Insights

Accreditation Amendments

On August 26th, the Securities and Exchange Commission approved amendments to the guidelines that qualify individuals and entities as “accredited investors.” The move is meant to better provide opportunities to investors and entities that have the financial wherewithal to make personal investment decisions but did not necessarily meet the accredited status under the old law. Previously the SEC used wealth or level of income as a representation of an individual’s financial sophistication. In the Commission’s written report, the SEC states, 

“Prior to the adoption of these final rules, in the case of individuals, the accredited investor definition has used wealth—in the form of a certain level of income or net worth—as a proxy for financial sophistication. However, as stated in the Proposing Release, we do not believe wealth should be the sole means of establishing financial sophistication of an individual for purposes of the accredited investor definition. Rather, the characteristics of an investor contemplated by the definition can be demonstrated in a variety of ways. These include the ability to assess an investment opportunity—which includes the ability to analyze the risks and rewards, the capacity to allocate investments in such a way as to mitigate or avoid risks of unsustainable loss, or the ability to gain access to information about an issuer or about an investment opportunity—or the ability to bear the risk of a loss. Accordinglyfinal rules create new categories of individuals and entities that qualify as accredited investors irrespective of their wealth, on the basis that such investors have demonstrated the requisite ability to assess an investment opportunity."

Although it is still unknown exactly what the certification process will be, this revelation will open the door to a vast number of investors that could previously not invest in private offering opportunities due to the strenuous criteria - specifying that accreditation composed of an individual with an annual income of $200k ($300k if filing jointly) for the previous two years with the expectation of continuation, or a net worth of $1 million excluding your primary residence.

  

 

Disclaimer: Information contained herein should not be considered investment advice. Wealthrise makes no representations or warranties and accepts no liability. We suggest that you consult with a tax advisor, CPA, financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks and risk implications associated with any investment.

  

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