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The SEC “Modernizes” the Accredited Investor Definition

195 points by randrews543 6y ago

agency 6y ago
We’re inching closer to Matt Levine’s Certificate of Dumb Investment proposal[1] > Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.) > To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.” > Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling. [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...
- Snackchez 6y ago
  I mean, would investing in FB, Shopify, Tesla, etc IPOs been a dumb investment?
  - NikolaNovak 6y ago
    I think it was addressed in the article, partially with: "[...] Private companies are not just where a lot of the fraud is, they’re also where a lot of the growth is. " I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point). Instead, open up the investment but ensure people are aware and reminded of the risks. Hence the tongue-and-cheek "Dumb Investment Certificate" :)
    - leetcrew 6y ago
      > I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point). that doesn't mean it's an unreasonable bar. it's sort of like the opposite of "if you owe the bank a million dollars, it's your problem; if you owe the bank a billion dollars, it's their problem". if someone with a million dollars loses a large chunk of it to a bad investment, it's mostly just their problem. if someone with $10k loses a large chunk of it, it may become the (welfare) state's problem. if the state is going to guarantee that basic needs are met at some level, it's not unreasonable to prohibit people from doing risky things that are likely to lead to them drawing on the system. this is the essential tradeoff between freedom and security.
      - morelisp 6y ago
        It's not only this. An environment where the only investment policy is caveat emptor is also an environment that will encourage more scammy investment opportunities. It is also in the state/community interest to make sure investments represent real growth opportunities and not just lining some huckster's pockets. You don't want the entire market itself to end up a market for lemons.
  - ampdepolymerase 6y ago
    A lot of investment is about minimizing risk. If you want examples of hyped-up tech companies that failed after IPO, just look at the dotcom bubble, it wasn't that long ago.
    - nightski 6y ago
      Well if you want minimal risk don't invest. But it's not just about minimal risk but rather risk adjusted returns. Most people (outside of WSB) do not dump their entire portfolios in a single IPO.
      - icedchai 6y ago
        Most people also don't have the capital or time to diversify, to make a significant number of investments into individual stocks. They are better off with an index fund.
        nightski 6y ago
        You can put the majority of your money in an index fund and dabble in a few riskier investments with a few percentage points of your portfolio. With fractional shares even those with the smallest of portfolios can do this.
  - tobylane 6y ago
    One key point in approaching an IPO is the company becoming significantly more transparent. For those companies and likely every single one there would have been a pre IPO point in time where only hindsight can say it was wise to invest then.
  - icedchai 6y ago
    How about Pets.com, eToys, Webvan, Kozmo, and hundreds of others from the dot com days? It's easy to look backwards and cherry pick success or failure. Timing is also very important. Many stocks go no where for years (like MSFT for most of the 2000's)
    - Karunamon 6y ago
      The difference being that while everyday plebs like you and me without a quarter million to sling around couldn't have touched those at IPO, there would have been nothing at all stopping me from plowing my entire net worth into their stocks once the IPO period was over. Or companies like Enron. Pick a random crypto from coinmarketcap and their creators likely had better financials...
    - itake 6y ago
      or Yahoo
      - ghaff 6y ago
        Of course Yahoo--like many other dot-com stocks that IPOd--would have been a great investment if you got in early-on and got out before the crash. So, yes, it can be all about the timing.
  - adrr 6y ago
    Do you mean buying the stock before the s-1? Only place would be secondary markets and you would not have access financial reports to make an informed decision. It would be a dumb investment.
  - TheCoelacanth 6y ago
    Probably a bit dumb to invest in any single stock if you aren't already pretty wealthy, but being public has a lot of reporting requirements that make it pretty hard for it to be an outright fraud. With a public company, your investment might lose value, but you are probably not going to get completely ripped off. That's not the case if you invest in a private company without doing due diligence.
- vmception 6y ago
  Haha that's fun, it is a ridiculous reality that casinos and negative-expected value games are regulated only at the state-level while the Federal Government pretends those money games don't exist and that it needs to take a paternal relationship over players of positive-expected value games like assets and securities. I feel like someone well funded and clever could find the right combination of judges to correct this reality. Make it a real free for all.
  - Tuna-Fish 6y ago
    It's important to note that the financial regulation we have does not exist to regulate positive-EV games, it exists to regulate away outright scams. Not things where the principals are taking too many risks or where there are unknowables that sink the idea, but situations where the plan from the start is to attract investment, take it, and run away. (Elisabeth Holmes-style "fake it 'til you make it" is sort of in the middle here.) The part that is hard is that it's really very hard to do prevent outright scams without a lot of collateral damage. In general, scam artists are better at understanding and applying any rules than the regulators or the police. Successful ones are also better at marketing their scams to ordinary people than non-scam-artists are at marketing their real business proposals. (After all, a successful scam artist only needs to have skills about marketing their proposal, but a team that is building something real has to have those skills and skills that are useful for building something real.) Much like we know from history that bad money drives out the good, we also have overwhelming historical evidence that in a completely unregulated market, the scams and the amount of money they attract will massively overwhelm actual business. The regulations around the financial markets are "scam-driven", in the same way that FAA regulations are "funeral-driven". Every line of text exists because someone somewhere managed to steal so much money from so many people, that the victims managed to complain enough about how this shouldn't be possible that it became law. The natural progression of rules in both cases is towards less regulation, as everyone is perfectly aware that the regulation that exists is stifling and damaging, so over time the regulations are reduced and enforcement becomes more lax, until something like 737MAX or Madoff happens and regulations need to be tightened again. There is no chance that anyone will ever strike all these regulations down with enough funding and "the right judges", simply because anyone who understands the space understands that while the regulation we have is bad, the alternative is so, so much worse.
- vorpalhex 6y ago
  I basically had to fill out a form along these lines to be able to do options trading. "Do you know what an option is?", "Do you trade regular stocks now?", "Do you understand you may lose all your money with options?". I suspect my brokerage doesn't even actually review the form, they just want to avoid people complaining that they YOLO'd on a Tesla call and lost everything. Given how easy it was, I am kind of in favor of it - it seems important to have a very obvious and plain disclaimer on high risk strategies like this.
