Becoming an 'Accredited Investor' is Finally About More Than Being Rich

Although investing has always been about applying knowledge and intellect to take advantage of financial opportunities, for decades these opportunities have frequently been limited to the ultra-wealthy. Though there are platforms like Yieldstreet aiming to provide beginners with novel investment opportunities, this exclusion has largely resulted from the U.S. Securities and Exchange Commission (SEC) maintaining regulations that leave out millions of people from being successful traders. This unfortunately affords the status of "accredited investor" to those with exceptionally high net worths or established patterns of yearly income well into the six-figure range.

But in an exciting pivot from the status quo, the SEC announced late last year that it would be adopting a significant change to the accredited investor definition, which went into effect on Dec. 9, 2020. The new language extends qualification in a broad sweep to include those who can demonstrate something ultimately much more valuable than the sum of their personal assets. Namely, financial sophistication and expertise. 

In an official statement, the SEC dispelled the previously maintained notion that qualified investors should primarily be characterized by personal wealth. "For the first time," reads the statement, "investors will be permitted to participate in our private capital markets based not only on their income or net worth, but also based on established, clear measures of financial sophistication." The SEC goes on to assert that the goal is to "simplify, harmonize and improve the exempt offering framework, thereby expanding investment opportunities while maintaining appropriate investor protections and promoting capital formation." 

Currently, qualifying certifications include the acquisition of Series 7, Series 65, and Series 82 licenses. Additionally, spouses can now combine their individual finances to meet net worth and income thresholds (200-300K annual income, $1 million in assets), and LLCs and Family Offices can become accredited as long as they manage a minimum of $5 million in assets. 

For aspiring investors, who had previously been confined to mainstream asset categories, this represents an opportunity to venture more freely into the realm of alternative investments via private equity firms and hedge funds. And while the development may be long overdue, it arrives at a uniquely opportune moment, as years of technological maturation has led to the emergence of online platforms designed to help investors tap into alternative markets. This convergence is beneficial even for those who are just beginning to build a portfolio, as platforms like Yieldstreet provide new investors with both the opportunities and educational tools needed to start working toward accreditation. Yieldstreet even accommodates initial investments of as little as $500 toward their Prism fund, a multiple-asset class that has raised $82.9 million to date.

Importantly, the SEC also plans to further expand the definition over time, and hopefully with even more paths to accreditation, as well as the growing prevalence of online platforms, the potential financial benefits of alternative investing will no longer be reserved for the top 1%.

Source: Yieldstreet


Categories: Investments

Tags: Accredited Investor, Finance, Investments, Yieldstreet