22 ms·

SEC Modernizes the Accredited Investor Definition

284 points by cdiddy2 6y ago

elevenoh 6y ago
Hope Canada similarly updates their definition !
laser 6y ago
Would the easiest way for someone that doesn't meet the wealth or multi-year income thresholds to become an accredited investor now be to take the Series 65?
bobwernstein 6y ago
Do international investors in a USA based startup need to be ''accredited'' acording to SEC rules even if their own country allows them to invest freely?
say_it_as_it_is 6y ago
Note that the process of reforming equity fundraising began at least ten years ago as the JOBS Act was drafted. Powerful financial lobbying watered down provisions, such as the designation of accredited investor and anything else that would enable a viable crowdfunding marketplace to exist. After TEN YEARS, across several political administrations controlled by both political parties, this change finally takes a baby step forward. It's still not democratizing access to private investment. The reasons for this remain the same: those who control the flow of capital demand it.
sfshaw 6y ago
Matt Levine would be having a field day today. I hope he's having a nice time off.
throwawaygh 6y ago
The two big changes: 1. permitting natural persons who have "professional certifications" or "credentials issued by an accredited educational institution". 2. include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund. Most of the other changes fill in gaps that shouldn't have existed: expanding the definition of spouse and adding orgs with >$5MM assets (including tribes, family offices, etc.). YC relevant: "demo days" will not constitute a general solicitation. Overall a welcome change. I assume that they'll use an existing set of professional certifications in finance, which tend to require non-trivial self-study, so it'll probably also create a market for short educational programs offered by accredited institutions.
- bluedevil2k 6y ago
  Do you think "credentials issued by an accredited educational institution" would include things like an MBA? Or even a BA in Business?
  - SpicyLemonZest 6y ago
    The SEC's phrasing is somewhat misleading. The amendments give them the right to designate some kinds of educational credentials as sufficient, but they haven't actually done so; the only credentials designated right now are a handful of securities licenses.
  - Lazare 6y ago
    In theory, the SEC could decide to count those. In practice, that's basically unthinkable.
    - gojomo 6y ago
      It's been discussed, so it's definitely thinkable. And if getting an accredited-institution MBA, for tuition payments of anywhere from $22K to $200K, after about 17 years of other education (K-12, undergrad) isn't enough for someone to protect their own wealth from scams, what's the point of all that credentialing, anyway?
      - zerkten 6y ago
        An MBA is not a licensure. There are overlaps between what an MBA and an accountant may have studied, but the CPA is what gives you a license. Lots of MBA students do not pursue financial courses beyond what is requires to pass. They may have interests in marketing, innovation, or other areas. They can be ill-equipped to deal with investments. The same pattern exists for law and many other professions. There are plenty of people with law degrees who fail, or decide to not pursue the bar exam.
        gojomo 6y ago
zacherates 6y ago
Too bad they didn't adopt the "Dumb investment certificate" [1] instead. [1] https://www.bloomberg.com/opinion/articles/2018-09-24/earning-the-right-to-get-swindled https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
- gruez 6y ago
  Is there a reason why the idea suggested just before the "Dumb investment certificate"[1] can't be implemented? It can be implemented like a Roth IRA (ie. a special account type). IRS would be in charge of keeping track of how much "dumb money" was "spent" in total, and all the issuer has to do is ensure the money came from a "dumb money" account. [1] the paragraph starting with "A better approach might be to lower (or eliminate) the wealth bar for investing in private placements"
LatteLazy 6y ago
Did they really not have anything except a wealth test previously? Nothing for people working in the industry etc?
- sbuccini 6y ago
  Nope!
  - LatteLazy 6y ago
    I'm a brit, I looked into our equivalent regime a while back and I was amazed you could be considered sophisticated based solely on income/assets.
    - vmception 6y ago
      'Murica! Although US is not a great place when you don't have enough income or assets, it would be just as foreign to us that you wouldn't be considered sophisticated from income/assets! "What do you mean an actual class system with a 1,000 year family history, crazy talk!" But back to investment choice, we don't agree that "sophisticated" can only be from wealth. We want choice, the option to take risks.
- vmception 6y ago
  It was a "self-certified" wealth test People working in the industry know that self-certified means lie through your teeth all day every day with a straight face. People working in the industry know that you can create illiquid investments, trade one unit of it and say you own the rest at the same price, and viola you are a multimillionaire. I did it with crypto assets 6 years ago using Counterparty. People working in the industry know that you just need a lawyer or CPA to sign off on that. The prohibition is on the companies selling securities, not on the investor, so the company just needs a way to cover their ass (CYA) and there is no consequence for the investor. "Self-certification" is a code word for lying, or stretching the truth, just checking the box.
  - 6y ago
deleted 6y ago
[deleted]
CalChris 6y ago
