The Securities and Exchange Commission’s definition of “accredited investor” is generally important because satisfying certain criteria allows individuals to participate in private investments that are not otherwise available to the public — usually because of a lack of publicly available information about the investment itself. Currently, individuals must satisfy a net worth or annual income threshold to qualify as “accredited,” or they must hold certain licenses from the Financial Industry Regulatory Authority, such as a Series 7.
A newly proposed bill, the Equal Opportunity for All Investors Act of 2021, would allow more investors to qualify as accredited by directing the SEC to create an exam that would test a person’s investment knowledge and expertise, allowing those individuals to obtain accredited investor status without regard to current net worth and income requirements.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the advisability of using an exam to determine accredited investor status.
Below is a summary of the debate that ensued between the two professors.
Byrnes: Allowing the SEC to create a targeted exam to determine who qualifies as an accredited investor would go a long way toward opening key investments to investors with the skills necessary to evaluate the risk of the investment. Increasing the pool of accredited investors would also provide additional opportunities for up-and-coming business owners to raise funds and grow the economy as a whole — creating much-needed jobs in the process.
Bloink: Our current accredited investor rules exist for investor protection purposes. They aren’t designed to keep ordinary Americans from making their own investment choices — but instead recognize that some investments are extremely risky and that not everyone should be encouraged to bear these types of financial risk. We must keep the key purpose behind these rules in mind before we fundamentally change the qualification requirements.