In case you're just wondering what the changes to the rule are, they are roughly:
* The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82.
* Employees of investment funds can be accredited for purpose of investing in their employers fund.
* Firms that are SEC-registered investment advisors may now be accredited.
* To meet the individual standards of accreditation, households can pool wealth between spouses, regardless of whether both spouses are acquiring a security.
* LLCs with 5MM in assets are accredited, as are family offices with 5MM in assets.
Laws restricting investment should be about promoting investment diversity, and restricting risk concentration. This would actually allow small investments from mom and pop (a good thing with other safety rules), and prevent the moderately wealthy from losing everything (a la Lloyds “names”). Most people are 100% exposed to their job and perhaps their home, and I think it would be good if they would also invest small amounts long-term in businesses directly (rather than indirectly via bank savings).
> Employees of investment funds can be accredited for purpose of investing in their employers fund
This is a bad precedent. The biggest danger with investment is lack of diversity. Investing in your employer severely increases your risks (albeit increases rewards if you win). A great gamble when you win (startup unicorn) but a terrible gamble when you lose (company bankruptcy => lose job and lose retirement fund. Game over: play again?)
The critical factor missed in these discussions is the cost of diligence.
Someone writing a $20,000 cheque cannot spend $2,000 to $5,000 on lawyers every deal. This self selects for getting screwed. I would go so far as to say it is not possible to invest in private markets responsibly, outside one’s employer’s stock, with solely $5 to $25k cheques.
This is different in the public markets where the burden for disclosure is on the issuer. There is still risk. But you can’t buy Apple stock that loses money when Apple goes up. Options are complicated. But the complexity is standardised. It is totally possible, on the other hand, to buy common stock in a company that gets restructured to zero, or invest in an SPV that loses its shares to third-party repurchase rights. No amount of Googling will save you because the terms on each deal are bespoke.
> it is not possible to invest in private markets responsibly, outside one’s employer’s stock
I'd argue that if your employer is still private, investing in their stock is often quite unresponsible as well. Often you don't even get real stock but options, there can be arbitrary dilution, and there is no contractual right for you to get your money back (unlike if you invested money).
> investing in their stock is often quite unresponsible as well
Often, but not always. You work there. And you are surrounded by others evaluating the same, or a similar, investment. That creates the possibility of an edge.
That possibility doesn’t exist for non-insiders. Without those advantages you’re relying on “knowing the right guy”. Nothing more.
You work at the place so you are already invested in them, and are surrounded by others who are also already invested in them. So you and your colleagues already do the bet that the startup is going to be successful, which might skew your judgement on further investment. Sure, you know more about the company than a small investor would, but neither of two cases give you a board seat, which would give you insight into how the company is really doing, and there are no regulated shareholder communications like a public company has.
So mush for freedom... I can't learn the law myself? What if I'm already lawyer completely capable of skipping this fee obstacle. Who is anyone to rate the capabilities of an individual?
Wouldn't it be a better, more free, system to just make it law to issue strong warnings suggesting up to $20,000 in legal fees for the inexperienced noobies upon any share issuance.
> Wouldn't it be a better, more free, system to just make it law to issue strong warnings suggesting up to $20,000 in legal fees for the inexperienced noobies upon any share issuance
These clauses are already commonplace. People don’t read them. They then turn their losses into a political problem that breeds feel-good laws mandating red tape for everyone. Best case. Worst case: a crisis of confidence in our markets and an ensuing depression.
Better law might be a cap on this asset class as a percent of one’s investable assets?
You raise a good point. The problem with early-stage high risk investments is that investors take a lot of assumptions from the public markets and project them on to private markets where the same rules don't apply.
I have seen many very wealthy investors lose a lot of money on private investments because they haven't understood their share rights relative to other investors. These companies often need to raise further capital at pretty low valuations so they end up being significantly diluted.
However the most important thing is that wealthy investors can afford these losses, other investors much less so. Only after building up significant pension savings and owning a home would I ever advise someone to invest in a higher risk opportunity.
I should have been clearer (I sort of assume what everyone here wants to know is whether startups can essentially promote their stock on HN), but it's not any employee --- it's director-level management and those employees that are actually responsible for the investment activities of the fund.
I have seen people of all ages make all-in bets with their wealth. Previously successful people often over-estimate their skill and have a naive belief in their ability to pick or make a winner. They can fail and lose most everything, and the consequences for their families and friends are harsh (although I don’t know if it is ends up being a benefit for the economy overall; and restarting from scratch again is easier if younger).
Some requirements for diversification (instead of accreditation) would help mitigate such risky behaviour, and allow small investors to invest too.
Do “director-level management and those employees that are actually responsible for the investment activities of the fund” make sensibly diversified investment decisions? I don’t have a wide enough experience to answer that, but my very limited experience says no, they are just as likely to concentrate everything into one risk.
The SEC doesn’t create rules to help people make good investment decisions. They create rules to help people (1) get timely & accurate information to make an investment decision and (2) not get taken advantage of and/or scammed.
The SEC doesn’t care whether accredited investors are more or less likely to go all-in or to make terribly risky and concentrated investment decisions. They only care about whether or not accredited investors are in a position to get (and to a lesser extent, understand) the information they need to make the investment.
Sunk cost fallacy is one of the vectors that leads to “all-in”. They may have started off with a reasonable position, but rather than losing half their net worth they keep piling more in to try to rescue the rest.
The psychology of this occupies a chunk of Thinking Fast and Slow. People discount the probabilities when taking a bigger risk to avoid a loss.
I'm just clarifying what the rule says, because I definitely made it sound like secretaries who work for prop shops can invest their own money in their employers, which is explicitly not the case.
People make bad decisions all the time, I don’t think the government should be in the position to make sure rich people don’t squander their wealth on bad investment. The government should make sure a scammer doesn’t fleece a naive person. “Protecting people from themselves” is an awful reduction in freedom — no thank you. Health insurance on the other hand...
The simple example is anyone who has ever started a business, no matter what field. At some point, many had to pony up more cash (either as investment into the company or as drawn out living expenses).
So what’s the difference? And why allow one but not the other?
The goal of the SEC isn’t to prevent people from making stupid decisions - it’s to have a fair an honest paying field without bad actors.
My employer has a system for employees to invest in it. They explicitly tell everyone “we don’t recommend you do this because if we go bust you’ll lose both your job and your investment”, and limit the total investment to a reasonable fraction of compensation.
