Changes to Definition of Accredited Investors
Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
Changes to Definition of Accredited Investors
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Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8yI have 15 years of experience in investing in actively owned real estate and 3 years of very immersed experience in passive investing in private placements and it is still challenging to source and select conservative opportunities (particularly in today's market). The "look at 100 and close on a couple" adage is as applicable in passive as it is in active investing but many investors simply do not follow it. They hear the words private placement, see fancy offering materials, and watch rousing deal webinars and they get that excited (premature) bowel movement feeling.
The financial protections (net worth and/or income) from the high risks of private placements are important and just having the knowledge part may not be sufficient protection. We have to look past the lens of just trustworthy and prudent offerings to all the bad ones out there (and I see a ton of them).
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- Rental Property Investor · Argyle, TX · Member since 2016 · 5 posts · 0 votes8y
If this passes it will definitely open the door for many more investors to break into commercial investments. Will be interesting to see the specific language about how the SEC will determine the sufficiency of one's experience and education? Thanks of sharing!
Originally posted by @Mike V.:
I dont see what the hype is all about... in all my accredited investments I’ve never once been asked for any type of ‘proof’ that I qualify. It’s always a ‘check this box’ or ‘speak to some random guy for a few mins on the phone’. Granted I’m not knee deep in these types of investments but it doesn’t exactly seem like it’s enforced from what I’ve seen.
Interesting.... It sounds like even now, firms are taking liberties in defining what are reasonable steps in determining if its investors are accredited. Just imagine how bad things will be with this additional option.
I'm invested with two private placements and each of their checks for my status included sending over bank statements, as well as tax statements to show ownership in my real estate holdings. It didn't enjoy putting the documentation together, but quite honestly, I had more peace of mind knowing these firms were being meticulous about this.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
I think it can come down to how much time drain the syndicator would have to take on to accept the capital from a particular investor.
I was watching another syndicator the other day mention 4 things they look for in an accredited investor. Right attitude, no headaches, no babysitting, has to love real estate ( not compare it to stocks,gold,etc.,etc.)
That makes sense as some investors with their money and requirements could drive a syndicator batty. Kind of like buyers I have for commercial real estate. Some are a pleasure to work with and others I do not care what the potential is working with them I will pass.
Anyone that adds tons of stress to my life or ultra difficult to deal with I don't need. Sure people need to vet the deal and the sponsor but some really take it to the extreme and are way over the top.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes8yOne point people miss on accredited investors vs non accredited and why it is based on worth is accredited investors are more apt to still be financially stable if the investment fails. If an accredited investor loses $50,000 it’s probably not a big deal - a guy who takes his last $50k and loses it is a big deal - that is also considered Like everything else in this country let’s lower the standards and give out titles like participation ribbons. Higher standards are in place for reasons - just like we lowers mortgage lending requirements a over a decade ago how did that turn out for us
7e investments53 Reviews - Investor · Alameda, CA · Member since 2016 · 132 posts · 170 votes8y
Originally posted by @Mike Dymski:
I have 15 years of experience in investing in actively owned real estate and 3 years of very immersed experience in passive investing in private placements and it is still challenging to source and select conservative opportunities (particularly in today's market). The "look at 100 and close on a couple" adage is as applicable in passive as it is in active investing but many investors simply do not follow it. They hear the words private placement, see fancy offering materials, and watch rousing deal webinars and they get that excited (premature) bowel movement feeling.
The financial protections (net worth and/or income) from the high risks of private placements are important and just having the knowledge part may not be sufficient protection. We have to look past the lens of just trustworthy and prudent offerings to all the bad ones out there (and I see a ton of them).
I think second blurb you drafted here is spot on (starting with "the financial protections.."). There is a legitimate learning curve to these private placement investments. Even if an investor climbs the curve, it doesn't mean they have the financial wherewithal to handle a complete capital loss if a deal goes south. I've come to appreciate some aspects of the current Reg D 506[c/b] structures because they drive the right qualifying conversations with prospective investors.
- 8yKristopher HanksPro MemberRental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
Great information! Thanks for passing this on to us.
- Member since 2018 · 509 posts · 211 votes8y
Easier guidelines for becoming an accredited investors will mean more who can invest in foolish deals.
