Will the SEC Change the Accredited Investor Qualifications?
The SEC sets the accredited investor qualifications criteria and hasn’t made changes to the income qualification since 1982. In order for an investor to be considered accredited, they need to make $200,000 a year as an individual or $300,000 with their spouse. They need to have met the income standard for the past two years and be likely to do so again in the current year.
When inflation is taken into account, a person making $200,000 a year in 1982 will need to make $495,000 a year in 2014 in order to have the same purchasing power. This uses a calculation of 2.88 percent inflation per year with a total inflation of 147.92 percent from 1982 to 2014. The average income growth rate in the United States has kept pace at 4.13 percent while currently only at 1.58 percent. Given these statistics, now would not be a good time for the SEC to raise the income criteria for an accredited investor. If the adjustments had been made during a period of economic growth, it may have made more sense. Currently, however, the average citizen is just recovering from a period of negative wage gains and seeing some stabilization.
If the SEC does move forward in raising the minimum income requirements
This is an important topic of discussion because if the SEC does move forward in raising the minimum income requirements, the number of accredited investors would significantly decrease which would further restrict access to capital. The U.S. economy has started showing signs of growth but with current global unrest and wage growth of only 1.58 percent nationally, consumer confidence is still low. This is already creating a situation where some investors are sitting on the fence. Eliminating others will only make the economy worst by making it more difficult for businesses to raise money for expansion which in turn creates new jobs.
What it means to be an “Accredited Investor”
The last time the SEC changed the definition of what it means to be an accredited investor was in 2011. In January of 2011, the SEC announced they were considering making changes to the net worth standards so that a primary residence could not be included in someone’s net worth. In December of that year, the new guidelines were finalized. It took almost a full year for the process to complete but once done, accredited investors could no longer use the positive equity in their home to help them qualify. This eliminated many investors that had been counting on home equity to increase their overall net worth. Home equity was also a standard addition when applying for loans and meeting various banking criteria. While fairly standard, the SEC felt it was a necessary measure after the housing market collapsed.
If the SEC follows through with changing the income criteria for an accredited investor, it may not be done until the middle of next year. This is following the timeline of how long it took for their last revision to be completed. Companies should be aware that this is on the horizon and create their private placement now so that money can be raised before the pool of potential investors shrinks. For a list of accredited investors visit www.SalesLeads.tv or www.AccreditedInvestors.net.