  - itake 6y ago
    I think the naming is important. The questions you listed don't fully describe how sub-optimal margin trading is.
    - vorpalhex 6y ago
      You can do options trading and not do margin trading - which is my preference based on my personal risk surface. Margin trading comes with a bunch of other things these days - having to post effectively a bond, keep a certain amount of cash in your money market, etc.
      - xwdv 6y ago
        It's not a big deal. You pay a bit in interest while holding margin, but for the most part there's nothing wrong with having say 30% of your portfolio in margin while the market is rallying. Helps you get much better gains.
      - Jorge1o1 6y ago
        Still, options provide leverage compared to cash equities because the premium is cheaper than the stock price. And just as leverage can magnify profits on the way up, it can also magnify losses on the way down.
- stoppatriarchy 6y ago
  > she gives you the certificate Switching to default-female pronouns is progress but not good enough. Furthermore, implying that a woman is doing the clerical work here perpetutates centuries of female opression and abuse against womxn, especially womxn of color. Please use "they" in the future to avoid this situation. Since it's a quote, "[they] give you the certificate" would be a good way to revise it.
- olalonde 6y ago
  Would be great if we could do this to override all regulations that are meant to protect people from themselves, e.g.: - Buying contact lenses without a 1+ year old or foreign prescription. - Taking drugs. - Online poker. - Buying a Kinder Surprise chocolate. - etc.
  - teachrdan 6y ago
    What happens when the place that is "not up to code" catches fire and sets every other building on the block ablaze? What happens when enough novice investors lose their money to bad investments and scams that it sparks a recession? Besides protecting individuals, regulations protect society from negative externalities generated by these risky activities. I think there's a huge opportunity to decriminalize sex work and drug-related crimes, but we should recognize that risky behavior puts more than just the immediate individuals involved at risk.
    - olalonde 6y ago
      I removed that example from the list as I now see how it could be misinterpreted (I was only thinking of building codes that are meant to protect the tenants, not those that regard externalities).
      - throwawaygh 6y ago
        Even without that example, your parent comment is dead on re: the historical reasons for regulating financial markets (and the historical reasons for fire codes -- the razing of cities like Chicago). For example, consider the SEC. The primary goal of the SEC upon its founding shortly after the great depression was to restore investor confidence in the securities market. Its goal was to improve trust in the financial system, and it achieved that goal in part by introducing regulations that help protect individual investors. The fire analogy is actually a good one, since those policies also have historical roots in the razing of big portions of several large US cities (eg Chicago). In a dense city, your purported distinction between fire codes that protect inhabitants and fire codes that protect cities/blocks is a false dichotomy. The way you prevent the block from burning is by preventing individual buildings from burning. Because in a dense city blocks are comprised of... well... densely packed buildings. More laissez faire strategies might work in much less dense areas like rural Kansas (not even suburbs -- have you seen a bad gas explosion?). And even then, only as long as you you're willing to really go it on your own -- if your attitude is "don't tell me what to do" rugged individualism then don't expect the time of day from insurance companies, banks offering mortgages, or fire departments. Buy in cash, no insurance, and put out your own fires. Similarly, public and secondary financial markets are not your brother's laundromat or neighborhood bar. The best way to protect a large inter-connected financial system from collapses in investor confidence is to prevent obviously fraudulent bubbles from forming in the first place. Expecting individual investors to have confidence in valuations within completely unregulated marketplaces is like expecting the block be fine without thinking about how to prevent fires in any of the individual buildings. This even extends to the "maybe something else might work in rural Kansas" example, where you replace actuaries and fire fighters with welfare/social security and medicaid.
riazrizvi 6y ago
Allow people to make their own investment decisions and prosecute those who defraud investors. This is the way to do it.
- sna1l 6y ago
  Government doesn't have the resources to go after every fraud case so this would result in a lot of people losing their money forever.
- adrr 6y ago
  Who pays for all the investigations and prosecutions? We don’t even have enough resources to stop identity theft/electronic funds theft at the federal level, FBI won’t touch anything unless it’s over $250k.
  - phire 6y ago
    I've also seen a regulator refuse to investigate allegations of fraud from insiders because "the investigation would be complex and we would rather spend our funding on multiple smaller cases"
  - octoberfranklin 6y ago
    Keep this in mind next time congress passes a "no private right of action" law. Those drive me nuts. If it isn't heinous enough for victims to be allowed to pursue justice in the courts at their own expense, it isn't heinous enough to outlaw.
- caturopath 6y ago
  Years in the hedge fund/CTA space left me completely convinced that the regulators were right in throwing up barriers to investing in a wider range of investments. Outright fraud probably isn't the main risk - it's deceptive salespersonship and naivete on the part of investors about what they're entering. I don't know how we'd get a judiciary with the expertise to judge the cases. It's not like the US makes it hard to start a laundromat with your friend, or something like that. It's about whether vulnerable people will make predictably wrong decisions about "investment opportunities".
hooande 6y ago
this seems like it might add capital to existing investment markets. at the least, it should make it easier for people to raise early investment rounds?
maukdaddy 6y ago
The actual release from the SEC https://www.sec.gov/rules/final/2020/33-10824.pdf https://www.sec.gov/rules/final/2020/33-10824.pdf
- hbcondo714 6y ago
  Also discussed here 3 months ago: https://news.ycombinator.com/item?id=24282258 https://news.ycombinator.com/item?id=24282258
  - RobRivera 6y ago
    I literally said to myself 'isn't this old news?' When i read the headline.
revel 6y ago
wow, this is a major shakeup, and not just on the vc circuit. I expect to see a lot of large hedge funds and banks lose employees who can now afford to go solo. I also expect to see a lot of poorly constructed startup deals where uncle jimmy ends up owning 65% of a startup because of some shoddy setup. Not sure if this is going to be a good thing or not given the greater access to capital that will be afforded to young companies. Interesting times abound
- xxpor 6y ago
  Wasn't one way to qualify in the the old definition just having an income above $200k for 2 years in a row and a reasonable expectation that you'll make that much this year? I'd expect anyone at a hedge fund who would want to go solo to easily qualify based on that. Maybe it'd pull in the timeline a bit since you wouldn't have to wait 2 years but that's about it.
  - dbish 6y ago
    Yeah, it wasn't hard for investment or tech employees to be accredited since that's mid-career (or less depending on location) pay. I don't see how this would change the decision of anyone who would want to hang out their own shingle, unless the assumption here by "afford" is that there will be more money available since more people can be accredited?
tehjoker 6y ago
