Changes to the Accredited Investor Standard?

SEC Chairwoman Mary Jo White recently replied to Representative Scott Garrett to indicate that the Commission is in fact in beginning to review the standard for accredited investors, as required by the Dodd-Frank Act. Among other things, the SEC will consider whether net worth and annual income should be used as tests for the accredited investor standard for natural persons. Representative Garret had suggested several alternative standards, including the professional and educational background (such as in the financial or investment industries) of the investor, or whether the investor is being advised by a qualified broker or registered investment advisor. Chairwoman White responded that those proposals were being evaluated (including investigating whether investors have brought suit against advisors for purchases of private placement offerings). Above all, Chairwoman White stressed the two important factors for accredited investors standards: investor sophistication and ability to absorb loss. It will be interesting to see what proposed standards the SEC comes out with; however, I suspect that the two important factors listed by Chairwoman White will not be sufficient, but necessary conditions for accredited investor status. Therefore, while the particular calculations may change, I think wealth will continue to be part of the standard; but it remains to be seen whether sophistication and experience with investments also becomes part of the standard or a separate requirement that stands on its own.

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