Author: Amy D’Avella
Accredited investors are those the SEC deems sufficiently sophisticated to operate in riskier investment environments, such as private markets. This definition has long been limited to select entities and individuals who meet certain net worth requirements. On August 26, 2020, the SEC finalized a much-anticipated change to the “accredited investor” definition, expanding private market participation for individuals with qualifying educational/professional credentials, and entities which had previously been excluded.
Notably, the SEC did not change the income thresholds for qualifying individuals.
Rule 501(a) of the 1933 Securities Act now includes the following categories of accredited investors:
- Individuals 1) holding a General Securities Representative license (Series 7); 2) holding a Private Securities Offerings Representative license (Series 82); or 3) Licensed Investment Adviser Representatives (Series 65);
- Individuals meeting the definition of “knowledgeable employee” under Rule 3c-5(a)(4) of the Investment Company Act;
- Other professional certifications, designations, and credentials to be determined in the future by the SEC “based upon consideration of all the facts pertaining to a particular certification, designation, or credential”;
- Spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.
- Federal and state-registered investment advisers;
- Exempt reporting advisers, as defined by Section 203(m) or Section 203(l) of the Advisers Act;
- “Rural Business Investment Companies,” as defined by Section 384A of the Consolidated Farm and Rural Development Act;
- Limited liability companies that meet the requirements of Rule 501(a)(3), including the assets of at least $5 million;
- A catch-all category, applying to any entity 1) owning “investments,” as defined by Rule 2a51-1(b) of the Investment Company Act, in excess of $5 million and 2) that is not formed for the specific purpose of acquiring the securities being offered
- This is intended to encompass Indian tribes and the divisions and instrumentalities thereof, federal, state, territorial, and local government bodies, and entities organized or under the laws of foreign countries, among others yet to be determined;
- “Family offices” with at least $5 million AUM and their “family clients,” defined by the Investment Advisers Act.
Adapting your firm:
Key Bridge Compliance, LLC can help your firm adjust to an expanded client base while remaining compliant with SEC rules and regulations. Should you have any questions about how the accredited investor update impacts your business, please contact Key Bridge Compliance at firstname.lastname@example.org