They moved from an objective definition to a subjective definition of "expertise". Expect many more regular people to be scammed out of their life savings.
- xwdv 6y ago
  People are more savvy these days than the old days. This can help more than it hurts.
  - joosters 6y ago
    Any evidence for this? The stats seem to show the opposite, e.g. there has been 3x as much money lost to ponzi schemes pre -> post-Madoff :https://www.nytimes.com/2019/09/22/business/ponzi-scheme-bernie-madoff.html?action=click&module=RelatedLinks&pgtype=Article https://www.nytimes.com/2019/09/22/business/ponzi-scheme-ber...
    - gojomo 6y ago
      Indeed - and neither the accredited investor law nor the SEC's other enforcement have helped. So maybe letting non-wealthy people invest into the exact same well-documented, scrupulously-legal above-board deals in which wealthier people have always been allowed to invest could be better than the traditional-but-totally-failing paternalism?
  - AlexandrB 6y ago
    Consider this as a counterexample: https://arstechnica.com/cars/2020/11/nikola-stock-soars-after-confused-investors-think-gm-deal-has-closed/ https://arstechnica.com/cars/2020/11/nikola-stock-soars-afte...
  - dragonwriter 6y ago
    > People are more savvy these days than the old days. As compared to the complexity of available investment schemes, no, they probably aren't. On the other hand, "licensed investment advisors and people currently working in investment-related roles in financial firms" are probably more savvy about investing, as a class, than "people who happen to have more than $1M in assets or $200K in personal or 300K in personal+spouse income".
speculator14 6y ago
Reasonable updates all around! The reality is that private investing is the "big leagues." If an average joe takes a handoff in an NFL game, they will likely end up on a stretcher. If you have no expertise and attempt to invest with a sophisticated PE/HF that has the world's top law firms and investment banks on their side, you will end up with no money despite how smart you think you may be.
cjlars 6y ago
It's hard to tell whether this will be a net benefit in practice. On the one hand, more efficiency and liquidity in small investment projects is probably good. But I also see two big opportunities for abuse: One risk would be combining this with 506c offerings (allowing general solicitation) to create a proliferation of very low quality syndications (I've already seen many ads on Facebook for this sort of thing) that are effectively glamorous but money losing opportunities. A second risk is that a lot of investors won't be over the 'legal help' threshold -- basically they won't be investing an amount where it makes sense to hire a lawyer to actually review the contract. This could potentially lead to abuse as well.
kajumix 6y ago
While SEC has "good intentions" behind regulations around who qualifies to invest, and also behind forcing companies to disclose certain financials if they are open to public investment, it is in a sense monopolizing the service of "investment diligence." The absence of these regulations will create room for businesses who would vet investments for you at different risk levels. Non-governmental standards certification organizations (think ISO, JD Power, etc) fulfill this role for non-financial sectors. Existence of SEC regulations may in fact give a false sense of safety in many cases. People make dumb investments today despite SEC.
- tptacek 6y ago
  We ran this experiment before and leaving the vetting of securities entirely to the market was a calamity. Not only that, but we just watched the market's most important and credible vetting authorities, the ratings agencies, beclown themselves.
  - octoberfranklin 6y ago
    beclown themselves Verb Of The Month award has been conferred.
- LiquidSky 6y ago
  The crypto space has thankfully exploded this fantasy and demonstrated exactly what the absence of regulations looks like.
  - seibelj 6y ago
    Yet bitcoin is close to its all time high! HNers have been telling me every month for the past 10 years that the wheels were about to come off... any day now...
    - octoberfranklin 6y ago
      haters gonna hate
tptacek 6y ago
In case you're just wondering what the changes to the rule are, they are roughly: * The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82. * Employees of investment funds can be accredited for purpose of investing in their employers fund. * Firms that are SEC-registered investment advisors may now be accredited. * To meet the individual standards of accreditation, households can pool wealth between spouses, regardless of whether both spouses are acquiring a security. * LLCs with 5MM in assets are accredited, as are family offices with 5MM in assets.
- robocat 6y ago
  Laws restricting investment should be about promoting investment diversity, and restricting risk concentration. This would actually allow small investments from mom and pop (a good thing with other safety rules), and prevent the moderately wealthy from losing everything (a la Lloyds “names”). Most people are 100% exposed to their job and perhaps their home, and I think it would be good if they would also invest small amounts long-term in businesses directly (rather than indirectly via bank savings). > Employees of investment funds can be accredited for purpose of investing in their employers fund This is a bad precedent. The biggest danger with investment is lack of diversity. Investing in your employer severely increases your risks (albeit increases rewards if you win). A great gamble when you win (startup unicorn) but a terrible gamble when you lose (company bankruptcy => lose job and lose retirement fund. Game over: play again?)
  - SkyMarshal 6y ago
    I'm sure some employees of such funds would like the option to invest a portion of their capital in their employer's fund/s. That they've chosen to work for that employer vs others implies they already think it's a good bet and worthy of investment, but not necessarily that they're going to put all of their funds into it. If they treat it as just another diversification option, shouldn't be a major problem.
  - tptacek 6y ago
    I should have been clearer (I sort of assume what everyone here wants to know is whether startups can essentially promote their stock on HN), but it's not any employee --- it's director-level management and those employees that are actually responsible for the investment activities of the fund.
pochamago 6y ago
One thing that I think is rarely brought up in these discussions is the effect that comes from these rules not being adjusted geographically. I know a number of Midwestern entrepreneurs who struggle to find accredited investors in their area, because the wealth test is defined around the coasts. If you don't have access to those cliques, your access to legal funding opportunities is severely limited.
- RhysU 6y ago
  Taxation is likewise not adjusted by local cost of living. Federal brackets applied to, say, Appalachia are different than applying them to the big cities.
  - johncolanduoni 6y ago
    Not directly, but taxation is adjusted to income, which means effectively adjusted to cost of living for places where those are not wildly out of sync (Appalachia is not one of those places).
subsubzero 6y ago
All in all the changes seem like a good idea. I think the general public is usually frustrated by "missing out" on IPOs as they are gated to accredited investors/hedgefunds/VC funds. Having a monetary value gating entrance to be an accredited investor(assets over $1 not including house, or income over $300k for 3 consecutive years) seems exclusionary but it really shields the average public from getting pulled in by hucksters selling bad investments. Having these checks in place most times ensures that the person who invests in risky assets is informed and knows what they are doing. That being said people who match the requirements for a AC investor can and do make some really bad investments.
- dsr_ 6y ago
  Dentists. Doctors in general, but especially dentists.
- tptacek 6y ago
