What Is an Accredited Investor?
Investment Eligibility in Exempt Market Products.
Unlike the public sector, where anyone with an investment account can invest in public securities, the exempt market (which offers private securities not listed on a public stock exchange) restricts investments to three specific categories of investors: Accredited, Eligible, and Non-Eligible. Each group requires different qualifications and holds varying investment eligibility.
Morrison Financial Mortgage Income Funds is an exempt market product in which you invest directly in tangible assets (mortgage-secured real estate) to achieve an attractive risk-adjusted return. Your investor category determines your investment limit in the mortgage trust funds.
(a subset of Accredited Investors)
Criteria: $1M in net financial assets or $5M in total assets, or earn $200,000/year ($300,000/year with spouse).
Investment Limits: No investment limits.
Accredited investors in Canada meet specific standards set by the Canadian Securities Administration (CSA). These standards typically include income, net worth, and consider professional proficiency in financial matters. Accredited investors often have more diverse investment options, such as access to a broader range of alternative investments and potentially higher returns.
(a subset of Accredited Investors)
Criteria: $5M in net financial assets or defined by securities legislation as a registered financial advisor or dealer.
Investment Limits: No investment limits.
A permitted investor is a specific type of accredited investor, defined either by the securities legislation of a jurisdiction of Canada as an institution, advisor, dealer, and/or an individual with over $5,000,000 in net financial assets and/or $25,000,000 in assets. Given their credentials and/or substantial wealth, permitted investors are considered to be highly sophisticated and capable of assessing and bearing inherent risks connected to private investments. Permitted investors are given the highest level of flexibility for private market investments.
Criteria: $400,000+ in savings, or earn $75,000+/year ($125,000+/year with spouse).
Investment Limits: Can invest $30,000/year, up to a maximum of $100,000 (Exempt market)/year.
Eligible investors fall between accredited and non-eligible investors. Unlike accredited investors, they often need someone to represent them or provide financial guidance.
Criteria: Earn less than $75,000/year.
Investment Limits: Can only invest $10,000/year.
Non-eligible investors do not meet the Eligible or Accredited investor definition. They can still buy securities under the market exemption. However, non-eligible investors are subject to lower investment limits than eligible investors. For example, as a non-eligible investor investing in Morrison Financial’s private mortgage funds, the maximum amount to invest in a single calendar year is $10,000.
| Accredited | Eligible | Non-Eligible | |
|---|---|---|---|
|
Qualification |
$1M in liquid assets or $5M in total assets or Earns $200,000/yr. or $300,000/yr. with spouse |
$400,000+ in savings or Earns $75,000+/yr. or $125,000+/yr. with spouse |
Earns less than $75,000/yr. |
|
Investment limit |
No investment limits |
Can invest $30,000/ yr, |
Can only invest $10,000/ yr |
*The investment limit here refers to the total amount an investor can invest in the overall exempt market per year, not just in a specific opportunity. Therefore, it is beneficial to consider the investment limit as a point of reference when investing in individual opportunities (such as mortgage investment funds) to determine how much you are willing to invest based on your overall limit.
Why it is important to have these categories
01
These regulatory limits on how much an individual can invest in the exempt market aim to protect investors from overexposure to high-risk investments.
02
In other words, the category of investor you belong to determines what you are qualified to invest in when considering private securities. These requirements in private market investments protect less financially secure investors from the heightened risk associated with some financial endeavours (e.g., more experienced, accredited investors can invest more money and encounter possibly higher risk and return).
03
In addition to how much each investor is eligible to invest, a discussion on whether the investment is ‘suitable’ is crucial. For example, one may be eligible to invest $30,000 a year into exempt market products, but that is all the money they have to invest. As a form of risk management, the dealing representative may not allow them to invest this money into one product.
Takeaway
In conclusion, the exempt market categorizes investors into three distinct categories: Accredited, Eligible, and Non-Eligible. This structured approach to private market investments balances opportunity with investor protection, ensuring a fair and secure investment process for all.
Connect with our investment specialists to discuss your investment eligibility today.
*This is not legal or financial advice and should not be taken as such*
