December 21, 2019
To Whom It May Concern:
I would like to thank the Commission for listening to past feedback and considering the addition of a "sophistication test" to allow natural persons to qualify as an accredited investor. The proposed rule, under the "Adding Categories of Natural Persons Who Qualify as Accredited Investors" section, specifically mentions passing one of the FINRA Series 7, 65, and 82 exams as a way to qualify. However, only the Series 65 can currently be taken without firm sponsorship, and the proposed rule indicates that a FINRA license might be required rather than merely a passing score on the exam. This is problematic for several reasons:
1) If an individual wishes to invest his own money, without practicing as a financial professional, he might need to get firm sponsorship or incur higher costs to set up a new firm that can then sponsor him for a license even though he does not intend to practice as a professional.
2) Public market data costs are higher for licensed securities professionals. Retail brokerages often require users to disclose whether they are licensed professionals before provisioning market data. There is no reason that an individual who desires to be an "accredited investor," but not operate as a securities professional, should be subject to these higher fees.
3) Passing a FINRA exam demonstrates sufficient knowledge to be a securities professional, and should therefore be sufficient to qualify as an "accredited investor" even without formal licensure.
Should the Commission use FINRA exams as a "sophistication test" to qualify as an accredited investor, FINRA should allow individuals to sit for those exams, for that purpose, without firm sponsorship. In addition, individuals should not be required to obtain or maintain a license to be an "accredited investor." This would allow individuals, who want to invest in private placements but are not practicing securities professionals, to more easily demonstrate their sophistication and qualify as "accredited investors."
There is no reason to impose a "waiting period" on unsponsored exam takers, because their passage of a relevant exam demonstrates their sophistication and should allow them to fend for themselves. There is no waiting period for individuals who meet the net worth or income criteria, and no reason to impose a waiting period on these individuals. There is also no reason to require relevant work experience, as individuals who pass the Series 7 and 65 exams can practice as securities professionals without an apprenticeship or relevant experience there is no reason why they should not also be able to transact as "accredited investors" on their own account.
There also should not be any investment limits that apply to those who pass the "sophistication test" they should be treated the same as those who pass the income and net worth tests. Creating two tiers of accredited investors might make issuer compliance more difficult, and therefore might limit sophisticated investors access to private offerings whose issuers are unwilling to incur the additional compliance burden.
While the proposed rule suggests that FINRA BrokerCheck, or the Commissions Investment Adviser Public Disclosure, can be used to verify accreditation status, those databases require an individual to be a licensed securities professional. If it is determined that an SEC or FINRA database should be used for accredited investor verification, it should be a new "accredited investor" database that includes all individuals who successfully passed one of the relevant exams.
I would like to thank the Commission again for being responsive to the numerous public comments, and the repeated recommendation of the SEC Small Business Forum, and proposing to allow sophisticated investors who do not meet the income or net worth tests an alternative path to qualify as accredited investors. I look forward to the implementation of this proposed rule.
Sincerely,
Leonard Grover
Founder/CEO
FinToolbox/Screener.co