Is there a variant of this framing that doesn't also argue against all securities regulation and a return to the status quo ante of the Great Depression? Because the Accredited Investor standard essentially bypasses securities disclosure laws. Without it, every company would obtain the benefits of being public company, with none of the associated obligations.
Sure: replace all wealth tests with competence tests.
Then, no competent poor person would be legally locked out of an investment opportunity, by state enforcement power, that would be legally-encouraged for any incompetent wealthy heir.
Requiring that someone has to be able to deliver the funds, sure.
Perhaps, that they have to prove competence via some testing certification.
Perhaps, that they have to match some scaled risk threshold, when relying on systemic benefits: we only give you tax-advantaged retirement accounts, or full unemployment coverage, if you don't put more than X% of your net worth in 'risky'/non-public securities.
Those would at least be objectively-linked to a person's abilities, or the magnitude of risks they're projecting on the community.
But wealth tests in state regulation codify a class system: "You can't buy this, even if you have cash-in-hand, even if you're an expert, even if the spillover risks are infinitesimal, unless you're already rich." Such discrimination against the poor should be just as illegal as that based on race, gender, national origin, sexual preference, religion, etc.
Are you eager to lose money or have it tied up for years and years with almost no likelyhood of ever seeing it again? Yes, there are some good private investments, of course. But the vast, vast majority, at the level you or I are going to see, without a network, are probably junk. You're better off investing in public markets.
I don't believe you know anything about the kinds of deals available to me or where I should best invest. (What's your record & credentials?) I trust my decades in this industry more than your hand-waving assertions-of-futility.
That's fine. I've been in this industry since the 90's. My opinion is unless you have literally millions of spare cash to make a ton of seed investments (like 50+), it's not worth it. You will probably not see a pay off.
I qualify as an accredited investor based on net worth. I have invested in private companies, both through employee stock options and as a preferred seed-stage investor. However, I keep most of my funds in self managed brokerage accounts. I will not quote returns here, I am not here to boast, I'll just say I do beat the S&P by a significant percentage.
1. Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.).
2. Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
3. To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
4. Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
5. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.
6. If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison.
There’s an old Jerry Lewis bit where the clerk has no ink pad so she just slams the stamp into the back of your hand so hard that it cramps up into a claw.
The claw is how the next clerk knows you’ve been through the other line. That could replace the slap part of the process.
The Wikipedia page on accredited investors had the "big boy letter" in the related links, which I thought was funny. It appears to be a less bombastic version of the concept: https://en.wikipedia.org/wiki/Big_boy_letter
I'm of two minds about this - on one hand, we don't want shoe-shine boys losing their savings on a bad investment. On the other, if my friends and I want to pool our money to make an investment I resent being kept out of that sort of thing. Things like opening it to VC fund analysts make a ton of sense.
How about a knowledge/skills test instead of a wealth test? Something like the bar exam, but for investing instead of law. That would keep out people who have no idea what they're doing, without unfairly keeping out knowledgeable middle-class citizens.
did you even read the SEC announcement? it is literally the first bullet point:
* add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order. In conjunction with the adoption of the amendments, the Commission designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons.
Looks like series 65 is the way to go since series 82 also requires sponsorship.
Depends. If simply passing the exam was enough, that does seem semi-reasonable. But if it requires you actually be licensed by your respective state, then the rabbit-hole goes much deeper. I looked at the requirements here in NC, although I don't know how representative they are of other states, but basically you'd have to register with the State as an investment management company (which would probably entail registering an LLC or something), and then pay them $300 / year to keep up your registration. Add the $200/ year or so for the LLC filing fees, as well as the paperwork requirements (annual report, etc), tax filings, and suchlike, and you're talking about a barrier that while not insurmountable, is still going to be fairly steep for most people.
Yes, that's exactly in line with how I'd like the SEC to go further than these initial promising steps.
More competence-evaluation – ideally constantly recalibrated according to the performance & satisfaction of those approved. Do some certifications/skills-tests strongly predict later competent investing? Increase their weights. Do others seem to be easy backdoors that lead to lots of burned investors? Decrease their weights.
Manage for the goal - wealth expansion & a vibrant private investing ecosystem – without the archaic oversimplifications "rich are competent to do whatever they want, and young/poor are incompetent so must be kept on a short regulatory leash".