So these are 'smart' people who somehow can't meet the relatively low traditional income requirements ($200k/yr) but who are now assumed to be financially sophisticated enough to take on the risk of these securities without the protection provided by normal regulatory disclosure filings. This strikes me as insanely stupid akin to the ownership society nonsense which precipitated the housing crisis. VC follows a power law and the vast majority of these investments will fail.
- JumpCrisscross 6y ago
  > who somehow can't meet the relatively low traditional income requirements ($200k/yr) but who are now assumed to be financially sophisticated enough to take on the risk of these securities It looks like the current certifications are restricted to those of financial professionals [1] and employees of funds [2]. That doesn't strike me as nuts. [1] holders in good standing of the Series 7, Series 65, and Series 82 licenses [2] natural persons who are “knowledgeable employees” of the fund
  - CalChris 6y ago
    It says in conjunction which means that yeah, stock brokers can now invest. But it also said certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution. These educated folks don't necessarily need even a Series 7. Yes, I would like to read Matt Levine rip this apart.
    - JumpCrisscross 6y ago
      > certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution After specifying that "holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons," the bullet point adds that the SEC chose this "approach [to provide] the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future." So no, at this point, only holders in good standing of those licenses are included in this part of the amendment.
tempsy 6y ago
They also eased risk disclosure requirements https://www.sec.gov/news/press-release/2020-192 https://www.sec.gov/news/press-release/2020-192 It's honestly laughable that their top priorities in the height of what appears to be a massive stock bubble is weakening investor protections at a time when they should be strengthened
chowells 6y ago
This is great for employees of private funds and other things like that. It makes no difference at all to the average person complaining about the accredited investor rules preventing them from investing in sure-fire wins. It really doesn't matter how much of a genius you are at recognizing investment wins. If you can't give them enough cash to finance their operations for a significant period of time, the company isn't going to be interested in taking your money. If you can't meet the wealth guidelines, you're not gonna be able to give them enough money to be worth their time dealing with.
- woah 6y ago
  If the company has a process set up to accept investment, they don’t have to deal with each individual one at a time
- tathougies 6y ago
  The average person can now take the Series 65 exam for $60 or so and, if they pass, become an accredited investor. This is a huge change. Taking the wealth requirement from 1 million dollars to $60. EDIT: It's not $60, but $175, still a far cry from a million.
  - sgc 6y ago
    I read it as requiring 3 licenses: "Series 7, Series 65, and Series 82" [Italics mine]. But your point stands in principle and it's a great change.
  - nkohari 6y ago
    The series 65 is intended for people who want to manage other people's money. You should still be able to invest your own money as you wish.
    - tathougies 6y ago
      I completely agree with you and would like to see accredited investors go away as a concept. However, this new policy is strictly better than what we had, so it deserves praise.
tathougies 6y ago
This is a wonderful change. Before, you had to be rich to invest in funds. Now, the SEC has opened up the ability to participate simply after having met certain educational thresholds. The Series 65 exam can be undertaken by members of the public, without any requirements. Great news for small investors! And a vital change for minority and marginalized communities, who are often forced to seek capital outside their community, because it is incredibly difficult to meet accredited investor requirements otherwise.
tboyd47 6y ago
The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough information to know if it will really open up any opportunities for regular people.
- refurb 6y ago
  like the most anti-free-market law I've ever heard of Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.
  - chrisco255 6y ago
    The world is quite a different place in 2020 than in 1933. We have access to unlimited digital forms of risk to speculate on as it is. It used to be seen as necessary to have taxi licenses in order to have trusted drivers who wouldn't scam out-of-towners. It turns out you can replace all that regulation with an online review system plus mobile GPS and payment app (Uber / Lyft). Similar innovations are being held back in securities because of red tape.
    - refurb 6y ago
      The existence of other risks isn't a strong argument for introducing more risks. It's easy for HN to say "this makes no sense", but I guarantee you if the rules changed we'd see some article in the NYTimes where some retiree lost their entire life savings in a private investment including quotes like "no one told me it was that risky".
  - tathougies 6y ago
    No it doesn't really. People should be allowed to fail. The response when someone loses all their money due to a business failing should be to have a social safety net, not to prevent them from ever having been able to invest their money in the first place.
aerovistae 6y ago
Looking over it, it seems like it's still highly restrictive.
gojomo 6y ago
