Potential Changes to the Accredited Investor Qualifications

Several private investments that involve things like apartment buildings, storage complexes, mobile home parks, etc… require investors to be accredited.  Currently, you can qualify as an accredited investor in a few different ways, the following is directly from the SECs website. 

Financial Criteria

• Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
• Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year

Professional Criteria

• Investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
• Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company)
• Any “family client” of a “family office” that qualifies as an accredited investor
• For investments in a private fund, “knowledgeable employees” of the fund

You only have to meet ONE of those requirements. 

However, the landscape of private investments is on the verge of change. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to review the accredited investor definition every four (4) years. While changes are not mandatory, the discussions hint at adjustments to the income and networth requirements to align with inflation rates, a move that could redefine the thresholds of net worth or income qualifications. This pivotal shift could recalibrate the financial arena, possibly reclassifying the accredited status of numerous investors.

The SEC released this video giving an overview of their recent committee meeting.

This puts the SEC in a bit of a pickle. While the SEC’s mission has traditionally aimed to broaden the avenues of investments, this adjustment leans towards a more protective stance for investors. It’s a delicate balance between democratizing investment opportunities and safeguarding investor interests.

On the other hand, The Equal Opportunity for All Investors Act could open the accredited investor status up even further. Having cleared the House, it is up to the Senate (not me, lol) to decide the fate of this bill. This legislation proposes a qualification exam that could bridge the gap between financial acumen and the conventional benchmarks of income or net worth. This could open doors for savvy investors previously sidelined by traditional metrics.

If this topic is important to you, I suggest you email your senator and ask them to support The Equal Opportunity for All Investors Act.