In 2020, accredited investors controlled roughly $73.3 trillion in wealth. By 2023, this increased to $109.5 trillion, representing about 78.7% of all private wealth in America.
Similarly, Qualified Eligible Persons (QEPs) collectively control a significant amount of investable assets, influencing market trends and investment flows.
These investors control a substantial amount of wealth, so it’s important to fully understand what defines them.
This blog will explain the key differences between accredited investors and QEPs.
What is an accredited investor?
The SEC defines an accredited investor as an individual with a net worth over $1 million (excluding their primary residence), or an income exceeding $200,000 ($300,000 for joint income) over the last two years.
This classification aims to protect less experienced investors from high-risk investments. For example, investing in private equity requires accredited investor status because these investments involve significant risk and complexity.
The idea is that those with greater financial resources and experience are better equipped to manage this complexity.
What is a Qualified Eligible Person?
A QEP is defined by the Commodity Futures Trading Commission (CFTC). They classify QEPs as individuals and entities that meet specific financial thresholds.
To qualify, a QEP must own securities and other investments worth at least $2 million. Additionally, they must have at least $200,000 in initial margin and option premiums for commodity interest transactions.
Much like accredited investors, this is to protect investors with less experience.
So what are the differences between accredited investors and Qualified Eligible Persons?
1) Regulatory Bodies
2) Alternative Investment Opportunities
- Accredited Investors can invest in alternative assets like private placements, hedge funds, and small business finance notes
- QEPs can access alternative assets like commodity pools and managed futures
3) Specific Financial Requirements
- Accredited Investors must have a net worth of over $1 million or an income exceeding $200,000 in the last two years
- QEPs must own securities and other investments worth at least $2 million, and have a minimum of $200,000 in initial margin and option premiums for commodity interest transactions
Why does this matter?
Understanding your investor status is key to ensuring you access investment opportunities suitable for you, and knowing which regulatory bodies apply to you.
For family offices, recognizing where different clients fall on this scale can be important for customizing investment strategies and maintaining client loyalty.
Ultimately, understanding these differences can help you make more informed decisions about which alternative assets to invest in. This can allow you to diversify more effectively and potentially optimize your returns.
What can I do now?
If you want to learn more about different investor classifications, click here to explore our educational resources.
Our existing small business finance notes have achieved a 100% success rate in reaching their target return rates.
We’ve facilitated over 45,000 individual deals, helping fund more than $1.5 billion in small business finance products.
If you meet the criteria of an accredited investor, you can sign up for a free investor account to discover unique alternative asset investment options that align with your status and goals.