It's interesting to consider that most tech companies implicitly allow their employees to invest their own cash, because the cash/equity split is a negotiated term in comp packages.
Also explicitly. I recently interviewed for a new job. Recruiters at both Amazon and Google encouraged me to invest my 401(k) contributions in the company stock. The Google recruiter even had the audacity to (falsely — 2008, 2014) claim that Google had "never had a down year."
Those are public companies; you can do basically whatever you want with their stock, as can anyone in the investing public, because they're subject to stringent audited disclosure rules. What's interesting are the private companies that allow employees to allocate capital to company equity.
Having worked at Google until 2019, I do not recall their stock being available in the 401k, nor any direct stocks there. All things available were the boring broad Vanguard funds.
Regarding allowing small-dollar investors access, isn't this amply accomplished by the public markets? Am I misunderstanding you?
You can get a diversified (fractional share) portfolio today with a minimum deposit on the order of $10. That seems more than adequate.
I can dream up any number of scenarios where allowing someone with $10k to invest in a certain private business is good for everyone (something local or specialized, for instance), but these are outweighed by the risks of opening the door to all sorts of exploitation of investors without even the little bit of protection the public market standards supply.
People can already get semi-direct access to capital markets by directly engaging with a broker or wealth management fund.
A brief review of the shenanigans surrounding the shit-coin boom gives you a taste of what happens when you grant the uninitiated unfettered access high risk assets.
I don't think you can adequately regulate that volume of market participation.
> This is a bad precedent. The biggest danger with investment is lack of diversity. Investing in your employer severely increases your risks
Depends on the investment firm in question. There are many prop trading and HFT firms that essentially never lose money and consistently return 100%+ on invested capital. Junior employees often can't invest in the strategy because they don't meet the accredited threshold. It'd be pretty to hard to argue that this is doing them a favor.
In my experience, partners at these firms won't even let junior firms invest in the fund. There is a clear cut pyramid hierarchy, and if admitting junior members means having to expand the AUM (thus crossing the threshold of the fund's strategy), I don't see this change being any meaningful to letting junior members invest.
For guys at mega funds, it's going to be really easy. For people in prop shops? Not that much.
I'm sure some employees of such funds would like the option to invest a portion of their capital in their employer's fund/s.
That they've chosen to work for that employer vs others implies they already think it's a good bet and worthy of investment, but not necessarily that they're going to put all of their funds into it.
If they treat it as just another diversification option, shouldn't be a major problem.
>Laws restricting investment should be about promoting investment diversity, and restricting risk concentration.
I thought they updated the law recently (or at least considered doing so) to allow non-accredited investors to invest in such enterprises, so long as it was a small amount, thus satisfying that (better) desideratum?
Though I can't seem to find it easily from googling.
> Most people are 100% exposed to their job and perhaps their home, and I think it would be good if they would also invest small amounts long-term in businesses directly (rather than indirectly via bank savings).
$VT/$VTWAX let them invest in 8800+ different companies across the globe.
> * The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82.
It seems like an oddly American thing to me that investors can actually use wealth as a surrogate for professional certifications.
It makes sense in this instance, as the rule is designed to minimize the number of people whose lives will be ruined (and thrown to the state to support) by bad investing decisions, and the asset requirement both minimizes the likelihood of any one investor losing their shirt, and minimizes the number of investors. And again: the real teeth in this rule are about who issuers can market securities to, not about what random people are allowed to do.
Newly minted undergrads going into finance often get their Series 7 or 63 during training.
Not sure if giving them all accreditation is wise for them personally. On the other hand, they’re also professionally giving investment and trading advice, so shrug at least it’s consistent?
Is a "family office" well defined? $5M seems too small for what is normally considered a "family office." Also if you have a "family office" with $5M in it you'd meet the old standards for an accredited investor anyway.
They are well-defined. A family office is a company fully owned by a family, with no clients other than the family, that doesn't hold itself out as a public investment advisor.
The SEC release notes that most family offices already qualify, but the law was somewhat ambiguous. The problem isn't that family offices can't legally invest, but rather that companies are reluctant to sell to them --- that's where the real risk is in running afoul of these rules, to the securities issuer, not the investor. Clarifying the rule mitigates that reluctance on the part of issuers.
At the lower end of asset value range families often end up with a "family office" because the previous generation ran a family business which was passed down and now it's jointly owned by a number of family members. The option is to sell the family business and distribute the cash or start a "family office" and run it and it's assets together in a pool.
For both sentimental and other reasons the family business is not sold (i.e. may have never had audited financials since it had a single owner and no outside investors so it would be near impossible to sell it for a price the family believes is fair).
These type of "family offices" don't have any full-time investment management staff. They work with the same type of advisors an individual who had $5M of investment assets would.
That’s not what a family office is. That is a family-owned business. See the link in the sibling comment.
Also, it’s possible to determine a value for any company.. not sure why you think it isn’t? Net profit/compensation to owner multiplied by a multiple determined by what industry/sector it is in is how small business valuation is done, plus/minus assets/liabilities.
There's a reason I put family office in "quotes", your view may be the Wikipedia definition of family office with $100M+ of investment assets, that isn't the view of many "family offices" out there and not matching Wikipedia doesn't make them wrong.
Second issue on valuation, logically you're totally correct. In a jointly owned family business logic and Excel aren't the only way the business gets evaluated. Depending on the structure a sale may even be blocked by a minority owner member so all parties have to agree it is a fair sale price to sell.
If this "family business" has built up $5-10M in investment assets and the operating business runs at a break even while the investments generate $1-3M a year in gains is it a small "family office" or a struggling family business with an excellent treasury team managing the investment assets?
> When does it make sense to have a family office?
When your networth is high enough such that paying for a professional money management means you get to recoup back the time you otherwise would have to spend to do so.
Family offices often deals with more than just finances, but also things like butler/chauffeur and other utilities (like gardening etc), and if they are truly rich, they would provide a fixer type service (e.g., somebody to get you what you want - like if you wanted a yacht/mansion/luxury goods, they'd be the one doing the looking and present to you the good options without you having to sweat).
That makes sense, although of course most people with significant assets pay for professional money management (there are several "tiers" of this kind of service, e.g. wealth managers) without actually having a family office.
The tl;dr seems to be "when it saves you time/effort," vs. "here is a financial threshold where a family office is more financially efficient than a traditional wealth manager." Right?
"The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82."
Click here for your once in a lifetime chance of a accredited investor certificate!!
Didn’t they already have a joint thing that required $300K?