  Investors don't miss out on IPOs (definitionally, an IPO is what non-accredited investors don't miss out on). They do miss out on VC firms, but they would anyways: VCs don't want your money, because you, as a cohort, are a galactic-scale hassle. In the Majors, funds sell themselves to investments as much as investments sell themselves to funds. So in addition to all the fraud problems, you also have a huge adverse selection problem: the private investments that are available to retail investors are going to be of starkly lower quality than what's available to Bessemer and Index.
- ojbyrne 6y ago
  You have a typo ($1) and the income requirement isn't really expressed clearly - It's $200k for individuals or $300k joint income with a spouse. Also it's that limit for 2 previous years, with a "reasonable expectation" for the current year.
dang 6y ago
We changed the URL from https://talkinsaasy.com/blog/the-sec-modernizes-the-accredited-investor-definition https://talkinsaasy.com/blog/the-sec-modernizes-the-accredit..., which points to this.
gojomo 6y ago
Equal access to private investments should face no wealth tests larger than those required for playing the state lottery, taking out a 30-year mortgage, or trading securities/currencies on margin.
- loeg 6y ago
  This sounds good superficially but I don't think it actually makes sense. People can and should have higher expectations for investments than lottery tickets. And primary-residence mortgages are relatively safe and liquid compared with private investments. I.e., these things are of a different kind entirely than private investment. The real question to me is, what is a "private" investment if everyone can invest in it? Why isn't it subject to the same reporting requirements as a "public" investment?
  - nixonpjoshua1 6y ago
    I think to allow small business and startups to flourish. It is important to not subject all companies to the reporting requirements of public companies, smaller organizations just don't have the spare resources and it really would hurt them being nimble and getting established. This of course means that any investor into such a company needs to have a more intimate relationship and understanding of the company despite the lack of detailed reporting, which is at least one reason to have accredited investor rules.
  - gojomo 6y ago
    So, there can be a wealth test - but no competence test! – for investments that might be positive expectation? But then absolutely no limits to who and how much someone can spend on rigged games of chance with guaranteed negative-expectation. How does that make sense? You're right, the 'public'/'private' distinction is confusing and outdated. It should just be 'high-reporting' (certified by accountants/lawyers/exchanges to meet certain standards) and 'low-reporting'. Perhaps tax-advantaged retirement accounts shouldn't be allowed into 'low-reporting' situations. But with a person's own excess money, they shouldn't face a wealth test to invest it anywhere their judgement guides them - if they're allowed to gamble, donate, burn, over-leverage, etc that money a thousand other ways to zero as well.
motohagiography 6y ago
While I have issues with the whole accredited investor bar to creating wealth, does it also protect companies from a higher likelihood of their equity ending up in the hands of a failed investors creditors? Someone making less than $200k/y could still be considered precarious, and suddenly having one of their litigious creditors on your cap table could expose other investors to risk. I'm really against the accredited investor limitation, as it creates the conditions for shady loans, reduces small entrepreneurs access to capital, and causes bubbles in things like real estate and garbage stocks, but the altruistic rationale of the regulation for "protecting small investors," seems insincere and it seems more plausible that it protects an establishment of investors instead.
jkaplowitz 6y ago
The rules for qualifying by professional certification require maintaining good standing with the state licensure or registration requirements but do not require actually practicing the profession covered by the certification, nor even having a minimum amount of work experience in that area. Very interesting. How does this apply to people who hold a Series 65 but do not practice as an investment adviser? In particular, Series 65 carries no requirement to be sponsored by a FINRA member firm, and many states don't require an investment adviser firm to register if there are fewer than 6 clients in that state. And New York, uniquely, does not require investment adviser representatives to register at all, though they do require that they either pass the exam or qualify for a waiver. So, if I move to NY (as I'm likely to do in 2021 or 2022 for unrelated reasons) and pass the Series 65 exam but don't practice as an investment adviser, do I automatically qualify as an accredited investor, either for a certain number of years since last passing the exam or indefinitely? If not, would it work to create and voluntarily register self-owned investment adviser firm (with as few as zero clients) and deal with the annual registration and financial statement paperwork? My guess is no and yes, respectively, possibly with a requirement to pass the exam every 2 years if my firm doesn't actually have any clients as would be required to truly count as practicing as an investment adviser. I see why they used the general securities representative example (Series 7) to illustrate their "you don't have to practice" requirement, since those lapse two years after leaving a qualifying firm, and the same therefore applies to accredited investor status on that basis. For Series 65, it is a lot murkier.
qwerty456127 6y ago
Whoever, who is not a diagnosed gambling addict and has a spare dollar above the amount of savings he would need to maintain their living for a couple of months without income, should be allowed to voluntarily invest that dollar in whatever he wants. No matter how risky that is, what education/experience or how much more spare dollars does he have. Whoever invites others to invest should not be allowed to knowingly make blatantly false claims. Any regulations beyond this are communism.
CryptoPunk 6y ago
This is a positive step but doesn't abandon the principle of the state paternalistically presuming everyone unentitled to exercise free choice until they meet conditions that prove they are competent, when the founding assumption of a free society is exactly the opposite. Assuming the adult population to be like children, with all-powerful regulatory agencies as surrogate guardians is a double assault on liberty, affecting: 1. The population at large, who have their freedom restricted if they do not meet the guardian's conditions that demonstrate competence 2. Everyone who would want to interact with members of the public to sell certain classes of products or services, who now have to conduct due diligence to ensure they are not dealing with something akin to an adult child in the law's eyes, because rather than the surrogate guardian supervising their ward, the guardian attempts to make the entire world a safe space, by imposing some of the obligations of guardianship onto society at large.
steve76 6y ago
Taking the SEC at face value is best. Don't mess up. Don't loose. You'll be fine. Get too good at finance, and start taking business away from the right people, no matter what you do you'll get it and get it bad. They'll let you know. Then it's time to walk away. Whatever you do, don't tell power: "I'm going to report you to the SEC !!!" They go: "... ... ??? ... ok ..." and at your big SEC meeting, they walk out and turns out, they're the SEC. Do you want to deal with African warlords or Jihadists or marxists or the drug cartel or power mad international corporations loyal to no one but themselves? Then back off. Power doesn't want the next great idea, or talk, or the superstar worker. It's all too small. They want things already built given to their efforts and you either helping or getting the hell out of the way.

