Accredited Investor Reform: The Time Is Now

By Anya Coverman, president and chief executive officer, Institute for Portfolio Alternatives

Capital formation and economic growth will be watchwords for the new leadership of the U.S. Securities and Exchange Commission in 2025 – and the “accredited investor” definition is one topic where change is long overdue. Investors and their financial advisers are looking for a fresh approach that considers an investor’s sophistication and investment experience, and not the current, one-size-fits-all regime.

Meaningfully expanding the pool of accredited investors while preserving appropriate investor protections would help democratize access to investment opportunities and foster capital formation, ensuring that more investors can partake in the financial growth and innovation our country offers. Here’s a closer look at what’s at stake and the reforms that are long overdue.

The Intent Behind the Definition

Let’s start by getting back to the roots of Regulation D. When it was first adopted in 1982, Reg D was designed to facilitate capital formation. The SEC intended to simplify and clarify existing exemptions for private or limited offerings and expand their availability. Reg D generally permits issuers to sell securities that are not registered under the Securities Act of 1933 to “accredited investors.” Under the current criteria, accredited investors are largely composed of investors with a net worth of at least $1 million or an annual income of at least $200,000.

Reform Is Necessary and Urgent

It’s time to better reflect the broader dynamics of our ever-changing economy and the increasingly pivotal role of private markets, allowing investors better access and more choice. Many investors who do not meet the net worth or income standards, especially those that can demonstrate sophistication, education or qualification through working with a qualified financial professional, should be permitted to purchase privately offered securities issued by the most innovative companies. Other criteria are at least as relevant to the sophistication of an investor as net worth and income.

For example, the following types of investors could be considered sufficiently knowledgeable, experienced, sophisticated, or otherwise protected by federal law:

• Successfully pass a qualitative examination established by the SEC, a state securities commission, or FINRA.
• Hold financial credentials, including Series 66, CPA, CFP, or CFA designations.
• Are receiving individualized investment advice or individualized investment recommendations with respect to a private offering from a financial adviser who is subject to a fiduciary duty or best interest standard under federal law.

Modernization Will Make a Difference

Investors building their long-term nest eggs deserve and need a wider range of options for their money that more closely resemble the options institutional investors have. Bipartisan legislation has been consistently and overwhelmingly advanced by the House of Representatives over the last five Congresses, a sign of the importance and urgency of reform. We look forward to working with the SEC and Congress to make meaningful and positive change to the benefit of investors and the American economy.

Anya Coverman serves as president and chief executive officer of the Institute for Portfolio Alternatives, an advocacy organization for the portfolio diversifying investment industry. In this role, she leads the organizations’ efforts to bring together top asset managers, product distribution partners and industry service providers, as well as drive industry progress through education and advocacy initiatives. Previously, she served as IPA’s senior vice president of government affairs and general counsel. Prior to joining IPA in 2017, Coverman was the deputy director of policy and associate general counsel at the North American Securities Administrators Association, the national association representing state financial regulators. She has also practiced corporate and securities law at the international law firm Greenberg Traurig LLP in Washington, D.C. Coverman received her J.D. from American University’s Washington College of Law and her bachelor’s degree from the University of Miami.

The views and opinions expressed in the preceding article are those of the author and do not necessarily reflect the views of AltsWire. Past performance does not guarantee future results.

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