- Investor · Houston, TX · Member since 2017 · 129 posts · 62 votes8y
Originally posted by @Joe Splitrock:
Originally posted by @Andy Mirza:
@Mike Dymski I respect your experience and opinion. I've seen plenty of people with money (accredited investor qualified) that don't have a clue what they're doing, are prone to getting ripped off, or are financially irresponsible. Net worth and/or income are no guarantee that a person is protected. It comes down to the person's experience, knowledge, character, everything that makes one a good investor. The SEC might think that high income and net worth indicate that the investor is automatically smart at making investments but it's faulty logic in my opinion. When it comes down to it, it galls me that there's a difference in freedom because of nanny state tendencies. If you don't have the wealth to be accredited, then you're too stupid to evaluate and gauge the risks of a private offering. You are cut off from participating in something that people with money can. The government is taking a freedom away from me and that pisses me off.
If someone has high net worth or high income, it is fair to say they know how to make money - more than the average person. They either have some higher level of education/experience or they started a business. Minus lottery winners, inheritances and professional sports stars, it does take a high level of skill to amass money. That is hardly faulty logic. The point is people who qualify as accredited are generally better decision makers and even if they lose money, they are more likely to be able to recover. Meaning if you have built a million dollar business or you are a neurosurgeon, then you will make the money back no problem.
The rules keep vultures from robbing people of their life savings. The same investments that provide a nice opportunity for upside, also provide an equal opportunity for down side. These private investments are not regulated in a manner to protect the common person. The government protects people from themselves. Most people are sadly not smart enough to know their own limitations. They are too stupid to understand the risks as you put it. They don't even know when they are in over their heads and people will put their life savings into a risky investment.
Is a millionaire smarter financially than a guy with $5000 in his bank account, I put good odds on yes. Sorry if the truth hurts, but if somebody is really financially smart, they will become accredited on financial merit.
Bingo
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
@Andy Mirza IF this were to pass, seems like it cause more headaches than anything else for syndicators. I would imagine they'll want to see some financial docs/bank statements. Many times there is a $50k minimum and good syndicators/investors (which is who you want to trust with your money) are not in the business of taking half of someone's net worth. New laws and regulations will come about (to protect yourself and the sponsors). Lawyers will have field days with suing, this just all seems bad. Will sponsors be responsible for verifying education/experience?
If you're wanting in on investments find someone doing a 506(b) offering. I believe I heard Cardone is thinking about doing a b offering.
- Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes8y
@Thomas Rutkowski nailed it on the head. The relationship between income/wealth and investor sophistication is not causative. Yes, there will be more investors that foolishly lose their money but I bet that there will be a far greater number of people who benefit from the rule. If you want to protect investors, make the rules the same for accredited and non-accredited. Place limits that apply to everyone equally if you want to go that route. I, however, vote for more freedom.
Did the SEC do some rigorous analysis to determine what the definition of an accredited investor should be? If so, I'd love to hear about it. Why is $200,000 in yearly income the standard? Why not $100,000? How about $500,000 in net worth? To me, these numbers are arbitrary with no basis in fact.
Originally posted by @Grant Rothenburger:
@Andy Mirza IF this were to pass, seems like it cause more headaches than anything else for syndicators. I would imagine they'll want to see some financial docs/bank statements. Many times there is a $50k minimum and good syndicators/investors (which is who you want to trust with your money) are not in the business of taking half of someone's net worth. New laws and regulations will come about (to protect yourself and the sponsors). Lawyers will have field days with suing, this just all seems bad. Will sponsors be responsible for verifying education/experience?
If you're wanting in on investments find someone doing a 506(b) offering. I believe I heard Cardone is thinking about doing a b offering.
The sponsor won't have to verify education and or experience. Read the text of the law that passed a voice vote last Nov:
"...and whose education or job experience is verified by the Financial Industry Regulatory Authority or an equivalent self-regulatory organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934)"
FINRA regulates broker-dealers and, among other things, license those who sell securities. Does anyone honestly thing FINRA is going to comb through everyone's applications, college transcripts, and resume to determine who has enough experience or just say 'if you passed Series xx exam you have demonstrated the requite knowledge to qualify as an accredited investor? Occam's Razor suggests it will be the latter.
Folks are making this out to be another example of America lowering standards and/or giving everyone a trophy. For those that hold that opinion, how many have passed a Series exam or even looked at the testable material? Its not differential calculus, but its also not easy.
The impacts of this to REI syndication will be negligible.
@Jay Hinrichs and @Chris Seveney raise some good points.
But I'm leaning towards @Bill F. The lowering standards part seems hyperbole (although I do feel that it is becoming common... so point taken).