These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily worse than even the riskiest non-fraudulent startup investment, depending on your choice of wagers. (Official state lotteries are among the worst games, with the most manipulative marketing - to a level of deception that would generate lawsuits & legislation if attempted by private actors.) There's no wealth test before purchasing legal but addictive & judgement-impairing substances like alcohol & marijuana. But if you want to put $5-$20K into a friend's business, or a business you know well, the SEC makes it hard unless you're already a millionaire. It's insanely paternalistic & economically destructive - a ghostly holdout from some bad experiences in another era, the 1930s, when the ranges of available information, experience, and alternative temptations were all tiny & quaint compared to the 2020s.
- incompatible 6y ago
  In any case, we aren't supposed to have "one law for the rich and another for the poor".
- throwaway_kufu 6y ago
  These law weren’t enacted to keep people with less wealth out, but because people with less wealth were fraudulently victimized in mass. The masses now are most certainly just as, if not more, susceptible to fraud now then they ever were. Then people were literally selling stock certificates on the street, now people line up like sheep to be lead to the slaughter and fight their way to the front. This may be celebrated like a much needed deregulation, but this was pushed by some deep pocketed special interests that can’t wait to give the unemployed masses the ability to day trade right from their phones.
- lootsauce 6y ago
  Agree it's paternalistic, but you really want to educate yourself whatever the requirements. https://www.macrovoices.com/aia/218-accredited-investor-academy https://www.macrovoices.com/aia/218-accredited-investor-acad...
mthoms 6y ago
Interestingly, many Canadian provinces have had accredited investor exemptions for some time. Here's an overview for anyone interested (note that the exact rules will vary by province): https://financialpost.com/personal-finance/managing-wealth/soon-you-will-be-able-to-invest-like-the-very-rich-with-all-the-rewards-and-risks/ https://financialpost.com/personal-finance/managing-wealth/s...
xt00 6y ago
Putting up a basic barrier to entry to people with low net-worth people causes some people to say "if the market is sky-rocketing, why can't I get in on that".. but the problem is whether or not you can "afford" to lose the money.. like if you have 50k to your name that you saved up over 20 years, then you blow it all in one bad investment, then you see people doing rash things like trying to take out their revenge on people or other super destructive behaviors. If your annual income is high, then losing 50% of your annual income might hurt, but you can earn it back in a reasonable amount of time.. losing say 10 years of annual income would hurt basically anybody.. So it makes more sense to have various lower risk investment vehicles that are attached to those markets -- like if real estate is booming in your part of the world, then it should be possible to create some kind of investment group where 100 people put together their money and buy various properties. Allowing people who don't know much about options to buy them in a leveraged position is incredibly risky for tons of reasons. Many people's understanding of options is basically like if the stock goes up, then the call option that is above the current stock price goes up -- the option price could easily could go down if the expectation was that it would go up even more than it did, or the price volatility decreases! Not easy to explain all of the horrible ways you can easily lose money in the markets... I've sometimes thought, maybe I should just do the opposite of everything I've thought I wanted to do.. maybe that'd be better than what I'm doing..
- DennisP 6y ago
  What's weird is that there's nothing stopping someone with $1M from blowing it all on a risky investment, while someone with $900K can't invest even 1% of their net worth in the same thing. A limit on percentage of net worth invested, as in the JOBS Act, would make more sense.
throwawaypop 6y ago
Am i the only one who thinks we are not giving credit to Trump administration for more de-regulation specifically this one? Relaxing the regulation to be fair.
- edoceo 6y ago
  Rule 14 ^^
obiefernandez 6y ago
Someone have the TLDR?
deleted 6y ago
[deleted]
Animats 6y ago
Most of the changes involve organizations, not individuals. The main change for individuals is that having a Series 7 qualifies you. (A Series 7 is a test about finance you take to become a broker. Covers stocks, bonds, options, terminology, how to evaluate risk, trading rules, ethics. that sort of thing.) Mostly, this is about hedge funds, not startups. "Accredited investors" can invest in hedge funds that don't report their returns publicly in a standard way. Usually they don't report them because hedge funds as a class underperform the Dow. Useful rule: any investment where they call you is no good. If it needs paid salespeople, it's a dud.
mindcrime 6y ago
Hilarious. I'm not sure how any of this counts as "modernizing", and none of it amounts to any substantive change. I'd compare this to rearranging the deck chairs on the Titanic, but doing that is probably more productive. So... now people who hold a couple of niche, finance industry specific licenses - which you can't obtain unless you work in the finance industry - can be "accredited investors." Wow, golly gee whiz, color me gobsmacked. So finance industry insiders get more access to opportunities to build wealth, and nothing changes for regular old everyday Americans? Am I supposed to be impressed by this? The ONLY way this would actually be worth trumpeting would be if anybody could study, sign up for, take, and (hopefully) pass the various FINRA exams mentioned, and get their license without needing to go to change jobs. But, sadly, as we see here[1]: Candidates must be associated with and sponsored by a FINRA member firm or other applicable self-regulatory organization (SRO) member firm to be eligible to take FINRA representative-level qualification exams. and here[2]: In order to enroll for FINRA qualifying exams, a candidate must be