Now the household needs to just earn $200K?
To meet the individual standards of accreditation, households can pool wealth between spouses, regardless of whether both spouses are acquiring a security.
> The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82.
Anything about CFAs? In official or un-official sources.
Years in the hedge fund/CTA space left me completely convinced that the regulators were right in throwing up barriers to investing in a wider range of investments.
Outright fraud probably isn't the main risk - it's deceptive salespersonship and naivete on the part of investors about what they're entering. I don't know how we'd get a judiciary with the expertise to judge the cases.
It's not like the US makes it hard to start a laundromat with your friend, or something like that. It's about whether vulnerable people will make predictably wrong decisions about "investment opportunities".
1000 times yes - there's 100+ year history of fraudsters, and IT DOES NOT WORK to prosecute after the fact: the incentive to defraud is simply too high, and the frauds can last for too long. Consider Bernie Madoff: he lived well for decades before his fraud unwound, and his fraud was not original - they call it a "Ponzi Scheme" after Charles Ponzi, a famous (but himself not original!) fraudster.
A good heuristic is that if the damages are less than $20k or so, it doesn't make financial sense to sue. So a lot of small investments through a sketchy or one sided contract can easily allow bad actors to continue to operate for years.
Deceptive sales practices are illegal already, the SEC has a mandate to prosecute them. While the Greenspan era was notorious for undermining that, the Financial Crisis restored the political will to support their mandate. The Trump admin did what it could to reverse that and hopefully the Biden admin will push against crime again.
As for naivete of investors, should we also regulate away matches, because consumers might cause an unwanted fire? More warnings if necessary sure, but not more nannying.
> Citigroup - SEC charged Citigroup's principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion CDO tied to the housing market in which Citigroup bet against investors as the housing market showed signs of distress. The court approved a settlement of $285 million which will be returned to harmed investors. (10/19/11)
> Commonwealth Advisors - SEC charged Walter A. Morales and his Baton Rouge-based firm with defrauding investors by hiding millions of dollars in losses suffered during the financial crisis from investments tied to residential mortgage-backed securities. (11/9/12)
> Deutsche Bank AG - SEC charged the firm with filing misstated financial reports during the financial crisis. Deutsche Bank agreed to pay a $55 million penalty. (5/26/15)
> Goldman Sachs - SEC charged the firm with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. (4/16/10)
Goldman Settled Charges - Firm agreed to pay record penalty in $550 million settlement and reform its business practices. (7/15/10)
Fabrice Tourre Found Liable - A jury found former Goldman Sachs Vice President Fabrice Tourre liable for fraud relating to his role in a synthetic collateralized debt obligation tied to subprime residential mortgages. (8/1/13)
> Harding Advisory LLC - SEC charged a Morristown, N.J.-based firm and its CEO for misleading investors in a CDO about the asset selection process. (10/18/13)
ICP Asset Management - SEC charged ICP and its president with fraudulently managing investment products tied to the mortgage markets as they came under pressure. (6/21/10)
> ICP and President Settled Charges - ICP and its president Thomas Priore agreed to pay penalties and settle the SEC's charges (9/6/12)
Ah, ok. I see I miscommunicated. I was referring to criminal prosecutions than end up with people in charge of the corrupt organizations going to jail. Not just a handful of fall guys like Tourre and Kerviel, and not just a "you broke the global economy tax".
> As for naivete of investors, should we also regulate away matches, because consumers might cause an unwanted fire?
People generally understand the risks of matches. They can evaluate what happens when they use them, they can tell when it's went wrong, and they are prepared to contain the harm.
If you make a match that's a bit more impressive, it becomes a firework and we regulate the hell out of it.
A match can be combined with gasoline to become a lot more dangerous, and we regulate the hell out of gasoline. Want to keep around 20,000 gallons of gasoline? No problem, you just need the appropriate permits, insurance, and equipment.
Agree. SEC trying to "protect" people disincentivizes personal diligence. There is a broader societal problem here. Think fake news. People have been conditioned to the existence of gatekeepers everywhere, relieving them from any personal responsibility. Didn't Theranos got (or appear to get) an FDA approval [1] resulting in many "accredited" investors making huge dumb investments in that company?
The wave after wave of ICO scam, where it's extremely clear that there is no one looking out from anyone doesn't make a clear case for there existing much/any risk compensation behaviour here.
People expect other people to just be basically honest because in most of our interactions -- at least in the developed world-- they are.
I expect other people to just be basically dishonest because in most of my interactions -- at least during the 15 years I spent in Silicon Valley -- they were.
Who pays for all the investigations and prosecutions? We don’t even have enough resources to stop identity theft/electronic funds theft at the federal level, FBI won’t touch anything unless it’s over $250k.
Keep this in mind next time congress passes a "no private right of action" law.
Those drive me nuts. If it isn't heinous enough for victims to be allowed to pursue justice in the courts at their own expense, it isn't heinous enough to outlaw.
I've also seen a regulator refuse to investigate allegations of fraud from insiders because "the investigation would be complex and we would rather spend our funding on multiple smaller cases"
Criminal prosecution is a ruinously expensive machine, and can't even scale down to car theft without the "efficiency" of plea-bargaining, much less $10k private investments with complicated legal agreements.
Equal access to private investments should face no wealth tests larger than those required for playing the state lottery, taking out a 30-year mortgage, or trading securities/currencies on margin.
Lotteries, mortgages, and public securities are heavily regulated to make it nearly impossible to get ripped off. You can lose your life savings by buying AAPL, but you can't lose it despite AAPL going up because you didn't read the fine print on the brokerage website.
The reason for accredited investor requirements is that it's not realistic to do the same with small businesses. It is perfectly legal, and not totally uncommon, for startups to have very unfavorable terms for investors. If the LLC paperwork says the majority partner can choose to buy back your shares against your will for a dollar any time they like, then they can, and it's your fault for not reading it more carefully.
I've heard of many cases, and personally witnessed one case, in which an accredited investor put a lot of money in to a startup, and lost it even though the startup did well. The requirements may not be perfect, but I don't think it's fair to suggest they don't serve a purpose.
>>Lotteries, mortgages, and public securities are heavily regulated to make it nearly impossible to get ripped off.
The poorest households in the US spend something like 11% of their income on lotteries. There isn't any way lotteries could rip them off any more.
