For many, the world of investing feels out of reach due to the financial requirements to begin participating. For some, it may simply be a lack of knowledge of how different types of investing strategies work.
But even for everyday investors, the requirements to begin investing in some asset classes such as real estate create a hurdle, as they have historically required accredited investor status, making it even more difficult to get started.
The good news? There have been many recent changes that have opened up alternative investing for everyday investors.
If you’re just starting out on your investor journey — or you’ve been investing for some time and you’re ready to begin accessing new asset classes — it’s important to understand the differences between types of investors, the asset classes available to each, what it takes to become accredited, and whether you need accredited status to begin building your investment portfolio.
The investment world has historically been divided by a critical regulatory line: the distinction between accredited and non-accredited investors.
This line, established by the U.S. Securities and Exchange Commission (also known as the SEC), was created with the intent to protect less financially sophisticated individuals from high-risk, unregistered investments.
Unregistered investments, in this case, mean investment opportunities that have not been formally registered with a financial regulatory authority, such as the SEC, or relevant state regulators. This may mean that these opportunities lack formal regulatory scrutiny, or offer reduced transparency, making it more difficult for the everyday investor to conduct their own due diligence, and may expose the investor to overall increased risk.
These private investment offerings, designed for sophisticated, accredited investors, may include:
To participate in these types of opportunities, you must first have an accredited investor status. You must prove your wealth, and complete a specific process to receive the proper accredited investor credentials. The requirements for accredited investing have historically focused on the most exclusive opportunities — especially in the private markets — accessible only to the wealthy. However, the vast majority of investors (over 90 percent in the U.S.) do not meet the accredited investor criteria.
In part because of the overwhelming number of non-accredited investors compared to accredited investors, a powerful change has opened opportunities for everyday people. New regulations, specifically Regulation A (which passed as part of the JOBS Act in 2012, and went into effect in 2015), have created innovative new pathways to fractional investing.
Today, the landscape is rapidly changing, allowing not only accredited investors to participate in alternative asset classes like real estate, but also for the everyday investor to access the same opportunities once exclusive only to the financial elite. This regulatory shift has broadened access to billions in previously private markets.
The SEC requires companies offering unregistered securities (e.g. private investments) to sell only to accredited investors. This is because accredited investors are deemed capable of conducting their own due diligence, without the extensive disclosures mandated for public offerings.
Meeting the Accredited Investor Requirements
You can qualify as an accredited investor by meeting specific financial or professional criteria.
Let’s take a look at the requirements.
When making an investment that requires accredited status, the company raising the capital must verify your status. This typically involves submitting documentation (such as W-2s, tax returns, or bank/brokerage statements) or a third-party verification letter from an attorney, law firm or CPA to the issuer.
As an accredited investor, you can unlock a world of investment opportunities in the private markets, which are generally characterized by higher risk and lower liquidity, but often higher potential returns.
These unique asset classes include:
While the asset classes we listed above remain exclusive, fractional investing has been a game-changer, especially in the historically inaccessible field of real estate. Fractional investing allows an individual to buy a small fraction or share of an asset, rather than purchase the entire property or a full share of stock.
As we shared earlier, this model was made possible by regulatory changes like the JOBS Act (specifically Regulation A and Regulation Crowdfunding, often called Regulation CF). These regulations created legal pathways for private companies to raise capital from the general public, including non-accredited investors, often with capped investment limits.
Platforms utilizing these regulations act as digital conduits. Unlike traditional Real Estate Investment Trusts (REITs), which are large, publicly-traded companies pooling a portfolio of real estate properties, or traditional real estate investing, which often requires large upfront capital, fractional platforms acquire properties and divide the ownership through shares in the fund, making real estate more approachable.
This innovative approach to ownership through fractional investing levels the playing field for several reasons:
Forte is an example of a platform that leverages these new rules to bridge the gap between a historically inaccessible asset class and investors seeking a simple, transparent way to participate in real estate. And our experts manage the entire investment journey — from sourcing and evaluating properties to handling transactions, overseeing development, and guiding each asset to disposition.
The investment world continues to move toward greater transparency and inclusion, fostering innovation and expanding participation in potential wealth-creating opportunities for a wider range of investors.
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