195 points by randrews543 6y ago

We’re inching closer to Matt Levine’s Certificate of Dumb Investment proposal[1] > Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.) > To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.” > Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling. [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...

Snackchez 6y ago
I mean, would investing in FB, Shopify, Tesla, etc IPOs been a dumb investment?
- NikolaNovak 6y ago
  I think it was addressed in the article, partially with: "[...] Private companies are not just where a lot of the fraud is, they’re also where a lot of the growth is. " I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point). Instead, open up the investment but ensure people are aware and reminded of the risks. Hence the tongue-and-cheek "Dumb Investment Certificate" :)
  - leetcrew 6y ago
    > I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point). that doesn't mean it's an unreasonable bar. it's sort of like the opposite of "if you owe the bank a million dollars, it's your problem; if you owe the bank a billion dollars, it's their problem". if someone with a million dollars loses a large chunk of it to a bad investment, it's mostly just their problem. if someone with $10k loses a large chunk of it, it may become the (welfare) state's problem. if the state is going to guarantee that basic needs are met at some level, it's not unreasonable to prohibit people from doing risky things that are likely to lead to them drawing on the system. this is the essential tradeoff between freedom and security.
    - morelisp 6y ago
      It's not only this. An environment where the only investment policy is caveat emptor is also an environment that will encourage more scammy investment opportunities. It is also in the state/community interest to make sure investments represent real growth opportunities and not just lining some huckster's pockets. You don't want the entire market itself to end up a market for lemons.
- ampdepolymerase 6y ago
  A lot of investment is about minimizing risk. If you want examples of hyped-up tech companies that failed after IPO, just look at the dotcom bubble, it wasn't that long ago.
  - nightski 6y ago
    Well if you want minimal risk don't invest. But it's not just about minimal risk but rather risk adjusted returns. Most people (outside of WSB) do not dump their entire portfolios in a single IPO.
    - icedchai 6y ago
      Most people also don't have the capital or time to diversify, to make a significant number of investments into individual stocks. They are better off with an index fund.
      - nightski 6y ago
        You can put the majority of your money in an index fund and dabble in a few riskier investments with a few percentage points of your portfolio. With fractional shares even those with the smallest of portfolios can do this.
- tobylane 6y ago
  One key point in approaching an IPO is the company becoming significantly more transparent. For those companies and likely every single one there would have been a pre IPO point in time where only hindsight can say it was wise to invest then.
- icedchai 6y ago
  How about Pets.com, eToys, Webvan, Kozmo, and hundreds of others from the dot com days? It's easy to look backwards and cherry pick success or failure. Timing is also very important. Many stocks go no where for years (like MSFT for most of the 2000's)
  - Karunamon 6y ago
    The difference being that while everyday plebs like you and me without a quarter million to sling around couldn't have touched those at IPO, there would have been nothing at all stopping me from plowing my entire net worth into their stocks once the IPO period was over. Or companies like Enron. Pick a random crypto from coinmarketcap and their creators likely had better financials...
  - itake 6y ago
    or Yahoo
    - ghaff 6y ago
      Of course Yahoo--like many other dot-com stocks that IPOd--would have been a great investment if you got in early-on and got out before the crash. So, yes, it can be all about the timing.
- adrr 6y ago
  Do you mean buying the stock before the s-1? Only place would be secondary markets and you would not have access financial reports to make an informed decision. It would be a dumb investment.
- TheCoelacanth 6y ago
  Probably a bit dumb to invest in any single stock if you aren't already pretty wealthy, but being public has a lot of reporting requirements that make it pretty hard for it to be an outright fraud. With a public company, your investment might lose value, but you are probably not going to get completely ripped off. That's not the case if you invest in a private company without doing due diligence.
vmception 6y ago
Haha that's fun, it is a ridiculous reality that casinos and negative-expected value games are regulated only at the state-level while the Federal Government pretends those money games don't exist and that it needs to take a paternal relationship over players of positive-expected value games like assets and securities. I feel like someone well funded and clever could find the right combination of judges to correct this reality. Make it a real free for all.
- Tuna-Fish 6y ago
  It's important to note that the financial regulation we have does not exist to regulate positive-EV games, it exists to regulate away outright scams. Not things where the principals are taking too many risks or where there are unknowables that sink the idea, but situations where the plan from the start is to attract investment, take it, and run away. (Elisabeth Holmes-style "fake it 'til you make it" is sort of in the middle here.) The part that is hard is that it's really very hard to do prevent outright scams without a lot of collateral damage. In general, scam artists are better at understanding and applying any rules than the regulators or the police. Successful ones are also better at marketing their scams to ordinary people than non-scam-artists are at marketing their real business proposals. (After all, a successful scam artist only needs to have skills about marketing their proposal, but a team that is building something real has to have those skills and skills that are useful for building something real.) Much like we know from history that bad money drives out the good, we also have overwhelming historical evidence that in a completely unregulated market, the scams and the amount of money they attract will massively overwhelm actual business. The regulations around the financial markets are "scam-driven", in the same way that FAA regulations are "funeral-driven". Every line of text exists because someone somewhere managed to steal so much money from so many people, that the victims managed to complain enough about how this shouldn't be possible that it became law. The natural progression of rules in both cases is towards less regulation, as everyone is perfectly aware that the regulation that exists is stifling and damaging, so over time the regulations are reduced and enforcement becomes more lax, until something like 737MAX or Madoff happens and regulations need to be tightened again. There is no chance that anyone will ever strike all these regulations down with enough funding and "the right judges", simply because anyone who understands the space understands that while the regulation we have is bad, the alternative is so, so much worse.
vorpalhex 6y ago
I basically had to fill out a form along these lines to be able to do options trading. "Do you know what an option is?", "Do you trade regular stocks now?", "Do you understand you may lose all your money with options?". I suspect my brokerage doesn't even actually review the form, they just want to avoid people complaining that they YOLO'd on a Tesla call and lost everything. Given how easy it was, I am kind of in favor of it - it seems important to have a very obvious and plain disclaimer on high risk strategies like this.
- itake 6y ago
  I think the naming is important. The questions you listed don't fully describe how sub-optimal margin trading is.
  - vorpalhex 6y ago
    You can do options trading and not do margin trading - which is my preference based on my personal risk surface. Margin trading comes with a bunch of other things these days - having to post effectively a bond, keep a certain amount of cash in your money market, etc.
    - xwdv 6y ago
      It's not a big deal. You pay a bit in interest while holding margin, but for the most part there's nothing wrong with having say 30% of your portfolio in margin while the market is rallying. Helps you get much better gains.
    - Jorge1o1 6y ago
      Still, options provide leverage compared to cash equities because the premium is cheaper than the stock price. And just as leverage can magnify profits on the way up, it can also magnify losses on the way down.
stoppatriarchy 6y ago
> she gives you the certificate Switching to default-female pronouns is progress but not good enough. Furthermore, implying that a woman is doing the clerical work here perpetutates centuries of female opression and abuse against womxn, especially womxn of color. Please use "they" in the future to avoid this situation. Since it's a quote, "[they] give you the certificate" would be a good way to revise it.
olalonde 6y ago
Would be great if we could do this to override all regulations that are meant to protect people from themselves, e.g.: - Buying contact lenses without a 1+ year old or foreign prescription. - Taking drugs. - Online poker. - Buying a Kinder Surprise chocolate. - etc.
- teachrdan 6y ago
  What happens when the place that is "not up to code" catches fire and sets every other building on the block ablaze? What happens when enough novice investors lose their money to bad investments and scams that it sparks a recession? Besides protecting individuals, regulations protect society from negative externalities generated by these risky activities. I think there's a huge opportunity to decriminalize sex work and drug-related crimes, but we should recognize that risky behavior puts more than just the immediate individuals involved at risk.
  - olalonde 6y ago
    I removed that example from the list as I now see how it could be misinterpreted (I was only thinking of building codes that are meant to protect the tenants, not those that regard externalities).
    - throwawaygh 6y ago
      Even without that example, your parent comment is dead on re: the historical reasons for regulating financial markets (and the historical reasons for fire codes -- the razing of cities like Chicago). For example, consider the SEC. The primary goal of the SEC upon its founding shortly after the great depression was to restore investor confidence in the securities market. Its goal was to improve trust in the financial system, and it achieved that goal in part by introducing regulations that help protect individual investors. The fire analogy is actually a good one, since those policies also have historical roots in the razing of big portions of several large US cities (eg Chicago). In a dense city, your purported distinction between fire codes that protect inhabitants and fire codes that protect cities/blocks is a false dichotomy. The way you prevent the block from burning is by preventing individual buildings from burning. Because in a dense city blocks are comprised of... well... densely packed buildings. More laissez faire strategies might work in much less dense areas like rural Kansas (not even suburbs -- have you seen a bad gas explosion?). And even then, only as long as you you're willing to really go it on your own -- if your attitude is "don't tell me what to do" rugged individualism then don't expect the time of day from insurance companies, banks offering mortgages, or fire departments. Buy in cash, no insurance, and put out your own fires. Similarly, public and secondary financial markets are not your brother's laundromat or neighborhood bar. The best way to protect a large inter-connected financial system from collapses in investor confidence is to prevent obviously fraudulent bubbles from forming in the first place. Expecting individual investors to have confidence in valuations within completely unregulated marketplaces is like expecting the block be fine without thinking about how to prevent fires in any of the individual buildings. This even extends to the "maybe something else might work in rural Kansas" example, where you replace actuaries and fire fighters with welfare/social security and medicaid.

