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House of Representatives Passes Bill to Broaden Accredited Investor Criteria

Wealth May No Longer the Sole Determinant for Private Investments

House of Representatives

In a move that could potentially reshape the landscape of private investments, the U.S. House of Representatives has passed the Expanding Access to Capital Act of 2023. The bill includes a provision that would expand the definition of an "accredited investor," opening up new opportunities for a broader range of individuals to participate in private offerings.


The current accredited investor definition, which has long been criticized for favoring the wealthy and affluent, primarily relies on income and net worth thresholds. To qualify as an accredited investor, an individual must have an annual income exceeding $200,000 (or $300,000 jointly with a spouse) or a net worth of over $1 million, excluding the value of their primary residence.


However, the bill H.R. 2773 introduced by House Financial Services Committee Chairman Patrick McHenry (R-N.C.) seeks to amend this definition. Under the proposed changes, individuals who receive individualized investment advice or recommendations from qualified professionals would also be considered accredited investors, regardless of their income or net worth.


House of Representatives

Simultaneously, the Securities and Exchange Commission (SEC) has proposed its own amendments to the accredited investor definition. The SEC's proposal would create new categories of accredited investors based on professional certifications, designations, or credentials, such as FINRA Series 7, 65, or 82 licenses. The amendments also aim to include knowledgeable employees of private funds, family offices with at least $5 million in assets under management, and entities with investments exceeding $5 million.


The SEC's proposed changes align with the notion that wealth should not be the sole determinant of an individual's ability to assess the risks and merits of private investments. By acknowledging the value of financial sophistication and expertise, the amendments could democratize access to a wider range of investment opportunities.


In a related development, the House also passed the Improving Disclosure for Investors Act, which would require the SEC to write a rule permitting financial firms to deliver documents electronically. This move, applauded by industry giants like Fidelity Investments, is expected to modernize the disclosure process, making it more secure, accessible, and environmentally friendly while still allowing investors the choice to receive paper copies if desired.


As the proposed changes to the accredited investor definition make their way through the legislative and regulatory processes, investors and financial professionals alike should stay tuned for further developments. The House bill, which passed along party lines, will now move to the Senate for consideration. If approved and signed into law, it would significantly expand the pool of individuals who qualify as accredited investors, allowing more people to participate in private market offerings.


SEC

Concurrently, the SEC's proposed amendments to the accredited investor definition are subject to a public comment period. The Commission will review the feedback received and consider any necessary revisions before finalizing the rule changes. While the exact timeline remains uncertain, it is clear that the landscape of private investing is on the brink of transformation.


As these changes unfold, it will be crucial for investors to stay informed about the new qualifications and criteria for accredited investor status. Financial advisors and investment firms will play a key role in educating their clients about the opportunities and risks associated with private market investing.


At Belite Capital, we are committed to providing our readers with the most up-to-date information and analysis on these developments, ensuring that our clients are well-positioned to navigate the evolving investment landscape.



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