Reminded me of this: Larry Fedora: Football is 'under attack' and if it goes down 'our country will go down too'
Most syndicators with a solid track record usually say no to investors with lower net worth, lower income due to the headaches mentioned by @Joel Owens.
Maybe this is a case of much ado about nothing?
- Member since 2018 · 509 posts · 211 votes8y
This is the kind of thing that signals a market top.
After market rises 300% small guys say I want in. Lol.
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
Originally posted by @Bill F.:
Originally posted by @Grant Rothenburger:
@Andy Mirza IF this were to pass, seems like it cause more headaches than anything else for syndicators. I would imagine they'll want to see some financial docs/bank statements. Many times there is a $50k minimum and good syndicators/investors (which is who you want to trust with your money) are not in the business of taking half of someone's net worth. New laws and regulations will come about (to protect yourself and the sponsors). Lawyers will have field days with suing, this just all seems bad. Will sponsors be responsible for verifying education/experience?
If you're wanting in on investments find someone doing a 506(b) offering. I believe I heard Cardone is thinking about doing a b offering.
The sponsor won't have to verify education and or experience. Read the text of the law that passed a voice vote last Nov:
"...and whose education or job experience is verified by the Financial Industry Regulatory Authority or an equivalent self-regulatory organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934)"
FINRA regulates broker-dealers and, among other things, license those who sell securities. Does anyone honestly thing FINRA is going to comb through everyone's applications, college transcripts, and resume to determine who has enough experience or just say 'if you passed Series xx exam you have demonstrated the requite knowledge to qualify as an accredited investor? Occam's Razor suggests it will be the latter.
Folks are making this out to be another example of America lowering standards and/or giving everyone a trophy. For those that hold that opinion, how many have passed a Series exam or even looked at the testable material? Its not differential calculus, but its also not easy.
The impacts of this to REI syndication will be negligible.
I understand the wordage here. And appreciate your viewpoints. My concern is more about the non-accredited investors getting in over their heads just because they "passed Series xx exam you have demonstrated the requite knowledge to qualify as an accredited investor?" Even if they have the knowledge of an accredited investor (which I don't believe that studying for a test and passing it equates to years of business/investing acumen) they still don't have the net worth of a REAL accredited investor (otherwise they would be accredited without this new law). So 3 things with that, 1. most syndicators wouldn't accept them anyway 2. those that do may not be the best people to be handling your money 3. People without the proper knowledge, experience, and especially money, will be more likely to invest when they shouldn't and could lose their money, which would impact them a lot more than a high net worth indicidual. Which I suppose is everyone's right to do so, but I tend to think the laws in place have mostly helped minimize that. Plus, if they really want, there are plenty of non-accredited offerings.
My other thoughts are: don't make assumptions. I never once said anything about "another example of America lowering standards and/or giving everyone a trophy." nor did anyone else in this thread.
I agree, the impact will be negligible, because good syndicators aren't going to accept low net worth people anyways. When I said "Will sponsors be responsible for verifying education/experience?" - I'm more talking about when people come and say "hey I'm accredited" now the sponsor will have a new set of issues and seeing how they're "accredited". Then on top of that, I could see people trying to sue because they're "accredited" and were turned down to invest in deals (kinda like people suing because their coffee is hot). Those wouldn't get anywhere but could cause a little unwanted stress and annoyance to syndicators. My main concern is for the people this is supposed to be helping, IMO it hurts them. Sure some are smart and capable of being in the deals, but a lot won't be, and will think they are because "I passed a test!"
I guess I don't really see how this helps anyone really, there are plenty of ways to invest as a non accredited investor, and the avenues that could potentially open up for them will be shut once a sponsor sees their lower net worth. If you really want to be accepted into those deals, you'll still have to build up your income and/or net worth before being accepted, which in my opinion is a good thing and protects people from themselves.
Like Omar said, much ado about nothing really.
- Member since 2018 · 509 posts · 211 votes8y
Let's get real. Syndicates of all shape n sizes don't care where the money comes from. Be it Granny or Elon Musk.
This is a big deal in favor of syndicators. The better operators will be able to charge more.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
The current Act has no "knowledge" requirements. Let's squash that rationalization...it's made up.
The current Act restricts the freedom of the capital raiser...not the freedom of the investor. There are no rules in the Act that prohibit an investor from generating income and net worth.
