SEC rule would let investors take exam to qualify as accredited

• Key insight: Wealth may no longer be the distinguishing characteristic of private market investors. The SEC is pushing for a knowledge-based qualification system using exams and professional credentials to open alternative investments for regular investors.
• Supporting data: The number of publicly traded U.S. companies has plummeted from roughly 8,000 in 1996 to just 3,700 in 2024. 
• Expert quote: "Just because you have money doesn't mean you're necessarily smarter than anybody else. There are plenty of people who are very able to understand the risks and benefits of these investments but who may just not have earned enough money to become an accredited investor." — Lance Dial, partner at K&L Gates 

For years, the SEC has flirted with the idea of letting anyone who can pass a securities test, as well as holders of certain professional certifications, invest in private markets without meeting specific income and net worth criteria. 

Now the industry watchdog is moving forward with an actual proposal. 

On Wednesday, the three currently active commissioners on the Securities and Exchange Commission voted unanimously to invite public comment on a rule change that would broaden the definition of "accredited investors" to include anyone who can pass a test on the U.S. securities industry. Also included under the new definition would be certified financial planners, certified public accountants, chartered financial analysts or holders of Financial Industry Regulatory Authority licenses related to banking and research analysis.

The SEC currently defines accredited investors as people with at least $1 million in assets (excluding their houses) and an annual income of at least $200,000 for the past two years for single earners and $300,000 for married couples. Free-market advocates at the SEC and in government have long pushed for a broader definition that would allow more investors to put money into certain private-market investments hitherto reserved primarily for large institutions and wealthy clients.

Before voting for the proposal on Wednesday, SEC Chairman Paul Atkins said he agreed with the notion that "accredited investor access to private offerings should not be limited solely to individuals satisfying financial thresholds and that such thresholds are not the sole indicators of a person's ability to assess the merits and risks of an investment."

The public will have 60 days to comment on the proposal, following its publication in the Federal Register.

READ MORE: SEC pushes private market access, but retail is already in 

Sitting for an accredited investor exam

The SEC's proposal would put the Financial Industry Regulatory Authority, the broker-dealer industry's self-regulator, in charge of drawing up an exam designed to test individuals'' knowledge of basic information related to the securities industry.

The exam would be open to anyone 18 or older and would most likely be built along the lines of FINRA's current Securities Industry Essentials, or SIE, exam. Its goal would be to allow takers to "opt in to the accredited investor definition by demonstrating their comprehension and sophistication in the areas of securities and investing, including their ability to evaluate the merits and the risks of a prospective investment through passing the exam," said Kenisha Nicholson, senior special counsel in the SEC's Office of Small Business Policy.

Lance Dial, a partner in K&L Gates' asset management and investment funds practice, said one of the biggest complaints about the current accredited investor definition is that it takes into account nothing but income and assets.

"I mean, just because you have money doesn't mean you're necessarily smarter than anybody else," Dial said. "There are plenty of people who are very able to understand the risks and benefits of these investments but who may just not have earned enough money to become an accredited investor. Why are we icing them out?"

The SEC has reported that 24.3 million U.S. households — or 18.5% of all U.S. households — met the definition of accredited investors in 2022. 

READ MORE: Once-exclusive 'accredited investor' tag on track to apply to half of U.S. households 

Push for private markets comes amid dwindling public opportunities

Accredited-investor status is most often needed to put money into startup companies through certain hedge, private equity and venture capital funds not registered with the SEC. In 2025 alone, nearly $2.4 trillion went into so-called private placements and other types of unregistered funds.

Advocates of greater access for retail investors note that these funds are often the only way to invest early in companies that later became household names. Elon Musk's space exploration firm SpaceX, for instance, remained private for decades before going public earlier this year. 

Meanwhile, the number of companies with shares sold on public exchanges has plummeted. According to the SEC, the number of publicly traded companies in the U.S. fell by more than half from 1996 to 2024, going from roughly 8,000 to 3,700.

This isn't the first time regulators have pushed to broaden the qualifications for who counts as an accredited investor. In 2020, the SEC adopted a rule extending the definition of FINRA Series 7, Series 82 and Series 65 licenses. 

But last year, the SEC's Investor Advisory Committee declined to endorse proposals calling for investors to be able to attain accredited status by taking an exam testing their securities knowledge. The committee instead recommended strengthened reporting requirements and other protections for registered private funds like interval funds allowing investors to take their money out at set periods.

READ MORE: Firms push to make private markets more like publics 

CFP Board welcomes the proposal; advisors remain skeptical

Advisors often question if retail investors really need more access to private markets. Critics say private investments can be rife with high fees, opaque financial data and barriers to taking money out. On Wednesday, Noah Damsky, principal at Marina Wealth Advisors in Los Angeles, called the proposal to let investors qualify as accredited simply by passing an exam "horrible."

He questioned whether regular investors truly have the wherewithal to stay up-to-date on ever-changing and complex offerings in private markets.

"Most of the accredited investor products were created with a square-peg-round-hole mindset — trying to sell less liquid products to investors who need more liquidity than the underlying product," Damsky said.

The Certified Financial Planner Board of Standards, which confers the CFP designation on advisors who meet certain competency and experience requirements, welcomed the SEC's proposal. Erin Koeppel, government relations and public policy counsel for the CFP Board, said, "We think this is an acknowledgement of the financial knowledge and the professional competency that's required to hold the certification."

Although the CFP holders would qualify as accredited investors under the SEC's proposal, their clients would not. Lawmakers have unsuccessfully put forward bills that would allow advisors with accredited status to invest their clients' money in private placements and other unregistered private funds. Koeppel declined to comment on whether the CFP Board would support a similar proposal for CFP professionals.

READ MORE: Despite private market concerns, advisors and clients are undeterred 

Allowing advisors to charge performance fees to accredited investors

In addition to the proposal related to accredited investors, the SEC on Wednesday voted to take public comment on a potential rule allowing advisors to charge so-called performance fees to more clients. These fees — often collected on capital gains from private market investments — can now only be charged to qualified clients, defined as investors with at least $1.4 million invested with an advisor and a net worth of more than $2.7 million. The SEC's proposal would allow advisors to instead charge performance fees to accredited investors. Brian Daly, the director of the SEC's Division of Investment Management, called performance fees "a defining characteristic of private funds." He said performance fees align advisors and clients' interests by giving them both incentives to make sure investments produce strong returns.

"By providing the opportunity for retail investors to be able to have performance-based compensation arrangements, we hope to level the playing field by incentivizing private-side sponsors and advisors to offer their alternative strategies to regulated funds and retail investors," Daly said. Advisors' ability to charge performance fees would come with certain limitations. For instance, they would have to make sure the amount collected did not exceed 20% of a fund's net gains over a specified period. 

Introductory bullet points created by AI with editorial review.