sponsored by a state regulator or regulatory authority approved to sponsor candidates for FINRA qualifying exams. Edit: there is some verbiage here[3] that claims that you can take the Series 65 exam without being associated with a member firm. IF true, I might change my opinion on this a bit. But this seems to contradict what is on the FINRA site itself. Unlike many other FINRA Series exams, the Series 65 exam does not require an individual to be sponsored by a member firm. If you are not Form U4 registered or affiliated with a firm through FINRA’s Web CRD system, you should use the Form U10 to request and pay for the Series 65 exam. [1]: https://www.finra.org/registration-exams-ce/qualification-exams/series82 https://www.finra.org/registration-exams-ce/qualification-ex... [2]: https://www.finra.org/registration-exams-ce/qualification-exams/enroll https://www.finra.org/registration-exams-ce/qualification-ex... [3]: https://www.kaplanfinancial.com/resources/career-advancement/how-to-get-your-series-65-license https://www.kaplanfinancial.com/resources/career-advancement...
ffggvv 6y ago
wtf is a natural person?
- beervirus 6y ago
  As opposed to a "legal person" like a corporation.
- tathougies 6y ago
  A natural person is an individual human being, rather than a corporation, the estate of a deceased individual, a trust, a partnership, etc, which are all legal persons, but not natural ones.
johnrgrace 6y ago
I'm an accredited investor. I've had a series 7 license and was in a finance PHD program. I've had the chance to see a lot of investments that require you being an accredited investor. Almost all of them have had some highly problematic issues. Most of them have a outcomes where you can lose all of your money and there is NO WAY to get out of the investments. What I tell other people is run away from investments that require you to be accredited. Seed round investments are probably the "best" opportunity BUT you have the risks of being screwed by cap table games. A "regular" person could put money into a startup and get really screwed.
- icedchai 6y ago
  The liquidity aspect is key. There is basically none with private investments. You can get in, but may not be able to get out for 5 or 10 years... or more likely, never. For this reason alone, the average person is better off with public markets.
elamje 6y ago
My biggest problem with this is that I have had multiple opportunities as a young professional to invest in my friends’ small funds, only to be turned away at the last minute when they decided to only accept accredited investors. On the other hand, I could participate in sh*tcoin ICO’s, get rich quick “courses”, and become a real estate “investor” by attending presentations at a Holiday Inn conference room. The law as it currently stands, does not work, period. I’ve been prevented from investing in the funds and businesses of my high integrity friends, while being allowed to participate in lotteries, gambling, MLMs, ICOs, the list goes on... I was really hoping this would be a huge announcement, but unfortunately its a couple tiny steps towards the ultimate end goal of opening up private markets to individuals. Many people like to reference scams that this law helps avoid, but I call BS. Has it limited some cons from raising money from middle class people, yes. Has it limited a lot of middle class people from participating in areas with the highest returns, yes. I’ve read about several people that weren’t accredited checking the box anyways, and no enforcement actually happens, which makes me think it’s a BS regulation to begin with.
- cryptica 6y ago
  Of course, to people outside of the US, what was going on in the US was obvious. They should just get rid of these socialist laws which are supposedly designed to protect your comrades but which actually serve the interests of a small number of politically connected elite by hindering mobility... Let's face it, what you have in the US is textbook communism. It's ironic that Russia today is more capitalist than the US... It's like both countries lost the cold war against each other.
  - SomewhatLikely 6y ago
    Regulation is tantamount to communism and socialism? Ownership is still private in the US but has rules on what can be done. Russia has state ownership in many of that country's companies.
    - cryptica 6y ago
      Regulations designed to protect people from themselves are inherently socialist... The fact that these regulations actually end up creating a moat around the elites (by locking regular people out of opportunities) is inherently communist. This is exactly what the Soviet political elites did to keep living the good life at the expense of their poor citizens; all under the pretext of protecting people from themselves.
bufferoverflow 6y ago
This is classic gatekeeping. You can bring all your money to a casino, buy lottery tickets, make bets on horses. But somehow investing in early stage startups is suddenly an issue the government wants to protect you against.
cryptica 6y ago
Great, now that all the valuable companies have done their IPO and the stock market is about to collapse, let's allow the peasants to come in and buy all our bags of crap before they become worthless. It's all for their own protection of course. We really care about the peasants. Especially when they bail us out.
- renewiltord 6y ago
  The "peasants" don't have to buy anything, dude. I know friends with all their money in bonds, metals, and Vanguard. No one's making you go by TSLA 4500 calls expiring this Friday.
  - cryptica 6y ago
    They don't have to, but they will, now that we finally allow them... At this very convenient time.
    - renewiltord 6y ago
      Let them do so, then. May we all be free men, acting for ourselves, not slave to the whims of states.
zelly 6y ago
Seems like a top signal.
peter303 6y ago
16% of the US qualifies. Not a very high threshhold.

