The US House of Representatives has approved legislation that will update the definition of an Accredited Investor, a rule that currently disenfranchises the majority of the population from a booming market.
The current definition determines who may participate in certain private securities offerings, mainly Reg D, the exemption that the majority of promising private firms utilize to raise growth capital. As private firms strive to remain private for as long as possible, much of the gain is already captured before a firm goes public.
In general, an Accredited Investor is defined as an individual who earns over $200,000 per year ($300,000 if married) or has a net worth of over $1 million (excluding the value of their primary residence). These wealth metrics were a clumsy attempt to shield unsophisticated investors from risky investments; yet, this rule has nothing to do with an investor’s ability or acumen. Additionally, anyone with a degree in business is taught that you should shoulder more risk when younger and pull back on risk as you age. Any young business graduate would have sufficient knowledge to understand private securities; yet, they are often blocked from these offerings, while VCs and the wealthy capture a significant portion of the capital gains.
HR 3339, or the Equal Opportunity for All Investors Act of 2025 – sponsored by Representative Mike Flood (R-NE), will require the Securities and Exchange Commission (SEC) to establish an exam to determine whether an individual qualifies as Accredited.
Following approval, Representative Flood stated:
“Access to our nation’s capital markets should be based on merit and knowledge, not wealth. The Equal Opportunity for All Investors Act advances this goal by creating a new, rigorous investment exam administered by FINRA to earn ‘accredited investor’ status. I’m grateful to see my bill receive bipartisan support at every step in the House, and it now awaits Senate consideration. I look forward to President Trump signing this commonsense reform into law once it passes the Senate.”
A summary of the bill outlines that the examination must:
- Be designed with an appropriate difficulty level such that an individual with financial sophistication or training would be unlikely to fail,
- Include methods to determine competency and knowledge in certain areas, such as the disclosure requirements of different securities, and
- Be administered by a registered national securities association and offered free of charge to the public.
The key aspect of the bill’s language is its focus on risk.
All investments involve some level of risk. Risky ventures can yield an outsized return if the investment is successful. Obviously, a higher degree of risk means there is a greater probability that a company will go bust. The premise is that an individual who understands the risk of losing all of their money should be able to determine how to spend (or invest) their own funds.
For the test, an individual must understand financial statements, limited liquidity, limited disclosures, valuations, potential conflicts of interest, and more.
The wealth hurdle is not addressed in the bill.
As the current definition is discriminatory against underserved segments of society, blocking individuals from superior investments, support for a change to the rule was broad-based. This is in contrast to the Biden Administration, where SEC leadership sought to make it more difficult to be deemed Accredited.
The bill was approved by a voice vote, indicating significant bipartisan support, as many Democrats recognize the punitive nature of the current definition. Two Democrat members co-sponsored the bill.
The legislation will now be considered by the Senate, where it is expected to garner sufficient support to become law. However, the Senate may adjust the language of the now straightforward bill.
A change in the definition could have a dramatic impact on the investment industry, including online capital formation. The utilization of competing exemptions may decline as more firms opt to use Reg D, which requires only a two-page notice filing. A change to the definition also aligns with the Trump Administration’s intent to allow private securities to be held in retirement accounts.