riazrizvi 6y ago

Allow people to make their own investment decisions and prosecute those who defraud investors. This is the way to do it.

sna1l 6y ago
Government doesn't have the resources to go after every fraud case so this would result in a lot of people losing their money forever.
adrr 6y ago
Who pays for all the investigations and prosecutions? We don’t even have enough resources to stop identity theft/electronic funds theft at the federal level, FBI won’t touch anything unless it’s over $250k.
- phire 6y ago
  I've also seen a regulator refuse to investigate allegations of fraud from insiders because "the investigation would be complex and we would rather spend our funding on multiple smaller cases"
- octoberfranklin 6y ago
  Keep this in mind next time congress passes a "no private right of action" law. Those drive me nuts. If it isn't heinous enough for victims to be allowed to pursue justice in the courts at their own expense, it isn't heinous enough to outlaw.
caturopath 6y ago
Years in the hedge fund/CTA space left me completely convinced that the regulators were right in throwing up barriers to investing in a wider range of investments. Outright fraud probably isn't the main risk - it's deceptive salespersonship and naivete on the part of investors about what they're entering. I don't know how we'd get a judiciary with the expertise to judge the cases. It's not like the US makes it hard to start a laundromat with your friend, or something like that. It's about whether vulnerable people will make predictably wrong decisions about "investment opportunities".

hooande 6y ago

this seems like it might add capital to existing investment markets. at the least, it should make it easier for people to raise early investment rounds?

maukdaddy 6y ago

The actual release from the SEC https://www.sec.gov/rules/final/2020/33-10824.pdf https://www.sec.gov/rules/final/2020/33-10824.pdf

hbcondo714 6y ago
Also discussed here 3 months ago: https://news.ycombinator.com/item?id=24282258 https://news.ycombinator.com/item?id=24282258
- RobRivera 6y ago
  I literally said to myself 'isn't this old news?' When i read the headline.

revel 6y ago

wow, this is a major shakeup, and not just on the vc circuit. I expect to see a lot of large hedge funds and banks lose employees who can now afford to go solo. I also expect to see a lot of poorly constructed startup deals where uncle jimmy ends up owning 65% of a startup because of some shoddy setup. Not sure if this is going to be a good thing or not given the greater access to capital that will be afforded to young companies. Interesting times abound

xxpor 6y ago
Wasn't one way to qualify in the the old definition just having an income above $200k for 2 years in a row and a reasonable expectation that you'll make that much this year? I'd expect anyone at a hedge fund who would want to go solo to easily qualify based on that. Maybe it'd pull in the timeline a bit since you wouldn't have to wait 2 years but that's about it.
- dbish 6y ago
  Yeah, it wasn't hard for investment or tech employees to be accredited since that's mid-career (or less depending on location) pay. I don't see how this would change the decision of anyone who would want to hang out their own shingle, unless the assumption here by "afford" is that there will be more money available since more people can be accredited?

tehjoker 6y ago

They moved from an objective definition to a subjective definition of "expertise". Expect many more regular people to be scammed out of their life savings.

