I can invest in the next Uber. You probably can’t. But thanks to a new bill in Congress, that may be about to change.
From a new report in Barron’s:
The Equal Opportunity for All Investors Act, a bipartisan bill passed by the U.S. House of Representatives in May, could significantly relax qualifications to become an accredited investor, giving more people the ability to invest in private markets regardless of their wealth or income levels.
If you want into a startup, hedge fund, or private equity deal, you have to be accredited. That generally means your income is over $200,000 or your net worth is over $1 million — oh, and your house doesn’t count.
The House bill would replace these discriminatory requirements with a simple test:
If passed, the bill would require the SEC to create an exam that would be used as a measure of investors’ knowledge in areas such as financial statements, types of securities, and issues surrounding conflicts of interest. Any investor who passed the test, regardless of income and wealth, would qualify as an accredited investor.
The exam would be free and administered by the Financial Industry Regulatory Authority (FINRA). Investors above the current thresholds for net worth and income would not be required to pass the exam.
Today, only around 11% of Americans are accredited. We can’t claim to be a country with equal opportunity if some of the best investments are reserved for the rich.
What’s more, income and net worth are no guarantee of financial sophistication.
I know a young startup founder who isn’t accredited (yet). But he knows far more about startups than I did when I became an accredited investor.
If I can invest, why can’t he?
And never forget that a huge percentage of the rich inherited their money. Daddy leaving you $100 million doesn’t make you an investment expert.
If we want to test for financial sophistication, let’s do so directly.
A fair and free exam is the best way. It’s how we license lawyers, doctors, even beauticians.
Why not investors?
This week, a fellow I know made around $8 million from a tech IPO. He and his family are set for life.
His initial investment: only around $25,000.
The average American might have some money to spare. But she’ll never get that opportunity — not unless the law changes.
Let’s end discriminatory accreditation laws. Open up opportunity for everyone!
What do you think of the House bill? Leave a comment and let us know.
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