284 points by cdiddy2 6y ago

Hope Canada similarly updates their definition !

Would the easiest way for someone that doesn't meet the wealth or multi-year income thresholds to become an accredited investor now be to take the Series 65?

bobwernstein 6y ago

Do international investors in a USA based startup need to be ''accredited'' acording to SEC rules even if their own country allows them to invest freely?

say_it_as_it_is 6y ago

Note that the process of reforming equity fundraising began at least ten years ago as the JOBS Act was drafted. Powerful financial lobbying watered down provisions, such as the designation of accredited investor and anything else that would enable a viable crowdfunding marketplace to exist. After TEN YEARS, across several political administrations controlled by both political parties, this change finally takes a baby step forward. It's still not democratizing access to private investment. The reasons for this remain the same: those who control the flow of capital demand it.

sfshaw 6y ago

Matt Levine would be having a field day today. I hope he's having a nice time off.

throwawaygh 6y ago

The two big changes: 1. permitting natural persons who have "professional certifications" or "credentials issued by an accredited educational institution". 2. include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund. Most of the other changes fill in gaps that shouldn't have existed: expanding the definition of spouse and adding orgs with >$5MM assets (including tribes, family offices, etc.). YC relevant: "demo days" will not constitute a general solicitation. Overall a welcome change. I assume that they'll use an existing set of professional certifications in finance, which tend to require non-trivial self-study, so it'll probably also create a market for short educational programs offered by accredited institutions.

bluedevil2k 6y ago
Do you think "credentials issued by an accredited educational institution" would include things like an MBA? Or even a BA in Business?
- SpicyLemonZest 6y ago
  The SEC's phrasing is somewhat misleading. The amendments give them the right to designate some kinds of educational credentials as sufficient, but they haven't actually done so; the only credentials designated right now are a handful of securities licenses.
- Lazare 6y ago
  In theory, the SEC could decide to count those. In practice, that's basically unthinkable.
  - gojomo 6y ago
    It's been discussed, so it's definitely thinkable. And if getting an accredited-institution MBA, for tuition payments of anywhere from $22K to $200K, after about 17 years of other education (K-12, undergrad) isn't enough for someone to protect their own wealth from scams, what's the point of all that credentialing, anyway?
    - zerkten 6y ago
      An MBA is not a licensure. There are overlaps between what an MBA and an accountant may have studied, but the CPA is what gives you a license. Lots of MBA students do not pursue financial courses beyond what is requires to pass. They may have interests in marketing, innovation, or other areas. They can be ill-equipped to deal with investments. The same pattern exists for law and many other professions. There are plenty of people with law degrees who fail, or decide to not pursue the bar exam.
      - gojomo 6y ago

zacherates 6y ago

Too bad they didn't adopt the "Dumb investment certificate" [1] instead. [1] https://www.bloomberg.com/opinion/articles/2018-09-24/earning-the-right-to-get-swindled https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...

gruez 6y ago
Is there a reason why the idea suggested just before the "Dumb investment certificate"[1] can't be implemented? It can be implemented like a Roth IRA (ie. a special account type). IRS would be in charge of keeping track of how much "dumb money" was "spent" in total, and all the issuer has to do is ensure the money came from a "dumb money" account. [1] the paragraph starting with "A better approach might be to lower (or eliminate) the wealth bar for investing in private placements"

LatteLazy 6y ago

Did they really not have anything except a wealth test previously? Nothing for people working in the industry etc?

sbuccini 6y ago
Nope!
- LatteLazy 6y ago
  I'm a brit, I looked into our equivalent regime a while back and I was amazed you could be considered sophisticated based solely on income/assets.
  - vmception 6y ago
    'Murica! Although US is not a great place when you don't have enough income or assets, it would be just as foreign to us that you wouldn't be considered sophisticated from income/assets! "What do you mean an actual class system with a 1,000 year family history, crazy talk!" But back to investment choice, we don't agree that "sophisticated" can only be from wealth. We want choice, the option to take risks.
vmception 6y ago
It was a "self-certified" wealth test People working in the industry know that self-certified means lie through your teeth all day every day with a straight face. People working in the industry know that you can create illiquid investments, trade one unit of it and say you own the rest at the same price, and viola you are a multimillionaire. I did it with crypto assets 6 years ago using Counterparty. People working in the industry know that you just need a lawyer or CPA to sign off on that. The prohibition is on the companies selling securities, not on the investor, so the company just needs a way to cover their ass (CYA) and there is no consequence for the investor. "Self-certification" is a code word for lying, or stretching the truth, just checking the box.
- 6y ago

deleted 6y ago

[deleted]

CalChris 6y ago

So these are 'smart' people who somehow can't meet the relatively low traditional income requirements ($200k/yr) but who are now assumed to be financially sophisticated enough to take on the risk of these securities without the protection provided by normal regulatory disclosure filings. This strikes me as insanely stupid akin to the ownership society nonsense which precipitated the housing crisis. VC follows a power law and the vast majority of these investments will fail.

