How To Become an Accredited Investor With the Series 65 Exam

This is a guest post written by Regdee

How To Become an Accredited Investor With the Series 65 Exam

If you’ve arrived here, you’re probably interested in investing in private markets. But as you’ve likely learned, you’ll need to be an accredited investor to participate in these investment opportunities. Historically, this access has been restricted to individuals who meet the financial means criteria, which is one of either:

• $1M net worth (excluding debt and value of primary residence), or
• $200K income for the preceding two years (as provable by tax documents)

However, in 2020, the SEC amended the accredited investor definition so that an individual could hold one of three Series exam licenses “in good standing” and qualify as an accredited investor. These three exams include the Series 7, Series 65, and the Series 82. Of these exams, only the Series 65 can be taken independently without sponsorship from a FINRA member firm.

Consequently, many investors have taken the Series 65 exam to qualify as accredited investors. However, many of these individuals subsequently learned that just passing the test is not enough to qualify as an accredited investor. Regulators have clarified that the “in good standing” clause in the amended definition means that the Series 65 license holder must also be associated with a registered investment advisor firm.

The good news is that any individual can set up their own investment advisor firm. The bad news is that registering an advisor firm takes time, is costly, and requires maintenance in the form of ongoing compliance. Below, we are detailing this entire process from start to finish, and then describing Regdee’s turnkey solution that simplifies this process:

• You will need to take and pass the Series 65 exam. We won’t go into too much detail about the Series 65 exam in this blog post. If you’re looking for more information, you can refer to our previous blog post here.
• Once you take and pass the exam, you’ll need to register an investment advisor firm with either the Securities and Exchange Commission (SEC) or the state regulator in the state where you will base your operations (generally, this means the state where you live).
• Any investment advisor firm can register with the state where their operations are based, but each state has unique requirements to register as an investment advisor firm.
• In some cases, you may register at the federal level with the SEC, but this requires you either have a certain level of assets under management (AUM) or qualify under another exemption. It’s important to note that many advisors have tried to register under the Internet Adviser Exemption, but the SEC has increased their scrutiny of this exemption over the last 2 years.
• Regardless of whether you register with the state regulator or at the federal level with the SEC, you’ll need to pay a registration fee for your firm each year. This fee varies according to the state you’re in, but you can expect to pay a few hundred dollars. If you register at the state level, you’ll pay a state registration fee. If you register at the federal level, you’ll pay a state notice filing fee. State registration fees and state notice filing fees can be found here.
• Besides paying fees, each state has unique registration requirements specific to that state. Generally, this means filing paperwork, but some states have additional requirements. To understand the complete filing requirements for your state, you can consult NASAA here or consult with the regulatory body for your state. Below, we’ll disclose the requirements for federal registration with the SEC, as most states have similar requirements:
  • Form ADV Part 1: an online short-answer document that you’ll need to submit describing the operations of your investment advisor firm.
  • Form ADV Part 2A: a long-answer document targeting prospective clients that you’ll need to write from scratch and submit describing the operations of your investment advisor firm.
  • Form ADV Part 2B: a document targeting prospective clients that you’ll need to compile from scratch outlining any and all investment professionals who provide investment advice or have discretionary authority of client assets within your investment advisor firm.
  • Form CRS (Customer Relationship Summary): a long-answer document with sample questions for prospective clients who are interested in your investment advisor firm (limited to only 4 pages).
  • Code of Ethics: each firm will be required to adopt and maintain a Code of Ethics. SEC Rule 204A-1 requires that the Code of Ethics touch on standards of conduct, adherence to federal securities law, personal securities trading reporting, pre-approval of investments, reporting of code violations, and delivery / acknowledgment of the Code of Ethics.
• It’s also important to note that you’ll need to maintain records of all interactions and services you have with clients of your advisor firm. If you do not have any Clients, it is possible that the regulator will revoke your firm’s registration.
• Finally, you’ll need to document the trades you make within your personal trading accounts, as these trades can constitute conflicts of interest in regard to services that you render for your clients.
• Once you register your advisor firm, you’ll need to register yourself as an investment advisor representative with your firm.
• The specific requirements vary by state, but generally you’ll need to file a U4 form that associates you with your firm
• Depending on the state you’re in, you may need to get fingerprinted and submit to a criminal background check
• Almost all states will require an investment advisor representative registration fee which varies by state
• And finally, some states require ongoing education to operate as an investment advisor representative.

If you do decide to register with the SEC, it is likely that within the first 24 months of creating your firm, you will be examined by the SEC. In the event of an examination, you’ll want to make sure that you have prepared documents concerning your interactions with prospective clients. State-registered investment advisor firms are also subject to examinations, varying in frequency by state.

As you can see, registering your own advisor is an intensive process, with the upfront registration being just a portion of the time and dollar investment. Regdee was created to take much of the brain damage out of this process. We have already registered an investment advisor organization with the SEC. We work with users who are motivated to become accredited investors but do not want to set up their own advisory organizations. We register them as investment advisor representatives with our wholly-owned investment advisor, AccredInvest LLC.

If this is something you’re interested in, feel free to visit us at our webpage or reach out to us at hello@regdee.com.