In a hypothetically free market world, they would be dumping their disposable income in stocks sold over the counter in convenience stores, or directly through their phones, and perhaps traded without intermediaries on the blockchain, and would be developing some skills in investment analysis, along with an asset base, over time, instead of developing new lottery number picking techniques based on mathematical quackery and superstitions.
> In a hypothetically free market world, they would be dumping their disposable income in stocks sold over the counter in convenience stores,
I would not be so sure about that. The poor (who buy lottery tickets) have a lot less ability to delay gratification.
And if you compare the chance to double your $10 in the next year (e.g. invest in $QQQ) to having the chance of being a millionaire next week, the bet to gain $10 is not an appealing option. Firstly it takes a year and secondly it's not enough to escape their current life.
>>And if you compare the chance to double your $10 in the next year (e.g. invest in $QQQ) to having the chance of being a millionaire next week, the bet to gain $10 is not an appealing option.
There are many offerings in the DeFi/token market that offer the prospect of massive payouts on those time frames.
Penny stocks can have a similar appeal.
These markets are replete with 'scammish' offerings and outright scams too, but over time, I strongly suspect you'd see retail investors become more discerning, as they learn through a process of trial and error what works and what doesn't.
> And if you compare the chance to double your $10 in the next year (e.g. invest in $QQQ) to having the chance of being a millionaire next week, the bet to gain $10 is not an appealing option.
the odds of winning a powerball lottery is about 1 in 290 million to win about $130million. The expected value is therefore $130 x 1/290m = $0.44 , for an investment of about $10 - very small indeed.
The small chance at escaping poverty is great, but the money is not well spent. if that's how they really think, then they will find that escaping is even harder.
Investing is not gambling - investing generates equity/capital growth. You only "lost" in investing if the asset crumbles. By investing in QQQ, it's concentrated, but it's unlikely everything in the ETF crumbles at the same time. So the chance of loss is much lower than lottery.
State lotteries are rigged: marketed to the gullible & have far worse payouts than casinos. (Have you seen stare-sponsored Keno games like "California Hot Spot", with draws every 4 minutes, offered in only the very finest neighborhoods' liquor stores to extremely wise gamblers?)
Mortgages were pushed to sketchy credit risks for years, wiping out the the poor's earnings & equity with unsustainable housing costs in (temporarily) pubic-policy-inflated home values - and even now, there's minimal protection against over-concentrating in unwise housing markets.
Plenty of public securities go to zero, often in fraud. But with easy-to-get investing leverage, any amount of initial capital can go to zero with only small moves in public prices. You can lose any amount of money after a small move of AAPL up - if you purchase enough (or leveraged) securities which bet on it going down, which are available to anyone without an accredited-investor-like wealth test.
(Have you seen the promotions, and easy on-ramps, for daytrading & foreign-exchange trading & Robinhood? Or how easy it is to channel any amount of money into crypto trading?)
There's a lot of risky investments. Anyone over 18 can bet their life savings on roulette. That has nothing to do with this. "Well other investments are risky too!" does not apply here because "Investing in startups is super-risky!" is not the reason why accreditation requirements exist.
This sounds good superficially but I don't think it actually makes sense. People can and should have higher expectations for investments than lottery tickets. And primary-residence mortgages are relatively safe and liquid compared with private investments. I.e., these things are of a different kind entirely than private investment.
The real question to me is, what is a "private" investment if everyone can invest in it? Why isn't it subject to the same reporting requirements as a "public" investment?
So, there can be a wealth test - but no competence test! – for investments that might be positive expectation? But then absolutely no limits to who and how much someone can spend on rigged games of chance with guaranteed negative-expectation. How does that make sense?
You're right, the 'public'/'private' distinction is confusing and outdated. It should just be 'high-reporting' (certified by accountants/lawyers/exchanges to meet certain standards) and 'low-reporting'.
Perhaps tax-advantaged retirement accounts shouldn't be allowed into 'low-reporting' situations.
But with a person's own excess money, they shouldn't face a wealth test to invest it anywhere their judgement guides them - if they're allowed to gamble, donate, burn, over-leverage, etc that money a thousand other ways to zero as well.
I think to allow small business and startups to flourish. It is important to not subject all companies to the reporting requirements of public companies, smaller organizations just don't have the spare resources and it really would hurt them being nimble and getting established.
This of course means that any investor into such a company needs to have a more intimate relationship and understanding of the company despite the lack of detailed reporting, which is at least one reason to have accredited investor rules.
These regulations are largely imposed on the companies seeking investments from the public. If they want to advertise the the general public then they need to complete certain disclosures and audits
One thing that I think is rarely brought up in these discussions is the effect that comes from these rules not being adjusted geographically. I know a number of Midwestern entrepreneurs who struggle to find accredited investors in their area, because the wealth test is defined around the coasts. If you don't have access to those cliques, your access to legal funding opportunities is severely limited.
Taxation is likewise not adjusted by local cost of living. Federal brackets applied to, say, Appalachia are different than applying them to the big cities.
Not directly, but taxation is adjusted to income, which means effectively adjusted to cost of living for places where those are not wildly out of sync (Appalachia is not one of those places).
We’re inching closer to Matt Levine’s Certificate of Dumb Investment proposal[1]
> Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
> To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
> Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.
Haha that's fun, it is a ridiculous reality that casinos and negative-expected value games are regulated only at the state-level while the Federal Government pretends those money games don't exist and that it needs to take a paternal relationship over players of positive-expected value games like assets and securities.
I feel like someone well funded and clever could find the right combination of judges to correct this reality. Make it a real free for all.
It's important to note that the financial regulation we have does not exist to regulate positive-EV games, it exists to regulate away outright scams. Not things where the principals are taking too many risks or where there are unknowables that sink the idea, but situations where the plan from the start is to attract investment, take it, and run away. (Elisabeth Holmes-style "fake it 'til you make it" is sort of in the middle here.)
The part that is hard is that it's really very hard to do prevent outright scams without a lot of collateral damage. In general, scam artists are better at understanding and applying any rules than the regulators or the police. Successful ones are also better at marketing their scams to ordinary people than non-scam-artists are at marketing their real business proposals. (After all, a successful scam artist only needs to have skills about marketing their proposal, but a team that is building something real has to have those skills and skills that are useful for building something real.)