JumpCrisscross 6y ago
> who somehow can't meet the relatively low traditional income requirements ($200k/yr) but who are now assumed to be financially sophisticated enough to take on the risk of these securities It looks like the current certifications are restricted to those of financial professionals [1] and employees of funds [2]. That doesn't strike me as nuts. [1] holders in good standing of the Series 7, Series 65, and Series 82 licenses [2] natural persons who are “knowledgeable employees” of the fund
- CalChris 6y ago
  It says in conjunction which means that yeah, stock brokers can now invest. But it also said certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution. These educated folks don't necessarily need even a Series 7. Yes, I would like to read Matt Levine rip this apart.
  - JumpCrisscross 6y ago
    > certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution After specifying that "holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons," the bullet point adds that the SEC chose this "approach [to provide] the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future." So no, at this point, only holders in good standing of those licenses are included in this part of the amendment.

tempsy 6y ago

They also eased risk disclosure requirements https://www.sec.gov/news/press-release/2020-192 https://www.sec.gov/news/press-release/2020-192 It's honestly laughable that their top priorities in the height of what appears to be a massive stock bubble is weakening investor protections at a time when they should be strengthened

chowells 6y ago

This is great for employees of private funds and other things like that. It makes no difference at all to the average person complaining about the accredited investor rules preventing them from investing in sure-fire wins. It really doesn't matter how much of a genius you are at recognizing investment wins. If you can't give them enough cash to finance their operations for a significant period of time, the company isn't going to be interested in taking your money. If you can't meet the wealth guidelines, you're not gonna be able to give them enough money to be worth their time dealing with.

woah 6y ago
If the company has a process set up to accept investment, they don’t have to deal with each individual one at a time
tathougies 6y ago
The average person can now take the Series 65 exam for $60 or so and, if they pass, become an accredited investor. This is a huge change. Taking the wealth requirement from 1 million dollars to $60. EDIT: It's not $60, but $175, still a far cry from a million.
- sgc 6y ago
  I read it as requiring 3 licenses: "Series 7, Series 65, and Series 82" [Italics mine]. But your point stands in principle and it's a great change.
- nkohari 6y ago
  The series 65 is intended for people who want to manage other people's money. You should still be able to invest your own money as you wish.
  - tathougies 6y ago
    I completely agree with you and would like to see accredited investors go away as a concept. However, this new policy is strictly better than what we had, so it deserves praise.

tathougies 6y ago

This is a wonderful change. Before, you had to be rich to invest in funds. Now, the SEC has opened up the ability to participate simply after having met certain educational thresholds. The Series 65 exam can be undertaken by members of the public, without any requirements. Great news for small investors! And a vital change for minority and marginalized communities, who are often forced to seek capital outside their community, because it is incredibly difficult to meet accredited investor requirements otherwise.

tboyd47 6y ago

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough information to know if it will really open up any opportunities for regular people.

refurb 6y ago
like the most anti-free-market law I've ever heard of Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.
- chrisco255 6y ago
  The world is quite a different place in 2020 than in 1933. We have access to unlimited digital forms of risk to speculate on as it is. It used to be seen as necessary to have taxi licenses in order to have trusted drivers who wouldn't scam out-of-towners. It turns out you can replace all that regulation with an online review system plus mobile GPS and payment app (Uber / Lyft). Similar innovations are being held back in securities because of red tape.
  - refurb 6y ago
    The existence of other risks isn't a strong argument for introducing more risks. It's easy for HN to say "this makes no sense", but I guarantee you if the rules changed we'd see some article in the NYTimes where some retiree lost their entire life savings in a private investment including quotes like "no one told me it was that risky".
- tathougies 6y ago
  No it doesn't really. People should be allowed to fail. The response when someone loses all their money due to a business failing should be to have a social safety net, not to prevent them from ever having been able to invest their money in the first place.

aerovistae 6y ago

Looking over it, it seems like it's still highly restrictive.

gojomo 6y ago

These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily worse than even the riskiest non-fraudulent startup investment, depending on your choice of wagers. (Official state lotteries are among the worst games, with the most manipulative marketing - to a level of deception that would generate lawsuits & legislation if attempted by private actors.) There's no wealth test before purchasing legal but addictive & judgement-impairing substances like alcohol & marijuana. But if you want to put $5-$20K into a friend's business, or a business you know well, the SEC makes it hard unless you're already a millionaire. It's insanely paternalistic & economically destructive - a ghostly holdout from some bad experiences in another era, the 1930s, when the ranges of available information, experience, and alternative temptations were all tiny & quaint compared to the 2020s.

