Accredited Investors. It’s a system that seems reasonable enough. In order to mitigate against society-wide risks like bank runs and economic collapse, governments limit who gets to invest in risky products, to those who have enough money to keep the shirts on their backs even if they make a REALLY crappy investment.
Accredited investors are entitled to such privileged access if they satisfy a certain set of standards. But this is where the problem starts. Let’s take a look at the U.S. as a case study in how those standards create a vast disparity.
Currently an accredited investor is an individual with at least $1 million in assets or at least $200,000 in annual income; a married couple with at least $300,000 in annual income; banks, savings or loan institutions; brokers or dealers; investment companies; and a few other entities.
The consistent theme here is you need a certain dollar amount of wealth to become accredited. But the gatekeepers serve a double purpose. While the aim is to protect those without the financial means to insure themselves from high-risk, what you actually end up with is a situation where the wealthy get exclusive access to investments that the rest do not. Which gives them an unfair advantage on high-yield products that see their wealth grow, further cementing inequality.
Leading to a situation where, as SEC Commissioner Hester Peirce puts it:
“Our current definition includes investors that spend their days cruising around in a Ferrari that Daddy bought them, yet excludes investors whose weeks are spent earning money and weekends are spent figuring out how best to invest it,”
So what’s the alternative? Currently, the SEC is considering expanding its definition, to include education as some sort of criteria, but many worry the net will not widen nearly enough. And this is a global problem.
But it seems fairly obvious that accreditation should be based on how well an investor understands the products they are investing in, not on some arbitrary standards of wealth that ignores the free-market principles that supposedly underpin US capitalism. This doesn’t mean swinging the pendulum too far in the other direction, investors do need protection from bad actors.
But, as the wealthy keep amassing obscene fortunes. Stop treating those without like children and instead recognize that education and information, that is moving more freely and equitably than ever, is the true determiner of what it should mean to become accredited.