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How to Become an Accredited Investor with Only $187 (Series 65 Exam) - YouTube
Channel: Tyler McMurray
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Being an accredited investor opens up a lot
of new opportunities, because it gives you
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access to exclusive investments like start-ups,
private companies and private investment funds.
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Unfortunately, this status has always been
difficult to reach, because the SEC has strict
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income and net worth requirements for eligibility.
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These include bringing in an annual income
of $200,000 or more for both of the last two
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years, or, having a net worth over $1 million,
not including the value of your home.
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However, I recently learned of a new update
to this rule that expands the definition of
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accredited investors, giving people access
to the status without meeting the net worth
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or income requirements.
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With these changes, certain licensed professionals
are now considered accredited investors regardless
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of their net worth or income.
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This is particularly exciting because this
includes individuals who are Licensed Investment
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Advisor Representatives, or IARs, which requires
passing the Series 65 exam.
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Unlike other licensing exams on this list,
the series 65 exam is open to anybody, which
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means you can take it without any professional
experience or affiliations.
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Let me clarify - anyone, regardless of education
or professional experience, can sign up and
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pass the Series 65 exam to become a licensed
investment advisor representative, and subsequently
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an accredited investor.
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The best part is, the exam only cost $187
at the time of writing.
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But, this isnât quite as easy as it sounds.
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In this video, Iâm covering the step-by-step
process of becoming an accredited investor
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through the Series 65 exam.
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It is true that you can get started with only
$187, but the process might be longer and
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more expensive than you expect depending on
how you approach it.
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It all starts with the Series 65 Exam, which
as it turns out, might be the easy part of
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the process.
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After passing the exam, youâll need to register
for your license to officially become accredited.
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This is easy for people working at an investment
firm, but if youâre someone like me who
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only wants the license for the accreditation,
youâll have to create your own investment
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firm to register under.
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Weâll talk about the processes and costs
involved in getting started this way, as well
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as how you maintain the status.
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Finally, weâll consider whether the designation
of being an accredited investor is actually
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worth all the trouble.
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I personally sunk a couple hundred dollars
into the process before I realized it wasnât
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the right path for me, so hopefully this video
can help point you in the right direction
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of what to do next.
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Letâs get into it.
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The path to becoming an accredited investor
starts pretty smoothly with the Series 65
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exam.
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Again, this is one of the only financial industry
qualification exams that donât require you
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to be affiliated with a financial firm.
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So for individuals who want to build their
own business, beef up their resume or just
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become accredited, the Series 65 really simplifies
things.
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To register for the exam, you simply go to
FINRA.org and click enroll under the section
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with the Series 65.
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Youâll have to create an account with FINRA,
after which point you can log in, select the
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Series 65 exam, and enroll for the test for
$187.
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After registering, youâll get an email from
FINRA with an ID number that gives you access
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to booking the exam within the next 120 days.
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From this point, you can go to the Prometric
website, the company that proctors the exam.
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After entering the ID number, you can book
an exam either in a testing center in your
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area or remotely.
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At this point, all thatâs left to do is
study and pass the exam.
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The general consensus is that the Series 65
exam is a bit easier than other licensing
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exams, which is good news for anyone who is
unfamiliar with the finance industry.
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But, given that youâre probably pursuing
this exam for accredited investor status,
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Iâm guessing you have some general knowledge
about investment products, and that should
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give you a head start on the exam content.
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The exam is three hours long with 130 multiple
choice questions.
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You must get a score of 72% to pass, which
is answering at least 94 questions correctly.
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30% of the exam covers laws and regulations,
15% covers economic factors, 25% covers different
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investment vehicles and the remaining 30%
covers recommendations and strategies for
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your potential clients.
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I spent a few hours digging into study materials
and practice tests, and I can verify this
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is definitely a test that requires studying,
but again, if youâre pretty savvy with financial
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topics it shouldnât be too overwhelming.
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Passing the exam after 4 to 6 weeks of studying
is definitely doable if youâre studious,
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maybe even a little less if you power through
the material and have a bit of prior knowledge.
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I would encourage anyone to dig around for
the best study materials, but I found a lot
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of great reviews on the Kaplan Financial materials,
which cost about $160 for the basic package.
