The SEC’s Investor Advisory Committee is recommending that the Commission revise its decades-old accredited investor definition. (Photo: AP)

The Hedge Funds Association was quick to weigh in on the news that the SEC’s Investor Advisory Committee was planning to recommend that the commission revise its accredited investor definition.

In its comment letter to the committee, HFA said that “using net worth or income as a litmus test for investor sophistication is outdated.”

Under the current standard, the HFA argued, “wealthy individuals can lose a great deal of money by making ill-informed investment decisions while well-informed, highly sophisticated and less wealthy investors are prevented from investing in private funds because of an arbitrary economic cut off.”

The HFA told the committee that the goal of protecting investors can be “better achieved through alternative means,” such as a knowledge- or education-based standard, a requirement that a non-sophisticated investor engage an independent registered investment professional to review and approve the investment, or limiting the maximum percentage of net worth that any investor may contribute.

The HFA noted its support for the Jumpstart Our Business Startups (JOBS) Act, which was passed with the intent of making capital raising easier for growing businesses and private investment funds. “Any restriction on the definition of ‘accredited investor’ that is arbitrarily based on a net-worth criteria would in our opinion undermine the intent and objective of the JOBS Act,” HFA said.