The existing accredited investor definition and who may qualify for such a status is well known by many in the investment industry. However, a potential JOBS Act 3.0 could change the regulatory landscape, especially requirements pertaining to accredited investor status, in ways that may make certain investment opportunities accessible to a broader cross-section of the public.
Current Definition of Accredited Investor
Presently, in order to be considered an accredited investor one must meet one of the following criteria:
- Have a net worth greater than $1 million (not including the value of your primary residence, and discounting all liabilities) either by yourself or jointly with a spouse
- Earn more than $200,000 per year as an individual (or joint income of $300,000 with spouse) in each of the previous two years with the expectation of earning the same income level in the current year
- Be a general partner, executive officer, director, or pertinent combination of these for the issuer of the security being offered.
Potential Changes if the JOBS Act 3.0 Becomes Law
Potential changes to these requirements may be on the horizon. The House of Representatives recently passed the JOBS and Investor Confidence Act – a.k.a. the JOBS Act 3.0. It has been recognized as an effort to motivate entrepreneurship by reviving initial public offerings in business startups.
A portion of the proposed Act is directed at revising how an accredited investor is defined under law. Some of the ways in which this definition would be altered under the provisions of the Act include:
- The net worth criteria would be tied to inflation and updated every five years, rounded to the nearest $10,000.
- Criteria for accredited investor qualification would include experience and expertise. Individuals with the type of job experience or education to properly evaluate the risks and merits of an investment as verified by the Financial Industry Regulatory Authority (or equivalent) would be recognized as accredited investors.
- Family offices with assets under management greater than $5 million would qualify as accredited investors if:
They were not created in order to obtain the offered securities, and - The purchase is directed by an individual with the necessary amount of investment knowledge to properly evaluate the risks and merits of the potential investment opportunity
In addition to this legislation, other changes may also affect the accredited investor status definition. The Securities and Exchange Commission (SEC) has indicated that it wants to make it easier for individual investors to access investment opportunities in private companies.
