If the Accredited Investor Wealth Threshold was Indexed to Inflation, the Hurdle Would Be Over $3 Million Today

The Securities and Exchange Commission (SEC) is considering raising the wealth threshold for the definition of an Accredited Investor. Currently, in brief, an Accredited Investor is an individual who earns over $200,000 a year or has a net worth of over $1 million. The net worth amount cannot include a primary residence. If you are married, the salary threshold jumps to $300,000.

One proposal is to index the wealth metric to inflation since the Accredited Investor definition was put in place in 1982. If this were the case, the wealth threshold would jump to around $3.18 million today.

To put this in perspective, Kiplinger reports that the top 2% of individuals in the US have a net worth of around $2.572 million. The top 5% hold just over $1 million and the top 1% held more than $10 million.

Another estimate claims there are 5.67 million households, or 4.41% of the population, in the US that are worth over $3 million.

Drilling down further in this report, the percentage that has $4 million in wealth is 3.48% or 4.473 million households, and the percentage that has $5 million in wealth is just 2.79% or 3.592 million households.

Most likely, the percentages above incorporate a primary residence. And you know these numbers are not static as markets rise and fall, impacting wealth for all.

So, if the SEC gets its way and makes it more difficult to be deemed an Accredited Investor, the pool of eligible investors will diminish dramatically. This may also be viewed as another act of further disenfranchising the vast majority of the population from accessing private securities offerings, which are very risky but also can generate outsized returns for investors. At the same time, private securities fuel innovation and drive job creation. Impacting this fact may put economic growth at risk. Do you think this is what policymakers want? Apparently, some do.

While the final proposal from the Commission has not been made public, you can bet it will not be a positive for private markets or online capital formation.


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