incompatible 6y ago
In any case, we aren't supposed to have "one law for the rich and another for the poor".
throwaway_kufu 6y ago
These law weren’t enacted to keep people with less wealth out, but because people with less wealth were fraudulently victimized in mass. The masses now are most certainly just as, if not more, susceptible to fraud now then they ever were. Then people were literally selling stock certificates on the street, now people line up like sheep to be lead to the slaughter and fight their way to the front. This may be celebrated like a much needed deregulation, but this was pushed by some deep pocketed special interests that can’t wait to give the unemployed masses the ability to day trade right from their phones.
lootsauce 6y ago
Agree it's paternalistic, but you really want to educate yourself whatever the requirements. https://www.macrovoices.com/aia/218-accredited-investor-academy https://www.macrovoices.com/aia/218-accredited-investor-acad...

mthoms 6y ago

Interestingly, many Canadian provinces have had accredited investor exemptions for some time. Here's an overview for anyone interested (note that the exact rules will vary by province): https://financialpost.com/personal-finance/managing-wealth/soon-you-will-be-able-to-invest-like-the-very-rich-with-all-the-rewards-and-risks/ https://financialpost.com/personal-finance/managing-wealth/s...

xt00 6y ago

Putting up a basic barrier to entry to people with low net-worth people causes some people to say "if the market is sky-rocketing, why can't I get in on that".. but the problem is whether or not you can "afford" to lose the money.. like if you have 50k to your name that you saved up over 20 years, then you blow it all in one bad investment, then you see people doing rash things like trying to take out their revenge on people or other super destructive behaviors. If your annual income is high, then losing 50% of your annual income might hurt, but you can earn it back in a reasonable amount of time.. losing say 10 years of annual income would hurt basically anybody.. So it makes more sense to have various lower risk investment vehicles that are attached to those markets -- like if real estate is booming in your part of the world, then it should be possible to create some kind of investment group where 100 people put together their money and buy various properties. Allowing people who don't know much about options to buy them in a leveraged position is incredibly risky for tons of reasons. Many people's understanding of options is basically like if the stock goes up, then the call option that is above the current stock price goes up -- the option price could easily could go down if the expectation was that it would go up even more than it did, or the price volatility decreases! Not easy to explain all of the horrible ways you can easily lose money in the markets... I've sometimes thought, maybe I should just do the opposite of everything I've thought I wanted to do.. maybe that'd be better than what I'm doing..

DennisP 6y ago
What's weird is that there's nothing stopping someone with $1M from blowing it all on a risky investment, while someone with $900K can't invest even 1% of their net worth in the same thing. A limit on percentage of net worth invested, as in the JOBS Act, would make more sense.

throwawaypop 6y ago

Am i the only one who thinks we are not giving credit to Trump administration for more de-regulation specifically this one? Relaxing the regulation to be fair.

edoceo 6y ago
Rule 14 ^^

obiefernandez 6y ago

Someone have the TLDR?

deleted 6y ago

[deleted]

Animats 6y ago

Most of the changes involve organizations, not individuals. The main change for individuals is that having a Series 7 qualifies you. (A Series 7 is a test about finance you take to become a broker. Covers stocks, bonds, options, terminology, how to evaluate risk, trading rules, ethics. that sort of thing.) Mostly, this is about hedge funds, not startups. "Accredited investors" can invest in hedge funds that don't report their returns publicly in a standard way. Usually they don't report them because hedge funds as a class underperform the Dow. Useful rule: any investment where they call you is no good. If it needs paid salespeople, it's a dud.

mindcrime 6y ago

Hilarious. I'm not sure how any of this counts as "modernizing", and none of it amounts to any substantive change. I'd compare this to rearranging the deck chairs on the Titanic, but doing that is probably more productive. So... now people who hold a couple of niche, finance industry specific licenses - which you can't obtain unless you work in the finance industry - can be "accredited investors." Wow, golly gee whiz, color me gobsmacked. So finance industry insiders get more access to opportunities to build wealth, and nothing changes for regular old everyday Americans? Am I supposed to be impressed by this? The ONLY way this would actually be worth trumpeting would be if anybody could study, sign up for, take, and (hopefully) pass the various FINRA exams mentioned, and get their license without needing to go to change jobs. But, sadly, as we see here[1]: Candidates must be associated with and sponsored by a FINRA member firm or other applicable self-regulatory organization (SRO) member firm to be eligible to take FINRA representative-level qualification exams. and here[2]: In order to enroll for FINRA qualifying exams, a candidate must be sponsored by a state regulator or regulatory authority approved to sponsor candidates for FINRA qualifying exams. Edit: there is some verbiage here[3] that claims that you can take the Series 65 exam without being associated with a member firm. IF true, I might change my opinion on this a bit. But this seems to contradict what is on the FINRA site itself. Unlike many other FINRA Series exams, the Series 65 exam does not require an individual to be sponsored by a member firm. If you are not Form U4 registered or affiliated with a firm through FINRA’s Web CRD system, you should use the Form U10 to request and pay for the Series 65 exam. [1]: https://www.finra.org/registration-exams-ce/qualification-exams/series82 https://www.finra.org/registration-exams-ce/qualification-ex... [2]: https://www.finra.org/registration-exams-ce/qualification-exams/enroll https://www.finra.org/registration-exams-ce/qualification-ex... [3]: https://www.kaplanfinancial.com/resources/career-advancement/how-to-get-your-series-65-license https://www.kaplanfinancial.com/resources/career-advancement...

