Next Generation Trust Services Alerts Investors to Possible SEC Changes in Definition of “Accredited Investor” & Investing Limitations

Next Generation Trust Services, a professional third-party administrator of self-directed retirement plans, is alerting its clients about possible SEC changes regarding who qualifies as an accredited investor. The administrator of self-directed retirement plans has among its clients, investors who use the funds in their self-directed IRAs to invest in equity funding opportunities in early-stage companies. The SEC is now talking about making changes that could alter the crowdfunding and angel investing landscape.

Next Generation Trust Services  2Currently, the SEC requires that accredited investors have an individual income of at least $200,000 for the past two years ($300,000 household income) and a net worth of $1 million, excluding primary residence. There is no criterion set for an investor’s financial sophistication.

The SEC’s Investor Advisory Committee has approved several recommendations to the accredited investor definition; no changes or official rulings have taken place yet, but startup companies have concerns about their investor pools possibly shrinking. Among the criteria discussed by the Investor Advisory Committee was financial sophistication of the investor based on professional experience, education or credentials; other recommendations concern investors’ financial thresholds and alternative approaches to setting those thresholds.

“The SEC should take into account that many investors might not quite meet the financial benchmarks of an accredited investor, but may have tremendous financial knowledge and investment experience,” stated Jaime Raskulinecz, founder and CEO of Next Generation. She explained that some of her clients include equity funding in their self-directed retirement portfolios because they meet the SEC’s financial criteria. Angel investing, private placements and venture capital investments are among the many alternative assets allowed in self-directed retirement plans.

Jaime RaskulineczIn self-direction, account holders make all their own investment decisions, usually based on investments they already know and understand, through which they may build more diverse and potentially more lucrative retirement portfolios. In addition to equity funding opportunities, self-directed retirement accounts may include many other nontraditional investments, such as real estate, commodities, hedge funds, unsecured loans and precious metals. As the third-party administrator, Next Generation provides comprehensive account administration, executes the transaction, and offers education and guidance to investors on the various options and benefits of self-direction as a retirement strategy.

Raskulinecz also noted,“We hope the SEC will choose to open more doors to more investors, and help startup companies to attract the capital they need. Many smart investors may fall slightly short of the financial minimums but have the business acumen or investing know-how to make smart investment decisions they are comfortable with, and that will help grow our economy in the long run.”

The discussion around accredited investors concerns the JOBS Act and the phasing in of its provisions; the final piece was meant to make it easier for people to invest in early stage companies. Raskulinecz concluded,“When Title III of the JOBS Act is fully implemented, companies will be able to offer stock in exchange for capital to smaller investors. Until that day arrives, no one knows what the final regulations will really be; we will continue to keep investors updated on our blog.”

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