It feels unreasonable but look at the history from the 1910s, 20s and 30s to see why and how those “widows and orphans” rules were put in place.
A lot of ppl think “are they saying I’m too dumb to be an investor?” But actually they are saying “there are lots of scams, so we restrict it to people who won’t be impoverished when they are fleeced by a scam”. You don’t need to be an accredited investor to invest when the info is as transparent as the govt can make it (mainly: publicly traded securities). They don’t get involved if you lend money to your brother in law for his car repair shop (but your BIL can’t put an ad in the paper to raise money without following disclosure rules).
You also can’t just sell any old vehicle for driving on the road either; instead of “accredited buyer” they push all the rules (seatbelts, wheels a certain size…) onto the mfr. When you open an account at Schwab it’s the same thing.
In the end the government is the insurer of last resort (welfare) so like other insurers puts protective covenants in place (banks have to have safes and security guards to get insurance).
It also feels unreasonable to point to a generation long dead as proof of why we need financial protections today. I could see it if it was for criminal protections, but this particular protection has a risk/reward tradeoff way out of proportion.
If someone wants to risk $10k on a startup, they should be able to. It’s arguably a core American value that somehow got lost.
These are not folks who would be trying to get rich quick — crypto proved that they make for easy prey anyway. These are people who know that the way to get rich is to hold equity that rises in value dramatically over ten years, which the public markets rarely achieve. You’re competing against firms that do it full time, whereas those same firms would dismiss a promising startup whose founders you happen to know.
appeal to authority. here are the missing parts of your argument:
1) accredited investor laws were not always wealth tests. they are wealth tests now for pretty embarrassing reasons: it was the only way a racist industry could be convinced to consider persons accredited more equally. Now, additional ways of accreditation are being experimented with, where certain degrees and exams automatically come with accreditation.
2) poor people are already able to blow their money on negative expected value financial games. It is pure happenstance that those see regulated at the state level while securities are regulated at the federal level, from the individual perspective this distinction is irrelevant: the things that are supposed to be responsible financial games are shut off for their protection, while the irresponsible ones are readily available.
3) this becomes more important because companies stopped doing IPOs at lower valuations. there are no Microsofts and Amazons to buy at $30mm and ride to $50bn. They just IPO at the $50bn valuation and dump shares on everyone that bought in at the top.
Part of the goal of regulation is to force companies to publish information regarding the securities you’re investing in so that you can make smart decisions.
When something is unregulated with no requirement to publish the risks of investing, it actively prevents you from having all the information a seasoned investor would want before making an informed investment decision.
(In other words, smart people can easily be conned if they don’t have access to information — which is also the primary reason people were against SPACs… they allowed companies to IPO without publishing regulatory documents intended to help investors make informed decisions)
> > You know what I'm tired of? Not being able to investments because I'm not a "accredited investor", therefore I must be dumb or something.
There are billions of plays similar to crypto or startups or whatever you have in mind as far as risk reward when you lament the fact that you are not an accredited investor.
However you won't be seeing them go up and down by the minute and won't read about it in the financial press, you won't have a crew of similarly passionate people to discuss about it, won't see anybody go on CNBC, Bloomberg etc to shill, it's gonna be just you and the thing you own.
Picking a piece of art and making a 20,000% gain on that is about as likely as making the same gain on a startup or a crypto token, and the lottery is also very similar.
When people lament the fact of not being an accredited investor in my mind I think they lament on missing out on the social scene and political action that goes on in and around the investment itself, and the thing they own being constantly in the news.
I’ve wanted to invest $10k. Not stellar, but not nothing. YC started with $20k per investment.
The accreditation requirement is the blocker. I should be able to risk $10k for a mission I believe in.
I am an outlier, but in general I don’t believe in hampering outliers in the name of safety. It’s an approach that tends to dampen the high notes while being of dubious value for the low notes.
Crypto and WSB shows that people will lose money if they so choose. Not being able to make investments merely shuts everyone out of the Silicon Valley reward market beyond a select few. It’s worth asking yourself if removing these protections would really cause as many problems as the theory predicts.
What I find somewhat strange is that you are allowed to risk the $10k... if you play the role of a mostly-client or donor and participate in pre-ordering or crowdfunding. But if you're to get back money or equity only then you get all those rules.
It’s not so strange at least under my mental model. The way I see it is accreditation is less about you burning your own money. After all you can go spend it on anything, you could go buy options, some otc stocks.
Where it steps in is investments where the language is not clear. Perhaps a PE fund, special debt agreements something where the legal language in the investor documents requiring lawyers and investors that hopefully have the experience to touch it. Wealth is a pretty decent measure without going into certifications. It’s far from perfect but decent for the masses.
Net worth with spouse or partner over $1 million excluding primary residence or pre-tax income of $200k individually or $300k with spouse or partner over the last two years. That is very low, and the net worth threshold in particular includes plenty of retired seniors who shouldn't be making risky investments.
Cryptocurrencies turn every investor into an evangelist for their investment. On some level, it’s a multi-level marketing scheme.
Many (most?) people bemoaning any safety barriers to investors are talking their book.
100%. They've set up a blatant 2-class system where only the rich are allowed a chance to get richer and at the same time they gaslight us about it being for our own good. It's infuriating. They suggest that because you're not already rich, you're not qualified to invest. Just because we happen to be unfortunate enough to be born during the most unjust economic period in history where rewards have become inversely proportional to value creation. I feel like if the government banned rich people from investing in anything, that would lead to better economic and social outcomes in the long run. It could be argued that possessing wealth today is proof that you're either a monopolist or a crook so that should disqualify you from investing and causing harm.
In the US, you only need $1million assets (excluding primary residence) or $200 annual income. And that can be joint with spouse ($300k limit for that). Most FAANG employees should be capable of meeting that bar if they put some effort into it. Heck, most white-collar couples in high income areas will be there without being super-high relative income.
A lot of ppl think “are they saying I’m too dumb to be an investor?” But actually they are saying “there are lots of scams, so we restrict it to people who won’t be impoverished when they are fleeced by a scam”. You don’t need to be an accredited investor to invest when the info is as transparent as the govt can make it (mainly: publicly traded securities). They don’t get involved if you lend money to your brother in law for his car repair shop (but your BIL can’t put an ad in the paper to raise money without following disclosure rules).
You also can’t just sell any old vehicle for driving on the road either; instead of “accredited buyer” they push all the rules (seatbelts, wheels a certain size…) onto the mfr. When you open an account at Schwab it’s the same thing.
In the end the government is the insurer of last resort (welfare) so like other insurers puts protective covenants in place (banks have to have safes and security guards to get insurance).