ffggvv 6y ago

wtf is a natural person?

beervirus 6y ago
As opposed to a "legal person" like a corporation.
tathougies 6y ago
A natural person is an individual human being, rather than a corporation, the estate of a deceased individual, a trust, a partnership, etc, which are all legal persons, but not natural ones.

johnrgrace 6y ago

I'm an accredited investor. I've had a series 7 license and was in a finance PHD program. I've had the chance to see a lot of investments that require you being an accredited investor. Almost all of them have had some highly problematic issues. Most of them have a outcomes where you can lose all of your money and there is NO WAY to get out of the investments. What I tell other people is run away from investments that require you to be accredited. Seed round investments are probably the "best" opportunity BUT you have the risks of being screwed by cap table games. A "regular" person could put money into a startup and get really screwed.

icedchai 6y ago
The liquidity aspect is key. There is basically none with private investments. You can get in, but may not be able to get out for 5 or 10 years... or more likely, never. For this reason alone, the average person is better off with public markets.

elamje 6y ago

My biggest problem with this is that I have had multiple opportunities as a young professional to invest in my friends’ small funds, only to be turned away at the last minute when they decided to only accept accredited investors. On the other hand, I could participate in sh*tcoin ICO’s, get rich quick “courses”, and become a real estate “investor” by attending presentations at a Holiday Inn conference room. The law as it currently stands, does not work, period. I’ve been prevented from investing in the funds and businesses of my high integrity friends, while being allowed to participate in lotteries, gambling, MLMs, ICOs, the list goes on... I was really hoping this would be a huge announcement, but unfortunately its a couple tiny steps towards the ultimate end goal of opening up private markets to individuals. Many people like to reference scams that this law helps avoid, but I call BS. Has it limited some cons from raising money from middle class people, yes. Has it limited a lot of middle class people from participating in areas with the highest returns, yes. I’ve read about several people that weren’t accredited checking the box anyways, and no enforcement actually happens, which makes me think it’s a BS regulation to begin with.

cryptica 6y ago
Of course, to people outside of the US, what was going on in the US was obvious. They should just get rid of these socialist laws which are supposedly designed to protect your comrades but which actually serve the interests of a small number of politically connected elite by hindering mobility... Let's face it, what you have in the US is textbook communism. It's ironic that Russia today is more capitalist than the US... It's like both countries lost the cold war against each other.
- SomewhatLikely 6y ago
  Regulation is tantamount to communism and socialism? Ownership is still private in the US but has rules on what can be done. Russia has state ownership in many of that country's companies.
  - cryptica 6y ago
    Regulations designed to protect people from themselves are inherently socialist... The fact that these regulations actually end up creating a moat around the elites (by locking regular people out of opportunities) is inherently communist. This is exactly what the Soviet political elites did to keep living the good life at the expense of their poor citizens; all under the pretext of protecting people from themselves.

bufferoverflow 6y ago

This is classic gatekeeping. You can bring all your money to a casino, buy lottery tickets, make bets on horses. But somehow investing in early stage startups is suddenly an issue the government wants to protect you against.

cryptica 6y ago

Great, now that all the valuable companies have done their IPO and the stock market is about to collapse, let's allow the peasants to come in and buy all our bags of crap before they become worthless. It's all for their own protection of course. We really care about the peasants. Especially when they bail us out.

renewiltord 6y ago
The "peasants" don't have to buy anything, dude. I know friends with all their money in bonds, metals, and Vanguard. No one's making you go by TSLA 4500 calls expiring this Friday.
- cryptica 6y ago
  They don't have to, but they will, now that we finally allow them... At this very convenient time.
  - renewiltord 6y ago
    Let them do so, then. May we all be free men, acting for ourselves, not slave to the whims of states.

zelly 6y ago

Seems like a top signal.

peter303 6y ago

16% of the US qualifies. Not a very high threshhold.