Is this something or nothing?
Today the SEC adopted the new Net Worth Standard that excludes the value of someone’s home from a calculation that allows individuals to be categorized as accredited investors. Is this much to do about nothing? Should we want to be labelled an accredit investor? (see http://www.sec.gov/news/press/2011/2011-274.htm for details on the new standard announced today December 21st, 2011).
What is an ‘accredited investor’? Someone who no longer needs the protections provided by the SEC as provided through the process of registration and regulation. It implies that you will take all necessary steps to evaluate these investments and do not need the basic protection provided through the registration process.
The real question is not if a home value should be included but whether having a $1M in assets (with or without a home) truly qualifies you as able to evaluate unregistered/unregulated investments. In my experience, many full time advisers and investors with several million are not qualified to evaluate and invest in unregulated/unregistered investments.
The changes were made to conform the SEC’s definition of an “accredited investor” to the requirements of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (final rule No. 33-9287). See below for pertinent details:
Under the amended rule, the value of an individual’s primary residence will not count as an asset when calculating net worth to determine “accredited investor” status. The amendments also clarify the treatment of borrowing secured by a primary residence for purposes of the net worth calculation. Under certain circumstances, they also permit individuals who qualified as accredited investors under the pre-Dodd-Frank Act definition of net worth to use that prior net worth standard for certain follow-on investments.
SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.”
The amended net worth standard will take effect 60 days after publication in the Federal Register. Beginning in 2014, and every four years thereafter, the Dodd-Frank Act requires the Commission to review the “accredited investor” definition in its entirety and to engage in further rulemaking to the extent it deems appropriate.
Edi Alvarez, CFP®
BS, BEd, MS