xwdv 6y ago
People are more savvy these days than the old days. This can help more than it hurts.
- joosters 6y ago
  Any evidence for this? The stats seem to show the opposite, e.g. there has been 3x as much money lost to ponzi schemes pre -> post-Madoff :https://www.nytimes.com/2019/09/22/business/ponzi-scheme-bernie-madoff.html?action=click&module=RelatedLinks&pgtype=Article https://www.nytimes.com/2019/09/22/business/ponzi-scheme-ber...
  - gojomo 6y ago
    Indeed - and neither the accredited investor law nor the SEC's other enforcement have helped. So maybe letting non-wealthy people invest into the exact same well-documented, scrupulously-legal above-board deals in which wealthier people have always been allowed to invest could be better than the traditional-but-totally-failing paternalism?
- AlexandrB 6y ago
  Consider this as a counterexample: https://arstechnica.com/cars/2020/11/nikola-stock-soars-after-confused-investors-think-gm-deal-has-closed/ https://arstechnica.com/cars/2020/11/nikola-stock-soars-afte...
- dragonwriter 6y ago
  > People are more savvy these days than the old days. As compared to the complexity of available investment schemes, no, they probably aren't. On the other hand, "licensed investment advisors and people currently working in investment-related roles in financial firms" are probably more savvy about investing, as a class, than "people who happen to have more than $1M in assets or $200K in personal or 300K in personal+spouse income".

speculator14 6y ago

Reasonable updates all around! The reality is that private investing is the "big leagues." If an average joe takes a handoff in an NFL game, they will likely end up on a stretcher. If you have no expertise and attempt to invest with a sophisticated PE/HF that has the world's top law firms and investment banks on their side, you will end up with no money despite how smart you think you may be.

cjlars 6y ago

It's hard to tell whether this will be a net benefit in practice. On the one hand, more efficiency and liquidity in small investment projects is probably good. But I also see two big opportunities for abuse: One risk would be combining this with 506c offerings (allowing general solicitation) to create a proliferation of very low quality syndications (I've already seen many ads on Facebook for this sort of thing) that are effectively glamorous but money losing opportunities. A second risk is that a lot of investors won't be over the 'legal help' threshold -- basically they won't be investing an amount where it makes sense to hire a lawyer to actually review the contract. This could potentially lead to abuse as well.

kajumix 6y ago

While SEC has "good intentions" behind regulations around who qualifies to invest, and also behind forcing companies to disclose certain financials if they are open to public investment, it is in a sense monopolizing the service of "investment diligence." The absence of these regulations will create room for businesses who would vet investments for you at different risk levels. Non-governmental standards certification organizations (think ISO, JD Power, etc) fulfill this role for non-financial sectors. Existence of SEC regulations may in fact give a false sense of safety in many cases. People make dumb investments today despite SEC.

tptacek 6y ago
We ran this experiment before and leaving the vetting of securities entirely to the market was a calamity. Not only that, but we just watched the market's most important and credible vetting authorities, the ratings agencies, beclown themselves.
- octoberfranklin 6y ago
  beclown themselves Verb Of The Month award has been conferred.
LiquidSky 6y ago
The crypto space has thankfully exploded this fantasy and demonstrated exactly what the absence of regulations looks like.
- seibelj 6y ago
  Yet bitcoin is close to its all time high! HNers have been telling me every month for the past 10 years that the wheels were about to come off... any day now...
  - octoberfranklin 6y ago
    haters gonna hate

tptacek 6y ago

In case you're just wondering what the changes to the rule are, they are roughly: * The SEC can designate professional certifications from accredited institutions as a surrogate for wealth --- to begin with, FINRA Series 7, 65, and 82. * Employees of investment funds can be accredited for purpose of investing in their employers fund. * Firms that are SEC-registered investment advisors may now be accredited. * To meet the individual standards of accreditation, households can pool wealth between spouses, regardless of whether both spouses are acquiring a security. * LLCs with 5MM in assets are accredited, as are family offices with 5MM in assets.

robocat 6y ago
Laws restricting investment should be about promoting investment diversity, and restricting risk concentration. This would actually allow small investments from mom and pop (a good thing with other safety rules), and prevent the moderately wealthy from losing everything (a la Lloyds “names”). Most people are 100% exposed to their job and perhaps their home, and I think it would be good if they would also invest small amounts long-term in businesses directly (rather than indirectly via bank savings). > Employees of investment funds can be accredited for purpose of investing in their employers fund This is a bad precedent. The biggest danger with investment is lack of diversity. Investing in your employer severely increases your risks (albeit increases rewards if you win). A great gamble when you win (startup unicorn) but a terrible gamble when you lose (company bankruptcy => lose job and lose retirement fund. Game over: play again?)
- SkyMarshal 6y ago
  I'm sure some employees of such funds would like the option to invest a portion of their capital in their employer's fund/s. That they've chosen to work for that employer vs others implies they already think it's a good bet and worthy of investment, but not necessarily that they're going to put all of their funds into it. If they treat it as just another diversification option, shouldn't be a major problem.
- tptacek 6y ago
  I should have been clearer (I sort of assume what everyone here wants to know is whether startups can essentially promote their stock on HN), but it's not any employee --- it's director-level management and those employees that are actually responsible for the investment activities of the fund.

pochamago 6y ago

One thing that I think is rarely brought up in these discussions is the effect that comes from these rules not being adjusted geographically. I know a number of Midwestern entrepreneurs who struggle to find accredited investors in their area, because the wealth test is defined around the coasts. If you don't have access to those cliques, your access to legal funding opportunities is severely limited.