Much like we know from history that bad money drives out the good, we also have overwhelming historical evidence that in a completely unregulated market, the scams and the amount of money they attract will massively overwhelm actual business. The regulations around the financial markets are "scam-driven", in the same way that FAA regulations are "funeral-driven". Every line of text exists because someone somewhere managed to steal so much money from so many people, that the victims managed to complain enough about how this shouldn't be possible that it became law. The natural progression of rules in both cases is towards less regulation, as everyone is perfectly aware that the regulation that exists is stifling and damaging, so over time the regulations are reduced and enforcement becomes more lax, until something like 737MAX or Madoff happens and regulations need to be tightened again.
There is no chance that anyone will ever strike all these regulations down with enough funding and "the right judges", simply because anyone who understands the space understands that while the regulation we have is bad, the alternative is so, so much worse.
Sounds like a Michael Lewis passage. I'm familiar with those points, your conclusion is a false dichotomy.
> anyone who understands the space understands that while the regulation we have is bad, the alternative is so, so much worse.
The current regulations around capital formation, and secondary markets are completely classist and need much greater reform. The regulators passionately believe in their paternal approach, there isn't a shady cabal plotting to keep not-rich people out of the markets, they should still be stopped nonetheless.
The markets themselves are completely classist. Even if there were no accredited investment standard, no VC would want your money, and VC funds formed to capitalize on small investments from retail investors would underperform classic large-LP VC firms --- probably dramatically, possibly even comically. A basic thing to understand about the investment markets is that VC firms compete with each other for dealflow; simply having the right number of dollars isn't enough to get in on the real remunerative deals.
VCs would just retain their higher minimum investments and it doesn't need the state’s involvement.
VCs compete for dealflow because dealflow is limited due to many currently unnecessary and expensive regulations.
Trillion dollar companies got their “growth capital” in an IPO one year after their $8mm Series A.
This doesn't happen anymore and generations of people have extremely limited exposure to “deal flow” and liquidity. Thats changing and if VCs want to keeping playing hot potato with Stanford dropout shares they are completely free to keep doing that.
> VCs compete for dealflow because dealflow is limited due to many currently unnecessary and expensive regulations
This is way off. At the growth capital level, terms for QPs ($5+ million) and QIBs ($100+ million) are night and day. (Accredited investors aren’t on the field. To say nothing of smaller fish.)
This partly stems from liability. Small investors have an easier time convincing regulators, judges and juries they got screwed and deserve compensation. It also deals with sophistication. A complex win-win structure might not market well, but they regularly happen with hedge funds.
But it is mostly about efficiency. A single institutional investor setting deal terms will fill the rest of the deal on their brand. That lets you negotiate once and be certain of closing. You get a tight list of LPs or investors and know no cheques will bounce. If someone misbehaves, you can complain to the lead who will tell them to knock it off or risk losing future deal flow.
Capital markets have economies of scale. Just looking at venture secondary markets, pricing on SharesPost and EquityZen is regularly 20% to 50% worse than what even a moderate cheque writer could get. And that’s before considering the preferences on better classes of stock.
It would be interesting to see evidence to support your claim that eliminating the accredited investor standard would so expand available opportunities that there would cease to be competition for the best of them. If you can't support that argument, you're stuck with the same adverse selection problem you have now.
Everybody in America knows that it's a bad idea to invest your retirement savings at the casino, and most people don't know that about arbitrary securities.
That's nice and all, but --- all due respect --- nobody cares whether you're satisfied, and they're not going to remove the asset test, so if you have something to say, you're going to need to flesh it out beyond "this is the vmception standard".
Why not simply require education and completion of some exam? (And no, a college degree is not necessary nor what I'm talking about)
That would serve the goal of keeping the clueless from getting scammed, while also eliminating the kind of legalized classism (and I'd argue, unconstitutional on its face by way of the equal protection clause) that accreditation status represents.
That's exactly the new standard the SEC just promulgated. Get a Series 7, and go nuts. You'll probably have to spend some time apprenticing at a financial firm, but that seems like a reasonable hurdle if your goal is to become a professional investor.
I still feel like the "classism" argument here is extremely weak. Not because investment opportunities aren't classist --- they are --- but changing 501(a) isn't going to fix that. They're structurally classist. Good bets don't want retail money, because retail investors are, as a cohort, a bunch of loons. It might never occur to you to sue over some random, mundane options allocation event, but I promise you, it would occur to someone in the cohort of retail investors.
I really believe that retail investors do not have a functioning mental model of how startup investing works. It's hard enough to get people to diversify at all. To invest in startups, you have to place 10 bets, hoping that 1-2 winners pay for all the losers. Ordinary investors freak the fuck out when one of their positions goes to zero, which is the expected outcome in private company investment.
Yep. When you make a private investment (and I have), you have to fully expect to never see that money again. The truth is you probably won't. One time I did get a return, and it was nothing to write home about. I would've been better off buying a tech ETF.
Historically, as an asset class, VC has routinely underperformed the S&P 500. Even on HN, which is full of startup people, the mental model people have about the investing business model is dominated by the outcomes of successful companies, rather than any notion of portfolios of successes and failures.
Another detail retail investors don't have: startup investors re-invest to keep pro-rate shares in future rounds. You have to keep feeding companies money to keep your share. Explain that to my Aunt Rita.
Another thing is, the LPs in VC funds aren't putting money in just because they think it'll be a super-successful investment that they want access to; some of them have portfolio allocation rules, and requirements to invest funds in things decorrelated from public markets. Which is just to say, a pension fund goes into these things with eyes wide open, unlike a skittish retail investor and his Lionel Hutzian legal advisors.
right, and there is room to get more purpose specific tests created and approved, even outside of the FINRA monopoly, which is the reality I am hoping for.
I basically had to fill out a form along these lines to be able to do options trading.
"Do you know what an option is?", "Do you trade regular stocks now?", "Do you understand you may lose all your money with options?".
I suspect my brokerage doesn't even actually review the form, they just want to avoid people complaining that they YOLO'd on a Tesla call and lost everything. Given how easy it was, I am kind of in favor of it - it seems important to have a very obvious and plain disclaimer on high risk strategies like this.
You can do options trading and not do margin trading - which is my preference based on my personal risk surface. Margin trading comes with a bunch of other things these days - having to post effectively a bond, keep a certain amount of cash in your money market, etc.
It's not a big deal. You pay a bit in interest while holding margin, but for the most part there's nothing wrong with having say 30% of your portfolio in margin while the market is rallying. Helps you get much better gains.
Still, options provide leverage compared to cash equities because the premium is cheaper than the stock price. And just as leverage can magnify profits on the way up, it can also magnify losses on the way down.
