The Difference Between Non-Accredited vs. Accredited Investors

Investors don’t all sit in the same box, so what sets accredited and non-accredited investors apart? There are pretty clear guidelines on shifting from non-accredited to accredited and what that means for your investment opportunities, and we’ve covered all these details in this blog post.

What is an accredited investor?

An accredited investor could refer to a high-net-worth individual, a Schedule III bank, a person registered as an advisor or dealer, the Government of Canada or a jurisdiction of Canada or any crown corporation, etc. For the sake of this blog, we’ll be looking specifically at individuals who are considered accredited rather than corporations, governing bodies, or advisors.

To be considered an accredited investor as an individual, an investor must fulfill one of the following requirements:

Your net income before taxes was more than $200,000 in the 2 most recent calendar years, and you expect it to continue.
Your net income before taxes combined with your spouse’s income was more than $300,000 in each of the 2 most recent calendar years, and you expect your combined net income before taxes to be more than $300,000 in the current calendar year.
You own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities either alone or with a spouse.
You have net assets, including real estate, worth more than $5 million.

If an individual qualifies under these stipulations they can then purchase securities from a company only after signing a 45-106F9 Forms for Individual Accredited Investors.

What is a non-accredited investor?

On the other hand, a non-accredited investor has not yet met an accredited investor’s net worth or income level. This doesn’t mean that they aren’t a savvy investor. It simply means that their accumulated investments have yet to reach the specified benchmarks set out in the National Instrument 45-106 Prospectus and Registration Exemptions.

Accredited investment types that accredited investors can access

Because accredited investors have such a high net worth, they can invest in certain alternative investments. These alternative investments can be referred to as accredited investments due to their limited availability to other investors.

These investors are savvy enough to avoid unnecessary risks or protect themselves in the case of financial losses. These investment opportunities offer a greater chance at high returns; however, they also carry more risk and less liquidity.

Asset-backed investments – An investor that’s accredited may invest in a project or business that has collateral behind it. An investor would provide a loan to a company in trade for shares. The interest would act as the rate of return on the investment, and the value of the business itself would serve as the collateral.

Hedge Funds – Like mutual funds or ETFs, hedge funds are pooled funds that allow investors to diversify their money among many companies or investments. Hedge Funds, however, are less regulated and thus riskier.

Real Estate Investment – Accredited investors can fund projects themselves, invest in large-scale ownership, or work with other high-net-worth individuals to pool funds and invest in real estate.

How non-accredited investors can take advantage of alternative investments

Accredited investors can invest in corporations and alternative investments that are not publicly available and do not require a prospectus. Non-accredited investors have access to alternative investment types as well. However, there are more rules and regulations to protect investors from loss. The types of funds that non-accredited investors can invest in also involve more disclosure and documentation.

These rules and regulations don’t mean that non-accredited investors can’t invest in many of the same industries and vehicles as accredited investors. Many investment opportunities are available to non-accredited investors, such as:

Mortgage Investment Corporations (MICs) make it possible for all investors to invest in real estate. MICs manage pooled funds consisting of a variety of mortgages. Accredited and non-accredited investors can invest in numerous real estate projects and diversify their portfolios through this valuable alternative investment vehicle.
If you’re interested in learning more about investing in real estate with reduced risks, reach out to Jordan on our team to learn more.