RhysU 6y ago
Taxation is likewise not adjusted by local cost of living. Federal brackets applied to, say, Appalachia are different than applying them to the big cities.
- johncolanduoni 6y ago
  Not directly, but taxation is adjusted to income, which means effectively adjusted to cost of living for places where those are not wildly out of sync (Appalachia is not one of those places).

subsubzero 6y ago

All in all the changes seem like a good idea. I think the general public is usually frustrated by "missing out" on IPOs as they are gated to accredited investors/hedgefunds/VC funds. Having a monetary value gating entrance to be an accredited investor(assets over $1 not including house, or income over $300k for 3 consecutive years) seems exclusionary but it really shields the average public from getting pulled in by hucksters selling bad investments. Having these checks in place most times ensures that the person who invests in risky assets is informed and knows what they are doing. That being said people who match the requirements for a AC investor can and do make some really bad investments.

dsr_ 6y ago
Dentists. Doctors in general, but especially dentists.
tptacek 6y ago
Investors don't miss out on IPOs (definitionally, an IPO is what non-accredited investors don't miss out on). They do miss out on VC firms, but they would anyways: VCs don't want your money, because you, as a cohort, are a galactic-scale hassle. In the Majors, funds sell themselves to investments as much as investments sell themselves to funds. So in addition to all the fraud problems, you also have a huge adverse selection problem: the private investments that are available to retail investors are going to be of starkly lower quality than what's available to Bessemer and Index.
ojbyrne 6y ago
You have a typo ($1) and the income requirement isn't really expressed clearly - It's $200k for individuals or $300k joint income with a spouse. Also it's that limit for 2 previous years, with a "reasonable expectation" for the current year.

dang 6y ago

We changed the URL from https://talkinsaasy.com/blog/the-sec-modernizes-the-accredited-investor-definition https://talkinsaasy.com/blog/the-sec-modernizes-the-accredit..., which points to this.

gojomo 6y ago

Equal access to private investments should face no wealth tests larger than those required for playing the state lottery, taking out a 30-year mortgage, or trading securities/currencies on margin.

loeg 6y ago
This sounds good superficially but I don't think it actually makes sense. People can and should have higher expectations for investments than lottery tickets. And primary-residence mortgages are relatively safe and liquid compared with private investments. I.e., these things are of a different kind entirely than private investment. The real question to me is, what is a "private" investment if everyone can invest in it? Why isn't it subject to the same reporting requirements as a "public" investment?
- nixonpjoshua1 6y ago
  I think to allow small business and startups to flourish. It is important to not subject all companies to the reporting requirements of public companies, smaller organizations just don't have the spare resources and it really would hurt them being nimble and getting established. This of course means that any investor into such a company needs to have a more intimate relationship and understanding of the company despite the lack of detailed reporting, which is at least one reason to have accredited investor rules.
- gojomo 6y ago
  So, there can be a wealth test - but no competence test! – for investments that might be positive expectation? But then absolutely no limits to who and how much someone can spend on rigged games of chance with guaranteed negative-expectation. How does that make sense? You're right, the 'public'/'private' distinction is confusing and outdated. It should just be 'high-reporting' (certified by accountants/lawyers/exchanges to meet certain standards) and 'low-reporting'. Perhaps tax-advantaged retirement accounts shouldn't be allowed into 'low-reporting' situations. But with a person's own excess money, they shouldn't face a wealth test to invest it anywhere their judgement guides them - if they're allowed to gamble, donate, burn, over-leverage, etc that money a thousand other ways to zero as well.

motohagiography 6y ago

While I have issues with the whole accredited investor bar to creating wealth, does it also protect companies from a higher likelihood of their equity ending up in the hands of a failed investors creditors? Someone making less than $200k/y could still be considered precarious, and suddenly having one of their litigious creditors on your cap table could expose other investors to risk. I'm really against the accredited investor limitation, as it creates the conditions for shady loans, reduces small entrepreneurs access to capital, and causes bubbles in things like real estate and garbage stocks, but the altruistic rationale of the regulation for "protecting small investors," seems insincere and it seems more plausible that it protects an establishment of investors instead.

jkaplowitz 6y ago

The rules for qualifying by professional certification require maintaining good standing with the state licensure or registration requirements but do not require actually practicing the profession covered by the certification, nor even having a minimum amount of work experience in that area. Very interesting. How does this apply to people who hold a Series 65 but do not practice as an investment adviser? In particular, Series 65 carries no requirement to be sponsored by a FINRA member firm, and many states don't require an investment adviser firm to register if there are fewer than 6 clients in that state. And New York, uniquely, does not require investment adviser representatives to register at all, though they do require that they either pass the exam or qualify for a waiver. So, if I move to NY (as I'm likely to do in 2021 or 2022 for unrelated reasons) and pass the Series 65 exam but don't practice as an investment adviser, do I automatically qualify as an accredited investor, either for a certain number of years since last passing the exam or indefinitely? If not, would it work to create and voluntarily register self-owned investment adviser firm (with as few as zero clients) and deal with the annual registration and financial statement paperwork? My guess is no and yes, respectively, possibly with a requirement to pass the exam every 2 years if my firm doesn't actually have any clients as would be required to truly count as practicing as an investment adviser. I see why they used the general securities representative example (Series 7) to illustrate their "you don't have to practice" requirement, since those lapse two years after leaving a qualifying firm, and the same therefore applies to accredited investor status on that basis. For Series 65, it is a lot murkier.

qwerty456127 6y ago

Whoever, who is not a diagnosed gambling addict and has a spare dollar above the amount of savings he would need to maintain their living for a couple of months without income, should be allowed to voluntarily invest that dollar in whatever he wants. No matter how risky that is, what education/experience or how much more spare dollars does he have. Whoever invites others to invest should not be allowed to knowingly make blatantly false claims. Any regulations beyond this are communism.

CryptoPunk 6y ago

This is a positive step but doesn't abandon the principle of the state paternalistically presuming everyone unentitled to exercise free choice until they meet conditions that prove they are competent, when the founding assumption of a free society is exactly the opposite. Assuming the adult population to be like children, with all-powerful regulatory agencies as surrogate guardians is a double assault on liberty, affecting: 1. The population at large, who have their freedom restricted if they do not meet the guardian's conditions that demonstrate competence 2. Everyone who would want to interact with members of the public to sell certain classes of products or services, who now have to conduct due diligence to ensure they are not dealing with something akin to an adult child in the law's eyes, because rather than the surrogate guardian supervising their ward, the guardian attempts to make the entire world a safe space, by imposing some of the obligations of guardianship onto society at large.

steve76 6y ago

Taking the SEC at face value is best. Don't mess up. Don't loose. You'll be fine. Get too good at finance, and start taking business away from the right people, no matter what you do you'll get it and get it bad. They'll let you know. Then it's time to walk away. Whatever you do, don't tell power: "I'm going to report you to the SEC !!!" They go: "... ... ??? ... ok ..." and at your big SEC meeting, they walk out and turns out, they're the SEC. Do you want to deal with African warlords or Jihadists or marxists or the drug cartel or power mad international corporations loyal to no one but themselves? Then back off. Power doesn't want the next great idea, or talk, or the superstar worker. It's all too small. They want things already built given to their efforts and you either helping or getting the hell out of the way.