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Accredited investors are an exclusive subset of investors who meet the Securities and Exchange Commission (SEC) qualifications. To be an accredited investor, the SEC requires that at least one of the following conditions set forth in Rule 501 of Regulation D are met:

• Net Worth: Individual or joint net worth, excluding the value of a primary residence, that exceeds $1 million.
• Individual Income: Individual income greater than $200,000 for the past two years with the expectation to reach the same this year.
• Joint Income: Income of a married couple or spousal equivalent that exceeds $300,000 for the past two years with the expectation to reach the same this year.
• Professional Certification: Any person holding at least one professional certification, designation, or credential from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status.
• Knowledgeable Employees: Executive officers, directors, trustees, and advisory board members of a private fund, or an employee of a private fund who participates in investment activities of the fund and has been doing so for at least 1 year to this item.

Sophisticated investors may also be called non-accredited investors, although not all non-accredited investors may be called sophisticated investors. Sophisticated investors are defined by the SEC as those who “have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.” 

Many countries recognize the sophisticated investor status, although there are no formal qualifications to be classified as such. Sophisticated investors are often those who lead accredited investors and can be professionals such as accountants, bankers, and business owners. 

In the United States, sophisticated investors have fewer investment opportunities than accredited investors. One noteworthy perk is that they can invest in Rule 506(b) offerings. Under this rule, securities may not be sold to more than 35 sophisticated investors, thereby reducing the sheer number of overall investment opportunities available.