SEC's New Accredited Investor Definition Gets Mixed Response

Anya Coverman, senior vice president for government affairs at the Institute for Portfolio Alternatives, says the SEC's final rule is "an important first step to updating the definition, which has not been significantly updated since its inception in 1982."

The commission, Coverman added, "could have gone farther in updating a definition that is a cornerstone of Regulation D," which governs unregistered securities offerings, but the IPA "supports the Commission's invitation for further public feedback and comment."

Christopher Gerold, president of the North American Securities Administrators Association and chief of the New Jersey Bureau of Securities, said the SEC's rule "continues its deregulatory campaign to expand private markets, while showing little regard for the potential adverse effects on investors and the public markets."

The SEC, he maintained in a statement, "should focus on growing and promoting the public markets rather than incentivizing issuers to raise capital in the private markets. Further expansion of private markets comes at the expense of the public markets, which are essential to the health of our economy."

The agency also "squandered an opportunity to fulfill its mandate to protect investors by failing to address long overdue changes to the wealth and income standards defining accredited investors," Gerold said.

For the past 38 years, the SEC's "failure to index these standards to account for inflation has eroded the investor protections they were designed to provide. Each year the Commission fails to address these standards only expands the pool of accredited investors, including investors who only meet the wealth standard based on their accumulated retirement savings."

John Bowman, senior managing director with the CAIA Association, which provides alternative investment education, said "shifting from the dated binary wealth and income test to a multi-factor approach centered on education is right on."

Also, "Capital formation and diversification benefits are building blocks of solid long-term wealth creation that all investors should have access to," Bowman said.

That said, "throwing the unsophisticated retail investor into a wide dispersion, opaque, high fee, idiosyncratic bullpen without proper education is derelict and at odds with true fiduciary duty," he added.

CAIA will "therefore continue to implore the SEC to raise the standard of care above the newly minted ambiguous and porous Reg BI and add professional designations like CAIA to the list of educational paths," according to Bowman.