The Securities and Exchange Commission (SEC) has scheduled an open meeting next week to review several issues. Perhaps the most important for investors is a potential update to the definition of an Accredited Investor.
In general, an Accredited Investor is someone who earns over $200,000 a year or has a net worth of over $1 million beyond a primary residence. If married, the salary hurdle jumps to $300,000. The current definition does not take financial acumen and experience into consideration. The wealth hurdle is a blunt rule that has been in effect since the 1980s and has acted as a discriminatory barrier for most of the population. Meanwhile, the private securities market has grown dramatically, while the number of publicly listed securities has declined. Many observers view the current definition as exacerbating the wealth gap and diminishing an important diversification opportunity for the masses.
While some would prefer to make it harder for individual investors to participate in private securities offerings, members of both sides of the aisle understand the definition is clear government overreach that is harmful in its current form. Industry insiders, some elected officials, and SEC committees have recommended removing the disenfranchising defintion for years. The Commission has an update to the definition as a top agenda item.
The Open Meeting agenda outlines the proposal as follows:
“The Commission will consider issuing notices that the Commission is considering whether to designate by order certain certifications, designations, or credentials as qualifying natural persons for accredited investor status.”
While somewhat vague, an expansion is anticipated, perhaps including some sort of qualification via a test to validate the individual’s understanding of risk.
If the definition is expanded, it will also benefit the online capital formation sector, which is increasingly driven by offerings issued under Reg D, the exemption that requires accredited status.
The agenda also includes two other items.
Investment Adviser Performance-Based Compensation Modernization
The Commission will consider whether to propose amendments to the rule under the Investment Advisers Act of 1940 that provides an exemption from the statutory prohibition on registered investment advisers receiving compensation on the basis of a share of capital gains in or capital appreciation of an advisory client’s account. The proposed amendments the Commission will consider would also include enhanced disclosure requirements related to performance-based compensation arrangements.
And;
Interval Fund Modernization; Expansion of Multiple Share Class to Registered Closed-End Management Investment Companies and Business Development Companies
The Commission will consider whether to propose amendments to the rule under the Investment Company Act of 1940 that allows regulated closed-end funds to make repurchase offers to shareholders at net asset value at periodic intervals. The proposed amendments would also expand the ability of regulated closed-end funds to issue multiple share classes.
The meeting will commence at 10 AM ET on September 30th and will be live-streamed on the SEC website.