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This is where I spent a few hours, and it
seems like itâs plenty to successfully prepare
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for the exam.
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But as I mentioned earlier, passing the exam
is only the first part of the process.
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According to the SEC, to be officially considered
an accredited investor, you must be licensed
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within the state and fully comply with all
requirements.
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And this is where things get a little messy.
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In order to be licensed, you have to file
a U4 form, which is a formal application to
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register as an investment advisor representative.
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The problem is, only registered investment
advisor firms are able to submit this form.
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So if you want to become licensed, youâll
either need to have an affiliation with an
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RIA firm that will file the U4 on your behalf,
or youâll need to create your own RIA firm
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so you can submit the form on your own.
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Again, if you plan to work in the industry,
you can just find a job and let your investment
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firm worry about all of the logistics.
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But for people who purely want that accredited
investor status without formally working at
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an investment firm, youâll need to create
your own firm to submit this U4 form.
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There are two paths to registering as an investment
advisor firm.
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The first is by registering through your state.
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The issue is that the registration process
for states can vary from one to another, so
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the simplicity of that process will depend
on the state you live in.
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Youâll also have to follow any additional
regulations that your state may have on firms,
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which could be additional paperwork and compliance
requirements, complicating the registration
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process.
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For this reason, an easier path may be to
register with the SEC.
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This path is typically restricted to investment
advisors with over $100M in assets under management,
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but there is an exemption for people who operate
as âinternet investment advisorsâ.
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This offers a much easier path to registration
for people who donât want to operate a traditional
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investment advisory firm.
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In order to qualify, you must offer advice
to your clients exclusively through an interactive
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website.
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The SEC defines this as a website that uses
software-based models or applications to provide
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advice to clients who enter their information
into the website, making it an interactive
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and personalized experience.
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Other electronic media communication does
not qualify for this designation.
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This means you could create a fairly simple
website with an interactive tool that gives
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visitors investment advice, and youâre qualified
to register as an online investment advisor
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through the SEC.
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This simplifies much of the registration process.
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If you choose to go this route, you can create
an investment advisor account at the FINRA
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gateway tool, which will give you access to
the forms required to register a firm.
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From here, all you have to do is file the
form ADV.
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Internet only advisors will check the box
to register with the SEC, and then youâll
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get a lengthy form asking for all the details
of your firm.
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You can fill it out as a sole proprietor using
your own personal information, or as a business
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using an LLC, corporation or other entities.
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A lot of this will be pretty simple if you
donât actually have any clients, but youâll
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also need to submit some compliance documents
including items like client brochures and
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the relationship summary.
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This definitely sounds complicated, but according
to Nathan Leung at natecation.com, you can
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adapt some templates fairly easily to fulfill
the SEC requirements and submit the ADV.
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Iâll also be linking his blog post on this
subject below because he gives a great walkthrough
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of his experience.
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It will cost $40 to submit the form ADV, but
this will also trigger a filing notice for
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your state of residence.
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Whether you set this up as a sole proprietor,
LLC or anything else, youâll have to file
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a notice in the state where your primary address
is located.
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This will be handled automatically by the
SEC, but it will come with an additional fee,
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ranging from 0 to a couple hundred dollars
depending on the state.
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After youâve done all this, youâll finally
be able to submit the form U4 to register
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as a licensed investment advisor representative.
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Youâll do this through the same Finra Gateway
portal where you submitted the ADV earlier,
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and this is where youâll detail your personal
information and use your Series 65 exam score
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to qualify for licensing.
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Since youâll be registering as an SEC-registered
investment advisor, you can avoid state fees
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here, but there will still be a $15 fee for
filing the U4 form.
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Once this form is complete, you just need
to wait on the SEC to review it, at which
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point you will officially be a licensed investment
advisor representative and an accredited investor.
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Weâre not quite to the end yet, because
itâs important to know youâll have to
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check a few boxes in order to maintain your
designation as a registered investment advisor
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and a licensed IAR.
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First, youâll have to pay annual fees to
keep all of your registrations in good standing.
