The Evolving History of Accreditation
Following the infamous stock market crash of 1929, the Securities Act of 1933 was signed into law by President Franklin D. Roosevelt. The legislation was brought forth to protect investors by preventing misrepresentation and fraud and promoting overall transparency in the financial sector. This is the first time the term “accredited investor” is introduced.
The term “accredited investor” distinguishes between investors who have the financial resources to bear the risks associated with certain types of investments and those who do not. Accredited investors have access to offerings that operate under more relaxed regulatory requirements.
Current Criteria for Accreditation
- Basic financial thresholds: income of $200,000 ($300,000 if joint) OR a net worth of $1 million (excluding primary residence)
- Professional qualifications: Series 7, 65, 82 licenses
- Knowledgeable employees in relevant investment sectors
The Securities Act of 1933 is enforced by the Securities and Exchange Commission (SEC) which is responsible for regulating the stock market and protecting investors. Over the years, the SEC has expanded who qualifies as an accredited investor. The most recent amendments in 2020 allowed individual investors to qualify as accredited investors based on industry expertise or certain professional certifications outlined in the document.
Advantages of Accreditation
- Access to private investment opportunities like private equity, venture capital, hedge funds, debt offers, and ICOs
- Broader investment horizons and increased potential for higher returns
- Less stringent regulatory requirements on investments
As the world of alternative investments continues to grow as a popular way to diversify and stabilize portfolios, there will likely be a re-evaluation of accreditation standards and new regulations. It’s important to stay current with the evolving regulations as access to alternative investments continues to expand. Resources on innovative online platforms, like M2i, will be invaluable to provide education to investors navigating financial markets. Connect with the M2i team and join the email list to learn about what M2i can do for your financial journey!
