The Importance Of Accreditation In The Investment Process

Alternative investments like private equity, hedge funds, and real estate investment trusts are only available to accredited investors. These investments offer higher returns and broader portfolio diversification.

To determine eligibility, potential investors must provide documentation revealing all assets and liabilities to calculate net worth. For example, a home equity line of credit boosts liabilities and limits an investor’s accreditation status.

Accreditation Increases Trust

As an accredited investor with the help of Caliber Co, you can access a more extensive range of investment opportunities. These investments are less regulated and thus come with higher risks, but they can also yield far higher returns.

It would be best to meet the SEC’s specific financial criteria to qualify as an accredited investor. Generally, a single person must earn at least $200,000 each of the last two years or have a net worth of $1 million (excluding their primary residence). Couples may combine their income and assets to satisfy these requirements.

Securities issuers must verify investors’ accreditation status, which is lengthy. This includes requesting documentation such as tax records, credit reports, and bank statements.

In addition, some entities—like trusts or corporations—may have detailed records on file that make it easier to verify their status. The verification process for these investors is usually shorter than for individuals. A recent study reveals that Joint Commission-accredited behavioral healthcare and human services organizations receive a strong ROI on their investments in accreditation.

It Reduces Fraud

The accreditation process is designed to help reduce fraud. For example, it requires the institution to submit financial records. It also checks that the school reports significant changes to accreditors. This helps ensure that students have access to the most accurate information available and that schools maintain a high standard of education.

It also provides an opportunity for a peer review and site visit. This is critical in a world of fraudulent marketing tactics designed to invoke trust and make it easy for investors to skip crucial due diligence steps. These include a promise of high returns on investment. The return must be consistent with market rates and pass the common sense test of whether it makes business sense.

The accredited investor designation ensures that individuals or entities investing in unregistered securities have the knowledge and resources to handle the greater risk. This is the requirement of law for investors who purchase private placements.

It Increases Confidence

Accredited investors have the advantage of accessing a wider variety of investment opportunities. They can invest in less regulated assets, such as hedge funds, private equity, and real estate investment trusts. These options offer higher returns but also come with higher risk.

This type of investing requires a high level of knowledge and financial resources to absorb losses, which is why the SEC established the accreditation requirement to ensure that individuals can understand and handle these risks. Those who qualify can prove their income through tax filings, pay stubs, or other government documents and must disclose all assets and liabilities to calculate their net worth.

However, verifying accredited investors can take time for securities issuers. This can lead to delays and an increased likelihood of human error, exposing the company to liability. A better alternative is to use an online verification process, which allows companies to save on costs and reduces the need for extensive manual checks.

It Increases Efficiency

Accreditation requires a service to take an objective look at itself to ensure that policies and procedures are standardized, records are documented and accurate, and client outcomes are monitored. This type of evaluation naturally leads to organizational changes that can create efficiencies and fiscal savings.

A recent study by ROI Institute found that Joint Commission-accredited behavioral healthcare and human services organizations experienced an average return on investment of 623%. The study revealed that a common reason for this high ROI was that accreditation led to a greater focus on quality and safety, resulting in organizational improvement.

Another reason for the high ROI was that being accredited gives investors access to less regulated securities like hedge funds and private equity that can offer significantly higher returns. However, the verification process can be time-consuming for the investor and the securities issuer. This is especially true when dealing with a large group of accredited investors, where manually checking every investor puts a heavy burden on both sides.