House lawmakers debated adjusting the definition of an accredited investor, and how best to do so, at a hearing Feb. 26.
Under the current definition, individuals qualify as accredited investors if they meet certain financial or professional criteria. The financial criteria include a net worth of more than $1 million or individual income over $200,000, while the professional criteria include investment professionals, directors or general partners of a company selling securities, according to the SEC website.
Several members of the House Financial Services Capital Markets Subcommittee said this definition should be adjusted.
“Current regulations primarily allow only high-net-worth individuals to invest in private markets, shutting out many financially knowledgeable Americans who have the expertise — but perhaps not the wealth — to participate in these opportunities,” Subcommittee Chair Ann Wagner, R-Mo., said in her opening statement. “Expanding investment opportunities beyond the limited few who qualify under this narrow definition will unlock new sources of capital, benefiting both businesses and investors.”
Rep. Brad Sherman, D-Calif., the top Democrat on the subcommittee, also advocated for updating the accredited investor definition, but for different reasons.
Sherman said the definition “hasn’t been adjusted (for inflation) for a long time, so we have made it much, much easier to be an accredited investor on the wealth and income standard,” suggesting earlier in the hearing that the definition undergo “not just expansion, but also contraction.”
“We need to change those numbers on the one hand, and — as the chairwoman points out — also account for the fact that people who don't have high income, don't have high wealth, they have high knowledge and ought to be listed as accredited investors,” Sherman added.
In June 2023, the House passed a bill that would allow individuals investors to gain accredited investor status through an exam, established by the SEC, that would be administered by the Financial Industry Regulatory Authority. The bill, which passed in a 383-18 vote, never moved in the Senate, though Rep. Mike Flood, R-Neb., has released a discussion draft of the bill for this Congress.
Rep. French Hill, R-Ark., who leads the House Financial Services Committee, is also working on a bill to alter the accredited investor definition, though his legislation would expand the definition to include anyone the commission “determines, by regulation, to have demonstrable education or job experience to qualify such person as having professional knowledge of a subjected related to a particular investment,” according to a discussion draft of his bill.
