House Subcommittee Renews Debate Over Expanded Accredited Investor Definition
During a Feb. 26, 2025, congressional hearing – The Future of American Capital: Strengthening Public and Private Markets by Increasing Investor Access and Facilitating Capital Formation – the U.S. House Financial Services Subcommittee discussed the rationale for the importance of expanding the accredited investor definition and the Accredited Investor Definition Review Act, sponsored by Republican Congressman Bill Huizenga (R-Mich).
During the hearing, Subcommittee Chair Ann Wagner (R-Mo) advocated for broadening the pool of accredited investors, which would “unlock new sources of capital that will benefit businesses and investors.”
Similarly, Congressman Warren Davidson (R-Ohio), who has for years called for expanding the accredited investor definition, submitted the Institute for Portfolio Alternatives’ accredited investor alliance letter. IPA, a trade organization that advocates for alternative investments, also submitted its own letter to the subcommittee, stating that it “believes that income and net worth thresholds alone are not determinative of a person’s financial sophistication or acumen, and that there should be additional pathways, including through examination or testing, for individuals to qualify as accredited investors.”
The IPA letter also stated that the current standards applicable to financial professionals working with investors, such as the investment adviser fiduciary duty and the broker-dealer’s best interest standard, are sufficiently robust and provide adequate safeguards to ensure that recommended investments are suitable for and in the best interest of investors.
“Meaningfully expanding the pool of accredited investors while preserving appropriate investor protections would help democratize access to investment opportunities and foster capital formation,” said Anya Coverman, president and chief executive officer of IPA.
Coverman told Alts Wire: “We applaud the U.S. House Financial Services Subcommittee for its recognition of the importance of the expansion of the accredited investor definition. This week’s hearing is a meaningful step forward in advancing reforms to this rule.”
During the hearing, Congressman Andrew Garbarino (R-N.Y.) asked witnesses about increasing access to alts and the importance of modernizing the accredited investor definition.
The subcommittee is requesting feedback from the public on capital formation and the slate of bills it considered during the hearing. Regarding accredited investor criteria, the subcommittee asks the public if the definition of accredited investor should be modernized beyond wealth/income measures to consider education, geography, or other factors? Feedback is requested by March 31.
This activity followed a December 2024 petition made by the Investor Choice Advocates Network, or ICAN – to the U.S. Court of Appeals for the Ninth Circuit requesting the U.S. Securities and Exchange Commission review its prior request for rulemaking around the current “accredited investor” definition.
Nick Morgan, founder and president of ICAN – a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for small investors and entrepreneurs – said the action followed “two years of attempting to work with the SEC to modernize investment rules, and the agency refusing to engage.” ICAN formally challenged the accredited investor rule “that blocks most Americans from private market investments simply because they don’t meet arbitrary wealth and income thresholds.”
As previously discussed by Alts Wire, the accredited investor definition is a cornerstone of U.S. securities regulation, playing a pivotal role in who can participate in certain investment opportunities. The SEC has been tasked with reviewing this definition at least every four years to ensure it aligns with investor protection and the broader economic landscape.
The guidelines, pursuant to Rule 501 of Regulation D of the Securities Act of 1933, have required an individual to meet at least one of two criteria:
- A net worth exceeding $1 million, excluding the value of their primary residence, either individually or jointly with a spouse; or
- An annual income exceeding $200,000 in each of the two most recent years (or joint income with a spouse exceeding $300,000) and a reasonable expectation of maintaining the same income level in the current year.
The SEC has made several amendments to the definition over the years, most recently in August 2020, expanding the categories of who qualifies. These changes included recognizing:
- Individuals who have certain professional certifications and designations;
- Individuals who are “knowledgeable employees” of private funds, but only in regard to that specific fund;
- SEC-registered and state-registered investment advisers;
- Individuals who are “family clients” associated with a “family office,” and who meet specific requirements; and
- Directors, executive officers, and general partners of the issuer or of a general partner of the issuer.
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