The Fair Investment Opportunities for Professional Experts Act (HR 3394) has been approved by the House of Representatives. The legislation now moves over to the Senate for a vote. As the Senate is controlled by Republicans, the bill holds a high probability of becoming law.
The bill garnered solid bipartisan support in the House, with a vote of 397 in favor and 12 against. According to the voting roll, 23 representatives did not vote, and the 12 votes against the bill were cast by Democrats. At the same time, Democrat Representative Juan Vargas of California was a co-sponsor of the bill.
The legislation aims to update the definition of an Accredited Investor, a rule that discriminates against individuals who cannot show sufficient income or wealth to participate in specific private securities offerings.
Primarily used for Reg D securities sales, the Accredited Investor rule currently requires an individual to earn over $200,000 per year, or $300,000 if married, or have a net worth of over $1 million, excluding the value of their primary residence. There have been some minor changes in recent years, but the rule has long been exclusionary and in need of an update.
It is evident to all that wealth is not a good metric for knowledge or sophistication. Yet this rule has been in place for decades, excluding the masses from participating in an enormous private securities market where the majority of the most promising firms look to raise capital from investors. Some insiders have voiced concerns about the current definition and the harm it causes to underserved communities, which are excluded from this market and miss an opportunity for wealth creation.
The Democrats voting against the bill were some of the most extreme representatives in the House. While it was not immediately clear as to why they did not support the legislation, it may be under the guise of investor protection concerns, believing the government is a better arbiter as to where you can invest your money.
Those voting against the bill were:
| Representative | Party | State | Vote |
|---|---|---|---|
| Casar | Democratic | Nay | |
| Dexter | Democratic | Nay | |
| Frost | Democratic | Nay | |
| García (IL) | Democratic | Nay | |
| Jayapal | Democratic | Nay | |
| Lee (PA) | Democratic | Nay | |
| McGovern | Democratic | Nay | |
| Ocasio-Cortez | Democratic | Nay | |
| Omar | Democratic | Nay | |
| Pressley | Democratic | Nay | |
| Ramirez | Democratic | Nay | |
| Tlaib | Democratic | Nay |
The legislation will expand the definition to include individuals with certain licenses, education, or applicable experience.
The net worth hurdle will be adjusted every five years to reflect inflation. The income metric largely remains the same.
For licensed individuals, this refers to those currently licensed or registered as a broker or investment adviser.
The Securities and Exchange Commission (SEC) is tasked with determining, by regulation, individuals who possess the applicable education, job experience, and professional knowledge, as verified by a self-regulatory organization.
The SEC will have 180 days to craft the updated rule once it is signed into law. There is a certain amount of room for the SEC to determine who qualifies as Accredited. As the SEC is currently led by an investor-friendly Commission, the new rule could help dramatically broaden participation in Reg D securities.
House Financial Services Committee Chairman French Hill, who sponsored the bill, commented.
“Before I was in Congress, I helped investors and founders find companies and raise funds through Reg D private placements. I witnessed firsthand how the current accredited investor definition impaired talented, knowledgeable innovators from fully participating in their business formation dream.”
Depending on the final rules established by the SEC, the Reg D private securities market could become far more inclusive, providing access to many more investors, as well as opportunities for online investment platforms, thereby enabling access to capital. Depending on the final language, this could be a significant win for all parties involved.