Originally posted by @Grant Rothenburger:
Originally posted by @Bill F.:
Originally posted by @Grant Rothenburger:
@Andy Mirza IF this were to pass, seems like it cause more headaches than anything else for syndicators. I would imagine they'll want to see some financial docs/bank statements. Many times there is a $50k minimum and good syndicators/investors (which is who you want to trust with your money) are not in the business of taking half of someone's net worth. New laws and regulations will come about (to protect yourself and the sponsors). Lawyers will have field days with suing, this just all seems bad. Will sponsors be responsible for verifying education/experience?
If you're wanting in on investments find someone doing a 506(b) offering. I believe I heard Cardone is thinking about doing a b offering.
The sponsor won't have to verify education and or experience. Read the text of the law that passed a voice vote last Nov:
"...and whose education or job experience is verified by the Financial Industry Regulatory Authority or an equivalent self-regulatory organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934)"
FINRA regulates broker-dealers and, among other things, license those who sell securities. Does anyone honestly thing FINRA is going to comb through everyone's applications, college transcripts, and resume to determine who has enough experience or just say 'if you passed Series xx exam you have demonstrated the requite knowledge to qualify as an accredited investor? Occam's Razor suggests it will be the latter.
Folks are making this out to be another example of America lowering standards and/or giving everyone a trophy. For those that hold that opinion, how many have passed a Series exam or even looked at the testable material? Its not differential calculus, but its also not easy.
The impacts of this to REI syndication will be negligible.
I understand the wordage here. And appreciate your viewpoints. My concern is more about the non-accredited investors getting in over their heads just because they "passed Series xx exam you have demonstrated the requite knowledge to qualify as an accredited investor?" Even if they have the knowledge of an accredited investor (which I don't believe that studying for a test and passing it equates to years of business/investing acumen) they still don't have the net worth of a REAL accredited investor (otherwise they would be accredited without this new law). So 3 things with that, 1. most syndicators wouldn't accept them anyway 2. those that do may not be the best people to be handling your money 3. People without the proper knowledge, experience, and especially money, will be more likely to invest when they shouldn't and could lose their money, which would impact them a lot more than a high net worth indicidual. Which I suppose is everyone's right to do so, but I tend to think the laws in place have mostly helped minimize that. Plus, if they really want, there are plenty of non-accredited offerings.
My other thoughts are: don't make assumptions. I never once said anything about "another example of America lowering standards and/or giving everyone a trophy." nor did anyone else in this thread.
I agree, the impact will be negligible, because good syndicators aren't going to accept low net worth people anyways. When I said "Will sponsors be responsible for verifying education/experience?" - I'm more talking about when people come and say "hey I'm accredited" now the sponsor will have a new set of issues and seeing how they're "accredited". Then on top of that, I could see people trying to sue because they're "accredited" and were turned down to invest in deals (kinda like people suing because their coffee is hot). Those wouldn't get anywhere but could cause a little unwanted stress and annoyance to syndicators. My main concern is for the people this is supposed to be helping, IMO it hurts them. Sure some are smart and capable of being in the deals, but a lot won't be, and will think they are because "I passed a test!"
I guess I don't really see how this helps anyone really, there are plenty of ways to invest as a non accredited investor, and the avenues that could potentially open up for them will be shut once a sponsor sees their lower net worth. If you really want to be accepted into those deals, you'll still have to build up your income and/or net worth before being accepted, which in my opinion is a good thing and protects people from themselves.
Like Omar said, much ado about nothing really.
Thanks for the response Grant and I respect your opinion. Some thoughts:
-You make a lot of assumptions about how accredited investors got their money, particularly the false equivalence of wealth being derived solely from business acumen/knowledge. That's simply not the case. If I save $1,500/month starting at 25 and get a 6% return with 2.9% inflation I'll have $1m by the time I'm 50. If I make $60k/yr, that's a 30% savings rate. A disciplined McDonald's manager or custodian could accomplish this feat.
-I didn't mean to imply that you had said anything to the effect of lowering standards, that's why I prefaced that statement with the plural "folks". I'd encourage you to go re-read the threat because people have most certainly alluded to this idea.
-Speaking in glittering generalities about what syndication/Investors/ potential investors may or may not do is a great thought experiment and can certainly come up with situations in which not changing the law could be helpful. If you want to be intellectually complete and steer away from motivated reasoning you'll need to lay out the counter positions to all of your assumptions.
-How do people prove their accreditation now? Send a bank statement or a letter from their wealth manager/advisor. Someone could potentially send over their Series xx license or have FINRA do the same. Verification is a non-issue.
