Accredited Investor Standards Under Review Amid Growing Inflation Numbers
From the desk of Jim Eccleston at ÍøÆسԹÏ
The criteria defining who qualifies as an "accredited investor" has not seen inflation adjustments for four decades, resulting in a significant increase in households meeting this definition. As reported by FinancialPlanning, the increase could expand further, potentially encompassing nearly half of all U.S. households in the next 20 years unless regulators introduce more stringent criteria.
Accredited investors are considered financially sophisticated enough to invest in high-risk vehicles like hedge funds and private startup investments. Since 1982, the Securities and Exchange Commission (SEC) has defined accredited investors as individuals with a net worth of at least $1 million or an annual income exceeding $200,000 for the past two years. The threshold was adjusted in 1988 to include households with a joint annual income of $300,000 and in 2011 to exclude primary residences from net worth calculations. However, inflation has eroded the value of these thresholds over time.
A recent SEC report suggests these standards may need revision. If adjusted for inflation, the net worth limit would be over $3 million, with income limits around $608,000 for individuals and $911,000 for households.
The SEC's report estimates that $3.7 trillion was raised through nonpublic investments in 2022, much of which went to private startup firms. In comparison, registered public market offerings raised $1 trillion. However, the SEC acknowledges that unregistered offerings are challenging to track accurately.
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Tags: eccleston, eccleston law, sec
