BECOMING AN ACCREDITED INVESTOR WITH THE SERIES 65
BECOMING AN ACCREDITED INVESTOR WITH THE SERIES 65
TL;DR
The Series 65 is a new side door to achieve accredited investor status.
This is a great option for knowledgeable investors with the desire, knowledge, judgment, and access to invest in startups.
To pass the Series 65, use a study guide and google searches to learn the materials. Then, drill with multiple practice tests so you don't get tripped up on exam day.
These days, tons of people want to become accredited investors so they can angel invest in startups, myself included. Like many people, despite having the knowledge and access, I’m still early in my career and don’t yet have the income or net worth.
So I decided to take a new side door to accreditation, the Series 65.
Since then, several people have reached out to me about my experience with the exam. So I put together a tweet thread on the US accredited investor regulations and my experience with the exam.
This is the article version of that thread. It covers all the material from the tweet thread along with a few additional details. Let’s jump in. 🪂
The Series 65 costs $175-187 in fees, is comprised of 130 multiple choice questions, and can be taken IRL at a local testing center or virtually through an online test-proctor. You get 3 hours to take the exam them. To pass, you need to achieve a 72% or 94/130 questions.
Passing the exam alone is not currently enough to achieve accreditation. After passing, you'll also need and ensure you're in "good standing" in your state. For the Series 65, that means being registered in your state. Each state has different regulations and fees governing this. Most average between $125-300.
“Individuals holding any of these three designations in good standing can qualify as accredited investors. Whether a person holds one of the designations in good standing is specific to that designation, and persons seeking accredited investor status under this category should consult FINRA rules and any state rules applicable to them. For example, a person seeking accredited investor status by passing the Series 65 exam would also need to be licensed as an investment adviser representative in her state and would need to comply with all state-specific licensing requirements (e.g., paying annual fees, etc.).
— The SEC
I'd check with your state's specific securities regulator and/or legal counsel to ensure compliance. The paperwork is more complex for some states than others.
Once you've established "good standing" with your state, you can set up accredited investor authentication for free on Accredited.AM by North Capital.
HOW TO PASS THE SERIES 65
Scoring a 72%+ on the Series 65 comes down to a combination of two things. ⬇️
Studying
Smart Test-taking.
1. Studying
It's widely recommended that you study for 60 hours to pass the test. If you have a background in finance or law, you can probably cut that by at least 50%. I studied for about 10 hours.
Your options for Series 65 studying are as follows: ⬇️
Buy a textbook 📔
Buy a study guide 👨🦯
Google tons of sh*t 🔍
Wing it 🕊
Combination of all the above
My recommendation: Skip the textbook and buy a study guide instead. Make sure the guide includes practice questions. I used the Test Geek Study Guide ($99). This guide also comes with a few hours of lectures that made navigating the trickier aspects of the exam a lot easier. Google anything that doesn't make sense in the study guide. Investopedia is going to be your best friend for any information that doesn't make sense in the study guide. Youtube is always a great resource too.
2. Smart Test-Taking
The Series 65 is broken down into four different categories of questions. Here's a breakdown of those categories: ⬇️
Economic Factors = 20 Qs (15%)
Investment Vehicles = 32 Qs (24%)
Client & Investment Strategies = 39 Qs (30%)
Risk = 39 Qs (30%)
Let's jump into some practice questions (answers in Appendix at the bottom of this article).
Economic Factors Practice Question 📝
According to Efficient Market Hypothesis, information based on company financials and economic factors is considered to be:
A Weak
B Semi-strong
C Strong
D Exceptional
Investment Vehicles Practice Question 📝
If a client takes out a loan from his whole life policy and does not pay it back, the insurance company can do which of the following:
A. Reduce the cash value at the next anniversary.
B. Reduce the death benefit when the client dies.
C. Increase the premium amortized over the life of the policy.
D. Surrender the policy
Client & Investment Strategies Practice Question 📝
A husband and a wife are 55 and 57 respectively. The husband plans to retire at 62 and the wife at 65 and both are healthy. What is the appropriate time horizon for their retirement portfolio?
A. 5 years
B. 7 years
C. 8 years
D. 20+ years
Risk Practice Question 📝
An agent of a B/D whose home office is in state A, has a client in State B who has their mail forwarded to State C for the winter. Which of the following is true?
A. Agent must be registered in state A only
B. Agent must be registered in State B only
C. Agent must be registered in State A and B only
D. Agent must be registered in State A. State B and State C
Think you crushed the questions? I hope so. The answers are in the appendix at the bottom of this article.
Test-Taking Tip: Series 65 questions often give you info in the choices that you've never seen while studying. Stick with what you know. Don't overthink it.
The following practice question is a perfect example of a way that the Series 65 tries to trick you. 👇
Which of the following is the definition of a Market Maker?
A. B/D that buys or sells listed securities on an exchange
B. A NASDAQ subscriber
C. B/D that buys or sells unlisted securities OTC
D. an underwriter
In the question above, you would likely not have read anything about NASDAQ subscribers in your study materials. Don't let those tricks derail you (The answer is C). If you take enough practice tests, these questions get easier and easier.
💥 If all goes well, the combination of studying and smart test-taking will pay off and you’ll pass the exam on your first try. If not, you can retake the test in 30 days. There's no limit on how many times you can re-take it.
NEXT STEPS
Assuming you have the access and knowledge, becoming an accredited investor to angel invest is empowering. That said, it isn't for everyone. The twitter thread below by Julian Weisser is a great primer on the trade-offs.
For tactics, strategies, and anecdotes on getting started as a tiny-check angel investor, this thread by Elizabeth Yen is one of my all-time favorites.
If you have follow-up questions, feel free to DM me on LinkedIn or Twitter. I’ll be writing a follow-up Twitter thread and article for international investors soon. Stay tuned. 👀
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