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This means the $40 SEC fee for the firm, the
$15 fee for yourself as an advisor, and whatever
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state fees are involved, which again could
be as much as a few hundred dollars.
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Some of this also involves updating your registration
forms, or at the very least re-filing them
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to show the SEC that nothing about your business
has changed.
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And of course, youâll need to make sure
the investment firm you register stays compliant
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with the definition of an internet investment
advisor.
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This includes maintaining all the necessary
records, providing advice exclusively through
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your website and making sure your website
fits the requirements of what could be considered
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interactive.
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I was unable to find any detailed guidelines,
but I imagine the website would have to be
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somewhat decent to convincingly meet these
requirements, particularly if it were to be
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examined by the SEC.
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Last year, a Florida-based firm registered
as an internet advisor was charged by the
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SEC.
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They failed at every single one of these compliance
requirements - starting with a failure to
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maintain the required books and records.
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The SEC then charged them for being improperly
registered as an internet advisor.
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Evidently, the firm had no clients - much
like I expect you or I would have - and didnât
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even provide advice through an interactive
website.
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This case proves that you really need to comply
with the SEC requirements, because theyâre
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sure to catch you eventually if you try to
take advantage of this designation without
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being eligible for it.
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So after doing all this research and personally
putting a few hundred dollars into the process,
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I decided that becoming an accredited investor
wasnât worth it for me.
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Hereâs my thought process.
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First, youâll have to put dozens of hours
into studying for the Series 65 exam and taking
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it.
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It also costs about $300 for the exam and
study materials.
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Then, youâll have to create a website to
register as an online investment firm.
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For a basic domain name and web hosting, youâll
probably pay about $30 a year to maintain
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your website, and youâll have to put in
the time required to make sure itâs fully
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compliant with the definition of an interactive
website.
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You may also need extra security and record-keeping
to satisfy SEC requirements.
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Then, youâll have to actually register as
an investment advisory firm, which will cost
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at least $40 a year for the SEC and probably
a hundred or two more for your state of residence.
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For me in Florida, itâs $200 a year.
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Finally, to become a registered individual
and an accredited investor, youâll file
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the U4 form for $15 which comes with another
$15 annual renewal fee.
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Altogether, thatâs about a $575 investment
in the first year, and $275 per year to maintain
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it.
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On top of all of this, I donât think the
SEC gives clear enough guidelines to the qualifications
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for an internet advisor to make me confident
in registering a firm.
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I donât know if talking about investing
on YouTube would violate the âexclusivityâ
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of giving advice on an interactive website,
or how complex of an application I would need
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to create on the website to give people personalized
advice.
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And at the end of the day, itâs all just
an excuse to be an accredited investor, which
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is probably the wrong reason for going through
this process.
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Ultimately, Iâd feel safer doing this through
an LLC, but thatâd be another couple hundred
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dollars per year to maintain, making this
an even costlier process.
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So once I added up all of the time and money
Iâd be investing to pull this off, I had
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to consider what I actually planned to do
with my accredited investor designation.
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Truthfully, I just want to have the accredited
investor status so I can earn yield on my
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crypto in $CEL, the native token on the Celsius
Network platform.
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This allows me to earn about 25% more yield
on my crypto assets, a privilege that isnât
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currently available to non-accredited US investors.
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While I still desperately want this opportunity,
itâs probably not worth the time, money
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and headache of going through the Series 65
exam and registering with the SEC.
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In fact, it would probably only earn me an
extra couple hundred dollars in a given year,
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which is almost exactly what it costs to get
that accredited investor status through the
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Series 65.
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So I realized that Iâm better off using
that time and money elsewhere, and just working
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towards the net worth and income requirements
that will eventually qualify me as an accredited
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investor.
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I would definitely encourage anyone else to
consider their end goal with this designation
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before getting started, so you can objectively
think through the costs and benefits of the
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whole process.
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Feel free to leave me a comment if you have
any questions here, I know this is a super
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dense process and Iâd love to have some
further discussion.
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And if youâre looking to get your feet wet
with earning passive income in crypto, check
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out my recent video on how you can earn over
10% APY on your cash with Celsius Network.
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Iâll see you in the next video.
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