’t
the right path for me, so hopefully this video can help point you in the right direction
of what to do next.
Let’s get into it.
The path to becoming an accredited investor starts pretty smoothly with the Series 65
exam.
Again, this is one of the only financial industry qualification exams that don’t require you
to be affiliated with a financial firm.
So for individuals who want to build their own business, beef up their resume or just
become accredited, the Series 65 really simplifies things.
To register for the exam, you simply go to FINRA.org and click enroll under the section
with the Series 65.
You’ll have to create an account with FINRA, after which point you can log in, select the
Series 65 exam, and enroll for the test for $187.
After registering, you’ll get an email from FINRA with an ID number that gives you access
to booking the exam within the next 120 days.
From this point, you can go to the Prometric website, the company that proctors the exam.
After entering the ID number, you can book an exam either in a testing center in your
area or remotely.
At this point, all that’s left to do is study and pass the exam.
The general consensus is that the Series 65 exam is a bit easier than other licensing
exams, which is good news for anyone who is unfamiliar with the finance industry.
But, given that you’re probably pursuing this exam for accredited investor status,
I’m guessing you have some general knowledge about investment products, and that should
give you a head start on the exam content.
The exam is three hours long with 130 multiple choice questions.
You must get a score of 72% to pass, which is answering at least 94 questions correctly.
30% of the exam covers laws and regulations, 15% covers economic factors, 25% covers different
investment vehicles and the remaining 30% covers recommendations and strategies for
your potential clients.
I spent a few hours digging into study materials and practice tests, and I can verify this
is definitely a test that requires studying, but again, if you’re pretty savvy with financial
topics it shouldn’t be too overwhelming.
Passing the exam after 4 to 6 weeks of studying is definitely doable if you’re studious,
maybe even a little less if you power through the material and have a bit of prior knowledge.
I would encourage anyone to dig around for the best study materials, but I found a lot
of great reviews on the Kaplan Financial materials, which cost about $160 for the basic package.
This is where I spent a few hours, and it seems like it’s plenty to successfully prepare
for the exam.
But as I mentioned earlier, passing the exam is only the first part of the process.
According to the SEC, to be officially considered an accredited investor, you must be licensed
within the state and fully comply with all requirements.
And this is where things get a little messy.
In order to be licensed, you have to file a U4 form, which is a formal application to
register as an investment advisor representative.
The problem is, only registered investment advisor firms are able to submit this form.
So if you want to become licensed, you’ll either need to have an affiliation with an
RIA firm that will file the U4 on your behalf, or you’ll need to create your own RIA firm
so you can submit the form on your own.
Again, if you plan to work in the industry, you can just find a job and let your investment
firm worry about all of the logistics.
But for people who purely want that accredited investor status without formally working at
an investment firm, you’ll need to create your own firm to submit this U4 form.
There are two paths to registering as an investment advisor firm.
The first is by registering through your state.
The issue is that the registration process for states can vary from one to another, so
the simplicity of that process will depend on the state you live in.
You’ll also have to follow any additional regulations that your state may have on firms,
which could be additional paperwork and compliance requirements, complicating the registration
process.
For this reason, an easier path may be to register with the SEC.
This path is typically restricted to investment advisors with over $100M in assets under management,
but there is an exemption for people who operate as “internet investment advisors”.
This offers a much easier path to registration for people who don’t want to operate a traditional
investment advisory firm.
In order to qualify, you must offer advice to your clients exclusively through an interactive
website.
The SEC defines this as a website that uses software-based models or applications to provide
advice to clients who enter their information into the website, making it an interactive
and personalized experience.
Other electronic media communication does not qualify for this designation.
This means you could create a fairly simple website with an interactive tool that gives
visitors investment advice, and you’re qualified to register as an online investment advisor
through the SEC.
This simplifies much of the registration process.
If you choose to go this route, you can create an investment advisor account at the FINRA
gateway tool, which will give you access to the forms required to register a firm.
From here, all you have to do is file the form ADV.
Internet only advisors will check the box to register with the SEC, and then you’ll
get a lengthy form asking for all the details of your firm.
You can fill it out as a sole proprietor using your own personal information, or as a business
using an LLC, corporation or other entities.
A lot of this will be pretty simple if you don’t actually have any clients, but you’ll
also need to submit some compliance documents including items like client brochures and
the relationship summary.
This definitely sounds complicated, but according to Nathan Leung at natecation.com, you can
adapt some templates fairly easily to fulfill the SEC requirements and submit the ADV.
I’ll also be linking his blog post on this subject below because he gives a great walkthrough
of his experience.
It will cost $40 to submit the form ADV, but this will also trigger a filing notice for
your state of residence.
Whether you set this up as a sole proprietor, LLC or anything else, you’ll have to file
a notice in the state where your primary address is located.
