On August 26, 2020, the Securities and Exchange Commission (SEC) officially adopted a broader definition of an “accredited investor,” which is important in identifying investors who are able to participate in unregistered, private placement offerings, including private real estate, private equity, and some hedge funds.
Prior to this change, individual investors could be considered accredited if they had over $1 million in net assets, not including their primary residence, or annual income of at least $200,000 if single, or $300,000 if married. These thresholds are not adjusted for inflation, making it more likely that more investors would be considered accredited over time. The SEC did not change any of the existing quantitative tests, but noted that previous definitions did not take investors’ actual “financial sophistication” into account. The new definition expands to include individuals with knowledge and experience within the financial markets. Specifically, this includes individuals who have earned credentials from the SEC such as the Series 7 (general securities), Series 65 (financial advisory), or Series 82 (private securities offerings).
The initial change is fairly limited in scope, and the SEC does not expect it to result in a significant increase in the number of newly eligible accredited investors. However, the broader definition does open the door to further expansion for how to measure financial literacy, as holders of other credentials and certifications are likely to seek accreditation as well.
SEC Commissioner Hester Peirce commented, “We do not believe wealth should be the sole means of establishing financial sophistication. Rather, the characteristics of an accredited investor can be demonstrated in a variety of ways.”
Wangard Partners offers a wide-variety of real estate investment opportunities to investors, providing comprehensive analysis and insight into the ever-changing market environment. Wangard always advises investors to consult with their financial advisors and tax professionals regarding the suitability of private real estate investments for their specific circumstances.
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VP of Investor Relations, Wangard Partners