I agree. Additionally, regular limited liability corporations should be prohibited from serving this market. Only allow unlimited liability partnerships to do so. If you want to work outside of the usual legal protections then you have to own it.
What happens when the place that is "not up to code" catches fire and sets every other building on the block ablaze? What happens when enough novice investors lose their money to bad investments and scams that it sparks a recession?
Besides protecting individuals, regulations protect society from negative externalities generated by these risky activities. I think there's a huge opportunity to decriminalize sex work and drug-related crimes, but we should recognize that risky behavior puts more than just the immediate individuals involved at risk.
I removed that example from the list as I now see how it could be misinterpreted (I was only thinking of building codes that are meant to protect the tenants, not those that regard externalities).
Even without that example, your parent comment is dead on re: the historical reasons for regulating financial markets (and the historical reasons for fire codes -- the razing of cities like Chicago).
For example, consider the SEC.
The primary goal of the SEC upon its founding shortly after the great depression was to restore investor confidence in the securities market. Its goal was to improve trust in the financial system, and it achieved that goal in part by introducing regulations that help protect individual investors.
The fire analogy is actually a good one, since those policies also have historical roots in the razing of big portions of several large US cities (eg Chicago).
In a dense city, your purported distinction between fire codes that protect inhabitants and fire codes that protect cities/blocks is a false dichotomy. The way you prevent the block from burning is by preventing individual buildings from burning. Because in a dense city blocks are comprised of... well... densely packed buildings.
More laissez faire strategies might work in much less dense areas like rural Kansas (not even suburbs -- have you seen a bad gas explosion?). And even then, only as long as you you're willing to really go it on your own -- if your attitude is "don't tell me what to do" rugged individualism then don't expect the time of day from insurance companies, banks offering mortgages, or fire departments. Buy in cash, no insurance, and put out your own fires.
Similarly, public and secondary financial markets are not your brother's laundromat or neighborhood bar. The best way to protect a large inter-connected financial system from collapses in investor confidence is to prevent obviously fraudulent bubbles from forming in the first place. Expecting individual investors to have confidence in valuations within completely unregulated marketplaces is like expecting the block be fine without thinking about how to prevent fires in any of the individual buildings.
This even extends to the "maybe something else might work in rural Kansas" example, where you replace actuaries and fire fighters with welfare/social security and medicaid.
What happens when accredited investors purchase metric shit tons of bad securitized debt and cause a global recession when the debt not so surprisingly defaults?
Let people be free to make their own dumb mistakes and punish the bad actors.
How about Pets.com, eToys, Webvan, Kozmo, and hundreds of others from the dot com days? It's easy to look backwards and cherry pick success or failure. Timing is also very important. Many stocks go no where for years (like MSFT for most of the 2000's)
The difference being that while everyday plebs like you and me without a quarter million to sling around couldn't have touched those at IPO, there would have been nothing at all stopping me from plowing my entire net worth into their stocks once the IPO period was over.
Or companies like Enron. Pick a random crypto from coinmarketcap and their creators likely had better financials...
One key point in approaching an IPO is the company becoming significantly more transparent. For those companies and likely every single one there would have been a pre IPO point in time where only hindsight can say it was wise to invest then.
A lot of investment is about minimizing risk. If you want examples of hyped-up tech companies that failed after IPO, just look at the dotcom bubble, it wasn't that long ago.
Well if you want minimal risk don't invest. But it's not just about minimal risk but rather risk adjusted returns. Most people (outside of WSB) do not dump their entire portfolios in a single IPO.
Most people also don't have the capital or time to diversify, to make a significant number of investments into individual stocks. They are better off with an index fund.
You can put the majority of your money in an index fund and dabble in a few riskier investments with a few percentage points of your portfolio. With fractional shares even those with the smallest of portfolios can do this.
I think it was addressed in the article, partially with:
"[...] Private companies are not just where a lot of the fraud is, they’re also where a lot of the growth is. "
I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point).
Instead, open up the investment but ensure people are aware and reminded of the risks. Hence the tongue-and-cheek "Dumb Investment Certificate" :)
> I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point).
that doesn't mean it's an unreasonable bar. it's sort of like the opposite of "if you owe the bank a million dollars, it's your problem; if you owe the bank a billion dollars, it's their problem". if someone with a million dollars loses a large chunk of it to a bad investment, it's mostly just their problem. if someone with $10k loses a large chunk of it, it may become the (welfare) state's problem. if the state is going to guarantee that basic needs are met at some level, it's not unreasonable to prohibit people from doing risky things that are likely to lead to them drawing on the system. this is the essential tradeoff between freedom and security.
It's not only this. An environment where the only investment policy is caveat emptor is also an environment that will encourage more scammy investment opportunities. It is also in the state/community interest to make sure investments represent real growth opportunities and not just lining some huckster's pockets. You don't want the entire market itself to end up a market for lemons.
Probably a bit dumb to invest in any single stock if you aren't already pretty wealthy, but being public has a lot of reporting requirements that make it pretty hard for it to be an outright fraud.
With a public company, your investment might lose value, but you are probably not going to get completely ripped off. That's not the case if you invest in a private company without doing due diligence.
Do you mean buying the stock before the s-1? Only place would be secondary markets and you would not have access financial reports to make an informed decision. It would be a dumb investment.
The rules for qualifying by professional certification require maintaining good standing with the state licensure or registration requirements but do not require actually practicing the profession covered by the certification, nor even having a minimum amount of work experience in that area. Very interesting. How does this apply to people who hold a Series 65 but do not practice as an investment adviser?
In particular, Series 65 carries no requirement to be sponsored by a FINRA member firm, and many states don't require an investment adviser firm to register if there are fewer than 6 clients in that state. And New York, uniquely, does not require investment adviser representatives to register at all, though they do require that they either pass the exam or qualify for a waiver.
So, if I move to NY (as I'm likely to do in 2021 or 2022 for unrelated reasons) and pass the Series 65 exam but don't practice as an investment adviser, do I automatically qualify as an accredited investor, either for a certain number of years since last passing the exam or indefinitely? If not, would it work to create and voluntarily register self-owned investment adviser firm (with as few as zero clients) and deal with the annual registration and financial statement paperwork? My guess is no and yes, respectively, possibly with a requirement to pass the exam every 2 years if my firm doesn't actually have any clients as would be required to truly count as practicing as an investment adviser.
I see why they used the general securities representative example (Series 7) to illustrate their "you don't have to practice" requirement, since those lapse two years after leaving a qualifying firm, and the same therefore applies to accredited investor status on that basis. For Series 65, it is a lot murkier.
