Accredited Investor Exam

Expanding upon previous new accredited investor definitions, Patrick McHenry, a member of the House Financial Services Committee, has also put forward legislation to include another new definition for accredited investor status. This piece of legislation which is called the Equal Opportunity for All Investors Act of 2021 and seeks to allow people with financial acumen to take an exam in order to be considered an accredited investor. The intention of this bill is to equalize investor accreditation away from just simply being wealthy.

Currently, accredited investor requirements are limited to the wealthiest individuals for the most part. Although the SEC did add a professional licensing method at the end of 2020. For wealthy investors, they must either have $1 million USD in net worth or make $200,000 USD (or $300,000 USD if combined with a spouse or spousal equivalent) in each of the two most recent years and a reasonable expectation of the same income level in the current year. These standards are quite high for the average investors and therefore there has been much debate over whether or not the standards should change. Although the SEC has yet to change the financial thresholds for those particular methods.

The accredited investor definition was created with the intention that only individuals with high financial acumen could invest in unregistered private offerings. This way if the offering failed the investors could weather the storm. Representative McHenry created this bill to potentially make the accredited investor definition more reachable, saying, “My bill will allow more investors to qualify as ‘accredited investors,’ providing them with more opportunities to invest their money the way they want.”

To sum up the bill, the SEC intends to make sure that accredited investors are privy to the risks of private equity investments. The exam would ensure that individuals with high financial acumen are allowed to invest in private equity while safeguarding their risk factors. Instead of letting in any potential investor the exam still maintains the mission of the accredited investor definition, which is protecting investors from potential risky private offerings.

VerifyInvestor.com updates our possible verification methods whenever the SEC changes them. To keep up with accredited investor news keep an eye on the VerifyInvestor.com blog.