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Lobbyists Want all RIA Clients Designated Accredited Investors

July 6, 2016

An industry trade group representing fiduciary advisors is urging the Securities and Exchange Commission to automatically designate all registered investment advice firm customers as accredited investors, InvestmentNews writes.

The Investment Adviser Association has written a letter to the regulator urging it to extend the designation – which let clients buy unregistered securities – to anyone hiring a professional advisor, regardless of income or net worth, the publication reports.

The SEC’s current accredited investor designation covers only those with a net worth of more than $1 million, not including the value of their home, or an annual income of $200,000 or more, according to InvestmentNews.

The current limits were imposed in the early 1980s to protect regular investors from exposure to riskier unregistered investments, according to the publication. But IAA says advisors who must act in their clients’ best interest already provide the protection intended by the designation, InvestmentNews writes.

“Fundamentally, it’s what they do,” Robert Grohowski, IAA general counsel, tells the publication. “They are professionals at evaluating investments and making decisions.”

Furthermore, while the SEC stipulates that some ordinary investors can get into private offerings through a “purchaser representative,” the IAA writes that investment advisors are exactly “the most effective type,” InvestmentNews writes.

Yet some advisors remain concerned about potential liability risk, InvestmentNews reports. But Grohowski tells the publication that advisors can simply choose not to recommend riskier or less liquid investments if they don’t feel comfortable.

The SEC, which under the Dodd-Frank Act must revisit the accredited investor designation every four years, wrote in a December report that the definition should not be expanded to cover advice firm clients, the publication reports.

Earlier this year a U.S. House of Representatives bill approved expanding the designation to investors holding securities licenses but did not include advice firm clients, according to InvestmentNews.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.