November 17, 2015
I don’t think the concept of an accredited investor will go away; it is so ingrained in legislation and the zeitgeist of regulators it may be here to stay for a long time. However, I propose a means of allowing someone who does not meet the capital requirements to earn the title of accredited investor. Anyone should be able to obtain the credit necessary to prove they are financially literate. There should be a system in which anyone can learn the necessary information assumed in the concept of accredited investor. And I think we already have the means to do so.
MOOC’s, or Massively Open Online Courses are, as the name implies, open courses anyone with an internet connection can take. Other educational platforms like Khan Academy exist which gamify learning but are complete with problem-sets, quizzes, and exams, similar to MOOC’s. There should be an online course run by the SEC which allows anyone to become an accredited investor. The SEC can work with MOOC providers, such as Yale University, and integrate the necessary courses such as Robert Shiller’s excellent Financial Markets. Khan Academy too already has a massive amount of content that includes Microeconomics, Macroeconomics, and Finance and Capital Markets. All of which are open, free, and available for the SEC to use.
The SEC would likely need to add in some original material to encompass the pedagogy of accredited investor. Perhaps Dr. Michael Piwowar, one of only three trained economists to ever be elected an SEC Commissioner, could use his academic experience to build a course with all the necessary topics, information, and regulations an accredited investor should be familiar with. Whatever cannot be covered with preexisting MOOC’s can be outsourced to professors familiar with topics.
Secondary material will likely also be useful. Problem-sets of scenarios would be exceedingly useful to teach those wanting to be accredited investors what to watch out for when investigating a potential investment. There could be video or audio guided read troughs of financial filings explaining what various variables and metrics entail.
I realize this would be a costly endeavor however the potential amount of funding it could unlock for small businesses would be massive. Since the financial crisis of 2008/9 banks have been lending less to small businesses. By allowing those yearning at the opportunity to become an accredited investor and participate in all offering types small business will have access to more liquid capital. SEC could solicit outside funding for such a program. I would be amiss if crowdinvesting websites and small business associations would not be interested in helping to fund such a program. Crowdinvesting sites could check the SEC data base of earned accredited investors to determine if a member signing up in indeed qualified. Furthermore, accredited investor courses will educate people on key economic concepts and principles which I think are vital to being an informed citizen of a democratic nation.
Earned accredited investor status should also translate to peer to peer lending sites. Many currently have capital restrictions such as 1) an income over $70,000 a year and a net worth (sans home and car) greater than $70,000 or 2) a net worth over $250,000. If you meet those criteria you are also restricted to lending 10% of your net worth. I think the income and net worth requirements should be waived for earned accredited investors but the 10% rule kept in place.
Spending money is already considered a form of free speech in politics. Politicians are also not the best at keeping the promises they make after you invest in them. However, you are free to spend your money as you wish despite the risk of the product (promises) never being fulfilled. While I appreciate the SEC’s attempt to protect citizens from fraudulent investments, I hope I have outlined a convincing argument for why accredited investor requirements are not an ideal way to mitigate the problem. On the contrary, accredited investor restrictions have hurt the vast majority of Americans by limiting what they are allowed to do with their wealth while those with sufficiently high capital participate in the massive returns american entrepreneurs generate. People should be allowed to spend the money they earned in any fashion they choose. It is irresponsible and morally questionable for the SEC to restrict citizens who have a desire to fund small businesses and to deny small businesses access to necessary capital.