Many complicated and unregistered securities products, such as private-placement
real estate investment trusts (also referred to as "private-REITs"), can only be sold to "accredited investors," a term defined
by the Securities and Exchange Commission.
This requirement aims to protect unsophisticated and/or lower-net-worth
investors from marketing materials and sales pitches designed to promote
exceptionally complicated and/or risky products. By limiting the marketing
of certain products to only "accredited investors," the rule
also permits certain of those products to be sold without registration
and without specified disclosures.
Under SEC rules, an individual can qualify as an "accredited investor"
if the individual has a net worth of at least $1 million. Until recently,
principal places of residence were considered a factor in the net worth
calculation. Now, in order to meet the requirements of the Dodd-Frank
Act, the SEC has amended the rule to exclude the value of an investor’s
home from the calculation.
This change means fewer individuals will qualify as "accredited investors,"
which will limit the marketing pool for certain investment products. Hopefully,
the amended rule also will limit the number of
unsuitable pitches made to investors who cannot afford to lose their nest eggs.
This change will take effect 60 days from publication in the Federal Register.
For more information about the new rule, read the SEC’s full release