Redefining who's an 'accredited investor'
August 27, 2020
The SEC has a new take on which investors should have access to the private markets.
For decades, regulations have generally barred individual investors from participating in the nation's private markets unless they were wealthy enough to take on the risks of such opaque investments.
The new rules, championed by SEC chairman Jay Clayton, come out of a years-long debate about ways to help more Americans tap into the vast wealth creation spawned by the booming private markets at a time of dwindling opportunities in publicly traded stocks.
In redefining what it means to be an accredited investor, the SEC now says that should be based on a person's "financial sophistication," not just net worth. How investors meet that test isn't totally clear or limited to specific criteria. Other details include:
For decades, regulations have generally barred individual investors from participating in the nation's private markets unless they were wealthy enough to take on the risks of such opaque investments.
The new rules, championed by SEC chairman Jay Clayton, come out of a years-long debate about ways to help more Americans tap into the vast wealth creation spawned by the booming private markets at a time of dwindling opportunities in publicly traded stocks.
In redefining what it means to be an accredited investor, the SEC now says that should be based on a person's "financial sophistication," not just net worth. How investors meet that test isn't totally clear or limited to specific criteria. Other details include:
- Under the rules unveiled Wednesday, one new definition for an accredited investor would be individuals who hold relevant finance industry certifications like Series 7, Series 65 or Series 82 licenses. The SEC said that list could evolve over time.
- For purposes of investing in a private equity or venture capital fund, "knowledgeable employees" of that vehicle—such as an executive officer, a partner or a board member—would meet the new standard.
- Other rule changes further open the pool of accredited investors:
- "Spousal equivalent" was added to the new definition to allow investors and their spouses (or equivalent partners) to pool their finances for the purpose of combining their net worth to qualify as accredited investors.
- Family offices with assets of at least $5 million will now qualify, as will family clients of those offices.
- Even so, the SEC said the changes aren't expected to add significantly to the pool of existing accredited investors, and that the amount of capital from newly eligible investors would have "minimal effects" on the private markets.
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