August 17, 2013
Given the clear mandate from last years JOBS Act, the ubiquitous onine brokerages (Fidelity, Schwab, ETrade), plus the $750 MILLION donated via Kickstarter and $460 MILLION lent via Kiva, the number of "sophisticated" investors has greaty trended upward since the definition of accredited investor was last addressed.
Rather than trying to pick an arbitrary cutoff of income and wealth, I suggest using an existing government-measured metric: median household income.
An accredited investor:
A. Has a household earning twice (2x) the most recently computed median household income. 52,762 x 2 = $105,524 http://quickfacts.census.gov/qfd/states/00000.html, or
B. Has a net worth (exclusive of home) ten times (10x) the most recently computed average household net worth excluding home. 16,942 x 10 = $169,420 http://www.census.gov/people/wealth/files/Wealth_Tables_2011.xlsx, or
C. Is an individual earning above the median with a net worth above the avage, and affirms himself/herself a "sophisticated" investor, making his/her own investment decisions in public, registered securities, in philanthropic donations, local community developments, etc., or
D...N. Any of the existing definitions for corporations, trusts, etc.
The reasoning for the use of household income is to avoid readdressing an arbitrary limit.
Twice the household income is well above "middle class", in the top quartile for most of the country (http://www.nytimes.com/interactive/2012/01/15/business/one-percent-map.html).
Ten times the household net worth, excluding home ownership, clearly demonstrates a financial acumen well beyond the average American.
Option C then catches those individuals who are on the path to reach the net worth goal, providing them the financial opportunities to exceed those limits.
Yes, these proposed limits do expand the percentage of Americans who would then be accredited, but to reiterate, over $1 BILLION is already being transacted between these people and Kickstarter, Kiva and other new crowdfunding sites, as well as BILLIONS more between Fidelity, Schwab, ETrade and other online brokerages. It is time the SEC align all that activity with the investment opportunities limited today to accredited investors.