Financial Industry Regulatory Authority (FINRA) Practice Exam

A married couple with an income exceeding $300,000 in the past two years is classified as which of the following?

1. A qualified investor

2. An accredited investor

3. An institutional investor

4. A qualified institutional buyer (QIB)

The correct answer is: An accredited investor

The classification of a married couple with an income exceeding $300,000 in the past two years falls under the category of "accredited investor." This designation is defined by the Securities and Exchange Commission (SEC) and is significant in the context of private investments, such as private equity and hedge funds, where the ability to engage with less regulated investment opportunities often requires an investor to meet certain financial thresholds. To qualify as an accredited investor, an individual or couple must have a net worth of over $1 million, excluding their primary residence, or have earned income exceeding $200,000 in each of the two most recent years (or $300,000 for joint income). Since the couple in this scenario meets the income requirement, they are recognized as accredited investors, allowing them access to investment opportunities not available to the general public. In contrast, other classifications such as qualified investors or institutional investors refer to different sets of criteria and types of entities. A qualified institutional buyer (QIB), for example, typically refers to institutions that own and invest at least $100 million in securities, which is distinct from individual or married investor criteria. Understanding these distinctions is vital for navigating the rules and regulations governing investments and the associated risks.