-I'm of the opinion that we should have the greatest amount of freedom for the greatest amount of people while still having a functioning society. Restricting people's freedom on the premises that they need to be protect from themselves/loss and or they could make the syndicator's life harder does not merit curtailing of a freedom to make a choice. Now restricting the investment options of people who have been licensed to trade, advise, and mange other people's money seems doubly foolish. How much sense does it make, besides the paternalism argument, that I could invest my client's money in an offering, but not my own?
- 8yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 799 votes
Originally posted by @Mike Dymski:
The current Act has no "knowledge" requirements. Let's squash that rationalization...it's made up.
The current Act restricts the freedom of the capital raiser...not the freedom of the investor. There are no rules in the Act that prohibit an investor from generating income and net worth.
By restricting the sale of private securities to "Accredited Investors" the current act is prohibiting sophisticated, but non-accredited investors from accessing what are potentially suitable investments for them.
I can certainly appreciate the legislators wish to prevent unscrupulous financial advisors from preying on the elderly and other non-sophisticated investors, but as we know, unscrupulous financial advisors will still find a way to operate within any rules that are set. Just watch "the wolf of wall street".
The existing rules addressing "Suitability" are more than enough to address any investment: public or private.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @Andy Mirza:
@Thomas Rutkowski nailed it on the head. The relationship between income/wealth and investor sophistication is not causative. Yes, there will be more investors that foolishly lose their money but I bet that there will be a far greater number of people who benefit from the rule. If you want to protect investors, make the rules the same for accredited and non-accredited. Place limits that apply to everyone equally if you want to go that route. I, however, vote for more freedom.
Did the SEC do some rigorous analysis to determine what the definition of an accredited investor should be? If so, I'd love to hear about it. Why is $200,000 in yearly income the standard? Why not $100,000? How about $500,000 in net worth? To me, these numbers are arbitrary with no basis in fact.
Because $100,000 isn't very much income. There is some level of difficulty to attain high income or high net worth. That is the point and that is why it works as a vetting process. Call it the ticket to entry to play in the big boys game. Like high roller poker. You don't sit down at the big table unless you can ante up. Even then, most high roller tables are invite only. You start at the small table and need to prove you can play with the big boys. If someone is smart they can amass wealth and become accredited.
- 8yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 799 votes
Originally posted by @Joe Splitrock:
Originally posted by @Andy Mirza:
@Thomas Rutkowski nailed it on the head. The relationship between income/wealth and investor sophistication is not causative. Yes, there will be more investors that foolishly lose their money but I bet that there will be a far greater number of people who benefit from the rule. If you want to protect investors, make the rules the same for accredited and non-accredited. Place limits that apply to everyone equally if you want to go that route. I, however, vote for more freedom.
Did the SEC do some rigorous analysis to determine what the definition of an accredited investor should be? If so, I'd love to hear about it. Why is $200,000 in yearly income the standard? Why not $100,000? How about $500,000 in net worth? To me, these numbers are arbitrary with no basis in fact.
Because $100,000 isn't very much income. There is some level of difficulty to attain high income or high net worth. That is the point and that is why it works as a vetting process. Call it the ticket to entry to play in the big boys game. Like high roller poker. You don't sit down at the big table unless you can ante up. Even then, most high roller tables are invite only. You start at the small table and need to prove you can play with the big boys. If someone is smart they can amass wealth and become accredited.
How difficult is it to be born with it?
I don't buy your reasoning whatsoever. Its not a game. Its not about who can play and who can't. Where is that is the Act? My presumption is that the legislators simply want to protect unsophisticated investors. It all comes down to suitability. The advisor and/or investment sponsor should be liable if they sold or recommended an investment that is not suitable for the investor. This is already in the rules.
This is all ridiculous. A wannabe investor can come to BP, learn all about real estate investing, and then go out, leverage their home, and lose everything trying to do it on their own. Who's protecting them? Should we legislate that too? The "government" can't protect everyone from everything. Why all the concern over simply investing in a private security?
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
@Bill F. We have many differentiating opinions. I respect yours, you respect mine (as you said and I appreciate it). Let's leave it at that because this could go on forever and wouldn't be a good use of anyone's time. Have a good one!
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Originally posted by @Thomas Rutkowski:
Originally posted by @Mike Dymski:
The current Act has no "knowledge" requirements. Let's squash that rationalization...it's made up.
The current Act restricts the freedom of the capital raiser...not the freedom of the investor. There are no rules in the Act that prohibit an investor from generating income and net worth.
By restricting the sale of private securities to "Accredited Investors" the current act is prohibiting sophisticated, but non-accredited investors from accessing what are potentially suitable investments for them.