This will be handled automatically by the SEC, but it will come with an additional fee,
ranging from 0 to a couple hundred dollars depending on the state.
After you’ve done all this, you’ll finally be able to submit the form U4 to register
as a licensed investment advisor representative.
You’ll do this through the same Finra Gateway portal where you submitted the ADV earlier,
and this is where you’ll detail your personal information and use your Series 65 exam score
to qualify for licensing.
Since you’ll be registering as an SEC-registered investment advisor, you can avoid state fees
here, but there will still be a $15 fee for filing the U4 form.
Once this form is complete, you just need to wait on the SEC to review it, at which
point you will officially be a licensed investment advisor representative and an accredited investor.
We’re not quite to the end yet, because it’s important to know you’ll have to
check a few boxes in order to maintain your designation as a registered investment advisor
and a licensed IAR.
First, you’ll have to pay annual fees to keep all of your registrations in good standing.
This means the $40 SEC fee for the firm, the $15 fee for yourself as an advisor, and whatever
state fees are involved, which again could be as much as a few hundred dollars.
Some of this also involves updating your registration forms, or at the very least re-filing them
to show the SEC that nothing about your business has changed.
And of course, you’ll need to make sure the investment firm you register stays compliant
with the definition of an internet investment advisor.
This includes maintaining all the necessary records, providing advice exclusively through
your website and making sure your website fits the requirements of what could be considered
interactive.
I was unable to find any detailed guidelines, but I imagine the website would have to be
somewhat decent to convincingly meet these requirements, particularly if it were to be
examined by the SEC.
Last year, a Florida-based firm registered as an internet advisor was charged by the
SEC.
They failed at every single one of these compliance requirements - starting with a failure to
maintain the required books and records.
The SEC then charged them for being improperly registered as an internet advisor.
Evidently, the firm had no clients - much like I expect you or I would have - and didn’t
even provide advice through an interactive website.
This case proves that you really need to comply with the SEC requirements, because they’re
sure to catch you eventually if you try to take advantage of this designation without
being eligible for it.
So after doing all this research and personally putting a few hundred dollars into the process,
I decided that becoming an accredited investor wasn’t worth it for me.
Here’s my thought process.
First, you’ll have to put dozens of hours into studying for the Series 65 exam and taking
it.
It also costs about $300 for the exam and study materials.
Then, you’ll have to create a website to register as an online investment firm.
For a basic domain name and web hosting, you’ll probably pay about $30 a year to maintain
your website, and you’ll have to put in the time required to make sure it’s fully
compliant with the definition of an interactive website.
You may also need extra security and record-keeping to satisfy SEC requirements.
Then, you’ll have to actually register as an investment advisory firm, which will cost
at least $40 a year for the SEC and probably a hundred or two more for your state of residence.
For me in Florida, it’s $200 a year.
Finally, to become a registered individual and an accredited investor, you’ll file
the U4 form for $15 which comes with another $15 annual renewal fee.
Altogether, that’s about a $575 investment in the first year, and $275 per year to maintain
it.
On top of all of this, I don’t think the SEC gives clear enough guidelines to the qualifications
for an internet advisor to make me confident in registering a firm.
I don’t know if talking about investing on YouTube would violate the “exclusivity”
of giving advice on an interactive website, or how complex of an application I would need
to create on the website to give people personalized advice.
And at the end of the day, it’s all just an excuse to be an accredited investor, which
is probably the wrong reason for going through this process.
Ultimately, I’d feel safer doing this through an LLC, but that’d be another couple hundred
dollars per year to maintain, making this an even costlier process.
So once I added up all of the time and money I’d be investing to pull this off, I had
to consider what I actually planned to do with my accredited investor designation.
Truthfully, I just want to have the accredited investor status so I can earn yield on my
crypto in $CEL, the native token on the Celsius Network platform.
This allows me to earn about 25% more yield on my crypto assets, a privilege that isn’t
currently available to non-accredited US investors.
While I still desperately want this opportunity, it’s probably not worth the time, money
and headache of going through the Series 65 exam and registering with the SEC.
In fact, it would probably only earn me an extra couple hundred dollars in a given year,
which is almost exactly what it costs to get that accredited investor status through the
Series 65.
So I realized that I’m better off using that time and money elsewhere, and just working
towards the net worth and income requirements that will eventually qualify me as an accredited
investor.
I would definitely encourage anyone else to consider their end goal with this designation
before getting started, so you can objectively think through the costs and benefits of the
whole process.
Feel free to leave me a comment if you have any questions here, I know this is a super
dense process and I’d love to have some further discussion.
And if you’re looking to get your feet wet with earning passive income in crypto, check
out my recent video on how you can earn over 10% APY on your cash with Celsius Network.
I’ll see you in the next video.