The SEC’s Investor Advisory Committee recommended on Thursday that the definition of “accredited investor” in Rule 501(a) under the Securities Act undergo some significant changes. The Committee was established pursuant to the Dodd-Frank Act with a mandate to consider revisions to the accredited investor standards.

The Committee’s recommendations reflect concerns that the current definition is not protecting investors that meet the financial thresholds from investing in instruments for which they do not have the financial sophistication to evaluate, and, at the same time, excluding investors who are financially sophisticated enough to make their own decisions about private investments from participating in offerings because they do not meet the rule’s financial thresholds. For example, it was suggested that having a FINRA Series 7 license is a good indicator that a potential investor is capable of assessing the risks of an investment in a private placement, notwithstanding whether that individual met the financial thresholds.

The Committee also recommended that the SEC consider allowing third parties to determine accredited investor status, rather than placing the burden solely on issuers, and that more protections be put in place for non-accredited investors allowed to purchase in Rule 506 offerings pursuant to the advice of a purchaser representative. The Committee noted that purchaser representatives may have conflicts of interests with their non-accredited investor clients and may not have a clear legal obligation to act in those investors’ best interests.