While SEC has "good intentions" behind regulations around who qualifies to invest, and also behind forcing companies to disclose certain financials if they are open to public investment, it is in a sense monopolizing the service of "investment diligence." The absence of these regulations will create room for businesses who would vet investments for you at different risk levels. Non-governmental standards certification organizations (think ISO, JD Power, etc) fulfill this role for non-financial sectors. Existence of SEC regulations may in fact give a false sense of safety in many cases. People make dumb investments today despite SEC.
> While SEC has "good intentions" behind regulations around who qualifies to invest, and also behind forcing companies to disclose certain financials if they are open to public investment, it is in a sense monopolizing the service of "investment diligence."
Its not monopolizing diligence, its setting a floor for diligence for investments by people outside of (expanded by this action) pool of investors.
> The absence of these regulations will create room for businesses who would vet investments for you at different risk levels.
Are you talking about a hypothetical scenario where the SEC removed accredited investor rules rather than expanding it to included basically people with licenses or currently-active professional roles related to investing rather than merely people with lots of money?
Also, such businesses exist already in the financial space.
>The absence of these regulations will create room for businesses who would vet investments for you at different risk levels.
Those already exist and are called managed funds. The problem is, there is often a conflict of interest and the fund managers profit off the ignorance of their own costumers.
This is actually a very big problem in the financial space: the incentives of the B2C entity and the costumer are almost never aligned. The costumer lacks information and the B2C is supposed to help them attain that information, but the B2C entity can also profit off the ignorance of their customer and this is often more profitable than getting paid a fixed fee for honest advice.
We ran this experiment before and leaving the vetting of securities entirely to the market was a calamity. Not only that, but we just watched the market's most important and credible vetting authorities, the ratings agencies, beclown themselves.
The limits to how far a government should go to protect sane adults from themselves are arbitrary, and inevitably end up stifling progress. Any regulation in crypto space will be damaging so early in the game. A Darwinian wiping-out of incompetent investors may seem ruthless but may in fact be better for society.
Yet bitcoin is close to its all time high! HNers have been telling me every month for the past 10 years that the wheels were about to come off... any day now...
AAPL is at its all time high too. Doesn’t do anything for the people who invested in pets.com 20 years ago. There’s a lot more absolute shitcoins than successful ones.
Reasonable updates all around! The reality is that private investing is the "big leagues." If an average joe takes a handoff in an NFL game, they will likely end up on a stretcher. If you have no expertise and attempt to invest with a sophisticated PE/HF that has the world's top law firms and investment banks on their side, you will end up with no money despite how smart you think you may be.
All in all the changes seem like a good idea. I think the general public is usually frustrated by "missing out" on IPOs as they are gated to accredited investors/hedgefunds/VC funds. Having a monetary value gating entrance to be an accredited investor(assets over $1 not including house, or income over $300k for 3 consecutive years) seems exclusionary but it really shields the average public from getting pulled in by hucksters selling bad investments. Having these checks in place most times ensures that the person who invests in risky assets is informed and knows what they are doing. That being said people who match the requirements for a AC investor can and do make some really bad investments.
Investors don't miss out on IPOs (definitionally, an IPO is what non-accredited investors don't miss out on). They do miss out on VC firms, but they would anyways: VCs don't want your money, because you, as a cohort, are a galactic-scale hassle. In the Majors, funds sell themselves to investments as much as investments sell themselves to funds.
So in addition to all the fraud problems, you also have a huge adverse selection problem: the private investments that are available to retail investors are going to be of starkly lower quality than what's available to Bessemer and Index.
You have a typo ($1) and the income requirement isn't really expressed clearly - It's $200k for individuals or $300k joint income with a spouse. Also it's that limit for 2 previous years, with a "reasonable expectation" for the current year.
This is a positive step but doesn't abandon the principle of the state
paternalistically presuming everyone unentitled to exercise free choice until they meet conditions that prove they are competent, when the founding assumption of a free society is exactly the opposite.
Assuming the adult population to be like children, with all-powerful regulatory agencies as surrogate guardians is a double assault on liberty, affecting:
1. The population at large, who have their freedom restricted if they do not meet the guardian's conditions that demonstrate competence
2. Everyone who would want to interact with members of the public to sell certain classes of products or services, who now have to conduct due diligence to ensure they are not dealing with something akin to an adult child in the law's eyes, because rather than the surrogate guardian supervising their ward, the guardian attempts to make the entire world a safe space, by imposing some of the obligations of guardianship onto society at large.
It's hard to tell whether this will be a net benefit in practice. On the one hand, more efficiency and liquidity in small investment projects is probably good.
But I also see two big opportunities for abuse: One risk would be combining this with 506c offerings (allowing general solicitation) to create a proliferation of very low quality syndications (I've already seen many ads on Facebook for this sort of thing) that are effectively glamorous but money losing opportunities. A second risk is that a lot of investors won't be over the 'legal help' threshold -- basically they won't be investing an amount where it makes sense to hire a lawyer to actually review the contract. This could potentially lead to abuse as well.
While I have issues with the whole accredited investor bar to creating wealth, does it also protect companies from a higher likelihood of their equity ending up in the hands of a failed investors creditors?
Someone making less than $200k/y could still be considered precarious, and suddenly having one of their litigious creditors on your cap table could expose other investors to risk. I'm really against the accredited investor limitation, as it creates the conditions for shady loans, reduces small entrepreneurs access to capital, and causes bubbles in things like real estate and garbage stocks, but the altruistic rationale of the regulation for "protecting small investors," seems insincere and it seems more plausible that it protects an establishment of investors instead.
They moved from an objective definition to a subjective definition of "expertise". Expect many more regular people to be scammed out of their life savings.
> They moved from an objective definition to a subjective definition of "expertise".
No, they didn't. It remains objective, it just now tests expertise by objective standards, not merely wealth or income. (Which are, at best, more distant proxies for expertise than the new ones.)
> Expect many more regular people to be scammed out of their life savings.
The new added standards are less "regular people" than the the old, continued standards, so I don't think that's the case. If licensed professional investment advisors and the like are getting scammed out of their life savings because they are able to invest directly in unlicensed securities, than there is a real problem with the licensing systems or the process allowing the investments to be offered at all, regardless of investor qualifications.
> The new added standards are less "regular people" than the the old, continued standards
I generally agree with your comment, but this doesn't make much sense. The old "$200K/300K or $1MM outside primary residence" standards are continued, right? So by definition, in raw numbers, there could only ever be at least as many "regular people"...
