Yesterday the Investor Advisory Committee of the Securities and Exchange Commission (SEC) met to discuss, among other things, updating the definition of an accredited investor. To be an accredited investor today a person must have an annual income of $200,000 or more for each of the past two years or a net worth (excluding a primary residence) in excess of $1 million.
The issue is that this definition was created several decades ago and has never been adjusted for inflation. So, some people believe it should be updated. If this happens, it could have a profound affect on this industry. Pretty much every investment option outside of Lending Club and Prosper is limited to accredited investors only. Any change to this definition that reduces the available pool of investors could be very damaging to some of the platforms and funds in our industry.
I reached out to several industry leaders to get their take on this new development. I wanted to see if everyone agreed with me that this could become a big problem. Here is what Jilliene Helman, CEO of Realty Mogul, a real estate marketplace for accredited investors, had to say:
It would be a shame to see the definition of an accredited investor become even more onerous. The JOBS act was meant to open up the private markets for investors, and adjusting the income or net worth requirements for accredited investors upward would serve the opposite purpose.
It’s incredibly important that investors are protected – and a core focus of ours at Realty Mogul, but what we’ve found is that the majority of our investors are highly sophisticated. I’d hate to see those investors lose out on the opportunity to invest in private markets if income requirements are increased by the SEC.