I can certainly appreciate the legislators wish to prevent unscrupulous financial advisors from preying on the elderly and other non-sophisticated investors, but as we know, unscrupulous financial advisors will still find a way to operate within any rules that are set. Just watch "the wolf of wall street".
The existing rules addressing "Suitability" are more than enough to address any investment: public or private.
The current Act does not prohibit any person from investing in private placements. Having or not having income and net worth is a choice that people make...it's not a government mandate nor is it predetermined at birth. If someone wants to invest in private placements, they can make it happen...it's entirely under their control and the SEC can't stop them.
And incidentally, I'm not advocating strongly for or against the rules...I'm just stating what is in the rules. The conversation keeps getting directed to knowledge and investor limitations and I don't see any knowledge requirements in the rules and the only limits I see in the rules are on the capital raiser. The limits to the investor are self-imposed...not in the Act.
- 8yAnthony GaydenPro MemberRental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votesThe truth is that this sort of legislation will target the “mass affluent”. These people are the upper middle class and probably have several hundred thousand in net worth and lower six figure income. They sit just below accredited.
Originally posted by @Thomas Rutkowski:
Originally posted by @Jack B.:
So the guy I know who went to ITT Tech, failed at a tech career, then took 10 years to get an MBA from Devry on his parents dime will now be in the same category of me, the self made millionaire who did his MBA in 1.5 years at a top school? Awesome....This sounds like more lowering the standards so more of the not quite so capable can be part of the club...
The current proposal may not be adequate to your way of thinking, but the definition of accredited investor needs to be changed. Net Worth and Income have no causal relationship to Investment sophistication. There are plenty of people without any formal education who have self-educated and are fully capable of doing the due diligence to analyze sophisticated private securities. And there are plenty of millionaires who are dumber than a box of rocks.
Do you have any actual evidence of this? Studies that are independently verified?
Yes, there may be the occasional idiot that is a millionaire in Wisconsin, but that's generally someone who won the lotto or inherited their wealth and they are the exception and not the rule. And yes, farmers inherited their farms through generations in most cases. To compare people who have GED's with Harvard educated PhD's and say they are both accredited investors is laughably ridiculous and it shows in the level of critical thinking in your argument. As is comparing a person with an MBA from Devry that took them 10 years to get while their parents paid their way well into middle age; it isn't exactly the same as a person who has made a million bucks on his or her own. One has a demonstrated level of sophistication, the other does not, regardless of education.
Case in point, my long time acquaintance who had every advantage in life, while I came from a poor family. I'm a self made millionaire, two years from being a multi millionaire. He is in his tenth year at Devry for a 2 year degree program, living and studying off his parents the entire time. Both the same age. I stood on my own two feet since I was 18 and at almost 40 he is still living off his parents, and did my MBA at a top program in 1.5 years and like I said I'm wealthy. Your argument holds absolutely no water. Accomplishment should be the barrier to entry. Why? Because even this fool that I'm talking about will eventually get his MBA from the bottom tier school. But making $13 an hour at his age while I make 170K a year salary from my career and much more from my investments actually means something...Lowering the standard is like lowering the standard for people to become firefighters and police officers; it harms things it doesn't make them better....
Originally posted by @Joe Splitrock:
Originally posted by @Andy Mirza:
@Thomas Rutkowski nailed it on the head. The relationship between income/wealth and investor sophistication is not causative. Yes, there will be more investors that foolishly lose their money but I bet that there will be a far greater number of people who benefit from the rule. If you want to protect investors, make the rules the same for accredited and non-accredited. Place limits that apply to everyone equally if you want to go that route. I, however, vote for more freedom.
Did the SEC do some rigorous analysis to determine what the definition of an accredited investor should be? If so, I'd love to hear about it. Why is $200,000 in yearly income the standard? Why not $100,000? How about $500,000 in net worth? To me, these numbers are arbitrary with no basis in fact.
Because $100,000 isn't very much income. There is some level of difficulty to attain high income or high net worth. That is the point and that is why it works as a vetting process. Call it the ticket to entry to play in the big boys game. Like high roller poker. You don't sit down at the big table unless you can ante up. Even then, most high roller tables are invite only. You start at the small table and need to prove you can play with the big boys. If someone is smart they can amass wealth and become accredited.
Ha, that's the funniest thing I've read on here in a while. Less than 10% of people in the US make at least 100K a year. So in your imagination 1 out of 10 people isn't very elite. Got it....
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