I'm not saying their are fewer "regular people" in total (which, as you note, would be impossible, since this only adds new categories, rather than narrowing or eliminating old ones). I am saying that the new categories are less "regular people" than the existing, continuing ones, and are not opening up risk to regular people. The risk to "regular" people who are unsophisticated in investing is almost entirely in the old categories.
Before August their "objective definition" was just having money. Having money doesn't make you a good investor. Dentists for example are notoriously bad investors, but prior to the change were less "protected" than a person with less money who's certified as an investment advisor.
I think you’re looking at this wrong. This rule was originally created in 1933 to mitigating societal economic risk.
The reason why having money was the objective definition was because defining expertise objectively is difficult. (What are you going to do? Have a standardized test?) This problem still remains.
Like you said, having money doesn’t make you a savvy investor. However, you can typically absorb the losses with comparatively less pain. Also, since you have more money, you can make more investments, which means you gain experience, and thus hopefully better at avoiding bad investments.
Funny you should say that because they do have standardized tests. Any of three certifications qualifies you.
The other non-financial individual qualification is also objective. Are you a certain type of employee of an investment firm? If so you can invest in that firm. None of this is subjective.
If this were about whether you can absorb losses, then it would limit the investment amount based on your financial capacity, like the JOBS Act does. There's nothing stopping a millionaire from throwing too much of their savings into questionable investments, and plenty of millionaires have gone broke doing exactly that. They probably would have been better off if they had to pass those standardized tests first, like us po' folks are able to do now.
Ironically, the accredited investor income and net worth criteria haven’t been updated since 1983. If the criteria has been indexed to inflation, you’d need a salary of $530k or a net worth of $2.6M.
However, they didn't tighten the definition to prevent rich dentists from making bad decisions. They are loosening it which will allow even poor dentists to make bad decisions.
natural persons holding in good standing one or more professional certifications or designations or other credentials from an accredited educational institution
However, it is not possible to say since this class of professional certifications is not delineated. Dentistry may qualify. It may not.
> However, it is not possible to say since this class of professional certifications is not delineated.
Yes, it is quite specifically. The new rule also sets out standards (which would very much not seem to be likely to ever admit certification in dentistry) and a process for subsequent rulemaking to update the set of certifications, but any problem with certifications later adopted would be an issue with those actions, not the immediate action.
The initial set is "the General Securities Representative license (Series 7), the Private
Securities Offerings Representative license (Series 82), and the Licensed Investment Adviser Representative (Series 65)". [https://www.sec.gov/rules/final/2020/33-10824.pdf, bottom of p. 28]
> natural persons holding in good standing one or more professional certifications or designations or other credentials from an accredited educational institution
You cut off the critical second half of that statement, which significantly changes the meaning:
> natural persons holding in good standing one or more professional certifications or designations or other credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status
If you think the SEC would add DDS to that list, I'm not sure why you would trust them to regulate investing at all.
You've misunderstood the rule. It's not arbitrary professional certifications. It's those certifications the SEC designates, which right now are the Series 7 and Series 65. Nobody is going to automatically accredit dentists.
Right. It means when you invest in random ass companies and you get scammed, you can afford to lose the money. Someone with less money getting scammed with visions of dollar signs in their eyes isn't playing a bourgeois parlor game, they're playing with their housing, job, car, etc.
To me, the previous SEC rule is just an acknowledgment of the real aristocratic underpinnings of an advanced capitalist economy.
Regular people who want to lose their life savings can still do so via overleveraged real estate, investing informally in small businesses, margin daytrading, sports betting, purchasing vanity higher education credentials, and nowadays, cryptocurrencies/cryptotokens.
So, this won't cause any more people to lose money, but it may change the mix of things they lose it on.
And because this will also open to non-wealthy people many good deals in above-board companies, that have been scrupulously following the law & attracting rich sophisticated investors, it will also benefit those well-behaved companies and their less-rich friends, family, supporters, & customers – a win for society.
Indeed - and neither the accredited investor law nor the SEC's other enforcement have helped.
So maybe letting non-wealthy people invest into the exact same well-documented, scrupulously-legal above-board deals in which wealthier people have always been allowed to invest could be better than the traditional-but-totally-failing paternalism?
> People are more savvy these days than the old days.
As compared to the complexity of available investment schemes, no, they probably aren't.
On the other hand, "licensed investment advisors and people currently working in investment-related roles in financial firms" are probably more savvy about investing, as a class, than "people who happen to have more than $1M in assets or $200K in personal or 300K in personal+spouse income".
I'd beg to differ. It seems to me that these days, a domain name, WordPress install, and Facebook allows for anyone to be an expert or whistleblower anything and everything.
this seems like it might add capital to existing investment markets. at the least, it should make it easier for people to raise early investment rounds?
wow, this is a major shakeup, and not just on the vc circuit. I expect to see a lot of large hedge funds and banks lose employees who can now afford to go solo.
I also expect to see a lot of poorly constructed startup deals where uncle jimmy ends up owning 65% of a startup because of some shoddy setup. Not sure if this is going to be a good thing or not given the greater access to capital that will be afforded to young companies. Interesting times abound
Wasn't one way to qualify in the the old definition just having an income above $200k for 2 years in a row and a reasonable expectation that you'll make that much this year?
I'd expect anyone at a hedge fund who would want to go solo to easily qualify based on that. Maybe it'd pull in the timeline a bit since you wouldn't have to wait 2 years but that's about it.
Yeah, it wasn't hard for investment or tech employees to be accredited since that's mid-career (or less depending on location) pay. I don't see how this would change the decision of anyone who would want to hang out their own shingle, unless the assumption here by "afford" is that there will be more money available since more people can be accredited?
Whoever, who is not a diagnosed gambling addict and has a spare dollar above the amount of savings he would need to maintain their living for a couple of months without income, should be allowed to voluntarily invest that dollar in whatever he wants. No matter how risky that is, what education/experience or how much more spare dollars does he have.
Whoever invites others to invest should not be allowed to knowingly make blatantly false claims.
* The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82.
* Employees of investment funds can be accredited for purpose of investing in their employers fund.
* Firms that are SEC-registered investment advisors may now be accredited.
* To meet the individual standards of accreditation, households can pool wealth between spouses, regardless of whether both spouses are acquiring a security.
* LLCs with 5MM in assets are accredited, as are family offices with 5MM in assets.