One thing that’s certain about being an investor is the importance of staying on top of industry regulations and best practices, so you can properly manage your portfolio.
You may know that the U.S. Securities and Exchange Commission continues to make changes to its accredited investor rule. On August 26, 2020, the SEC announced that it adopted amendments to how it defines an “accredited investor,” which is covered under the 1933 Securities Act. The changes became effective on December 8, 2020.
SEC Chairman Jay Clayton said that the “amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition. For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication.” If that sounds intriguing to you, read on for details about the updates.
Prior to the most recent updates, to qualify as an accredited investor, the following thresholds as defined by the Securities and Exchange Commission under rule 501 of Regulation Dwere in place.
You must meet one of the following criteria:
The SEC made two changes to the amendments, to add categories of natural persons and entities that can now qualify to be accredited investors. First, let's review the already existing rules to qualify as an accredited investor.
The first major change with the amendments has to do with professional certifications, designations and credentialing for investors. According to the SEC, “the amendments created an accredited investor category for individual investors who hold, in good standing, certain professional certifications and designations and other credentials designated by the Commission as qualifying for accredited investor status.”
The three certifications are:
If you have one of these designations, you now qualify as an accredited investor in the eyes of the SEC.
Your level of knowledge plays an important factor too. The SEC amendments generated a new category of accredited investors, called “knowledgeable employee.” Members of this category include directors, executive officers of private funds as well as individuals who are affiliated with private funds to manage the investments.
Keep in mind this applies only to private funds and not to other offerings. Finally, a family client of a family office may qualify as an accredited investor. Investors must “come within the definition of “family client” in rule 202(a)(11)(G)–1 under the Investment Advisers Act of 1940 (the Advisers Act.)”
The August 2020 amendment also created new categories for eligible entities, as far as the SEC is concerned.
The new accredited investor categories consist of:
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Please visit the SEC website for the full qualifications for accredited investors.