Accredited investors have unique access to a variety of investment opportunities that are not available to the general public. This includes higher-risk, potentially higher-return investments such as hedge funds, private equity, and real estate ventures. If you’re wondering what it takes to become an accredited investor in Canada and what opportunities come with this status, this guide will walk you through everything you need to know.

Whether you’re new to investing or have been in the game for a while, understanding the qualifications and benefits of being an accredited investor can help you unlock a wider range of investment options.

Key Points to Know

To qualify as an accredited investor in Canada, you must meet specific financial criteria, such as having an income exceeding $200,000 for the past two years or possessing over $1 million in financial assets.

Accredited investors gain access to investments that are not registered with Canadian securities regulators, including hedge funds and private equity. These investments often offer higher returns but come with increased risks.

However, you don’t need to be an accredited investor to participate in some types of stable, reliable investments, such as mortgage investments, which are accessible to a broader range of investors.

Who Qualifies as an Accredited Investor?

An accredited investor is an individual or organization that meets certain financial thresholds defined by Canadian regulators. The definition is outlined in the National Instrument 45-106, which is enforced by the Ontario Securities Commission (OSC), British Columbia Securities Commission (BCSC), and Alberta Securities Commission (ASC).

Individual Accredited Investors

To qualify as an accredited individual investor, you must:

• Have net assets worth more than $1 million before taxes.
• Have a net income before taxes of at least $200,000 in each of the last two years, or $300,000 combined with a spouse in the same period, and expect to maintain or exceed this income level in the current year.
• Own net assets of at least $5 million, either individually or with a spouse.

Entities as Accredited Investors

In addition to individuals, various entities such as financial institutions and government agencies can also be considered accredited investors. These include:

• Trust companies or corporations operating under the Trust and Loan Companies Act.
• Registered charities that follow advice from an eligible securities advisor.
• Pension funds regulated by the relevant governmental bodies in Canada.

Non-Accredited Investors: What Does This Mean?

Non-accredited investors are individuals or organizations that do not meet the above criteria. While non-accredited investors can still participate in certain types of investments, their access is generally more limited, especially in high-risk areas.

Non-accredited investors are categorized into eligible and ineligible investors. Eligible investors can access some securities under specific conditions, while ineligible investors face more restrictions. The key difference is that accredited investors have broader access to private market opportunities, which can offer higher returns but come with higher risk.

How to Become an Accredited Investor in Canada

There is no official certification process to become an accredited investor in Canada. Instead, investors are required to prove their qualifications through the companies offering investments to accredited individuals. This process typically involves filling out Know Your Client (KYC) and suitability forms, which detail an investor’s financial status, investment goals, and risk tolerance.

Accredited vs. Non-Accredited Investors

The distinction between accredited and non-accredited investors primarily hinges on financial qualifications. Accredited investors have the financial capacity to engage in riskier investments that could yield higher returns. These investments are often found in private markets, specifically within exempt market securities, which are not subject to the full regulatory requirements of public market securities.

Public markets are characterized by investments like stocks and bonds traded on exchanges, with a high degree of liquidity. In contrast, private markets involve investments that are not publicly traded and typically require longer-term commitments with less frequent valuations.

Benefits of Being an Accredited Investor

Being an accredited investor offers several key advantages:

• Access to More Investment Opportunities: Accredited investors can diversify their portfolios by investing in both public and private market securities, helping them reduce risk and explore a wider range of asset classes.
• Reduced Regulatory Hurdles: With fewer regulatory requirements for private securities, accredited investors face lower costs and fewer barriers when accessing new investment opportunities.
• Higher Potential Returns: While investments in private markets can be riskier, they often offer the potential for significantly higher returns compared to traditional public market securities.

Investment Opportunities for Accredited Investors

If you qualify as an accredited investor, you can access several alternative investment options:

1. Hedge Funds: These investment vehicles often have higher risks but are managed by experienced professionals. Hedge funds typically charge higher fees and offer limited liquidity.
2. Venture Capital: By investing in startups, accredited investors gain equity in new businesses, which can lead to substantial returns if the company goes public or is sold.
3. Real Estate Investments: Many accredited investors participate in real estate ventures, which can involve high upfront capital but also present lucrative opportunities, particularly through innovative financing methods such as mortgage investment corporations (MICs).

The Appeal of Mortgage Investing

Mortgage investments are a compelling option for both accredited and non-accredited investors. One of the benefits of mortgage investing is the potential for passive income in the form of regular dividends. These investments are secured by the property itself, making them relatively low-risk. Additionally, mortgage investing provides a strong diversification tool since it operates independently of fluctuations in the stock market.

Conclusion

While accredited investors enjoy the privilege of accessing a broad range of high-return opportunities, you don’t necessarily need to meet these qualifications to achieve strong investment returns. Areas like mortgage investing are available to a wider pool of investors and can offer consistent, reliable returns. Whether you’re an accredited investor or not, understanding your options is crucial to making informed and successful investment choices.