Legislators are reintroducing bills to expand retail investors’ private market access, and changes to the law may be closer than ever now that a single party holds both houses of Congress and the White House.
Last week, U.S. Rep. French Hill (R-Texas), chairman of the House Financial Services Committee, reintroduced legislation expanding the definition of an accredited investor, saying that “wealth alone should not dictate who can and cannot invest in private offerings.”
The same week, U.S. Rep. Mike Lawler (R-N.Y.) co-sponsored a bill allowing retail investors to take a test to qualify as accredited investors.
Unlike retail investors, accredited investors can access private markets, including hedge funds and private equity funds. While institutional investors can operate in the space, to qualify, retail investors must hit monetary thresholds (established as at least $200,000 in annual income or more than $1 million in net worth).
While supporters of the threshold argue it protects investors from the instability of private markets, critics claim the rules have prevented retail investors from profiting from the expansion of private markets.
According to William Nelson, a director of public policy and associate general counsel for the Investment Adviser Association, the two bills would take different approaches to expand the accredited investor pool.
While Lawler’s bill would direct the SEC to create a test administered by FINRA, the Hill bill would broaden the existing definition, allowing education, professional experience or similar credentials to count toward accreditation.
Hill noted he had previously introduced the bill during prior sessions of Congress (including in 2023 and 2024), but Republicans did not hold both houses of Congress and the White House then. During last week’s annual FINRA conference in Washington, D.C., Hill said he felt hopeful about the chance for change.
“I think there’s bipartisan consensus for broadening who is an accredited investor and what investment opportunities are available to clients, to a non-institutional client,” Hill said.
According to Edward Fernandez, the CEO and president of 1031 Crowdfunding, which specializes in commercial real estate equity investments, “the chances are actually better” that the bill will become law with Trump in the White House.
Fernandez argued that lawyers, real estate professionals and others with the necessary knowledge for investing should be able to invest in private offerings even if they don’t meet the threshold. This would also be a boon for firms like the one Fernandez leads.
“It would change the entire retail landscape,” he said. “It would open up opportunities for us who are in this space to investors that we have never been able to entertain.”
Nelson said he was “optimistic” Congress would take up one of the bills, as the House had done multiple times in previous sessions. He said expanding the accredited investor pool would “democratize access” to private markets and enhance portfolio diversification to manage risk.
“We believe that income and net worth alone do not fully reflect an individual’s financial sophistication,” he said. “Additional pathways—such as education, experience or certification or representation by a fiduciary investment advisor—should be available to qualify as an accredited investor.”
In the 2010 Dodd-Frank Act, Congress tasked the SEC with consistently undertaking a review of the rule’s applicability (and whether changes should be made), with the 1982 rule setting the annual income and net worth thresholds that remain today.
The commission voted to expand the definition in 2020 to allow individuals to qualify if they have “certain professional certifications, designations or credentials,” including Series 7, 65 and 82 licensees. The rule also qualified SEC- and state-registered advisors, as well as “knowledgeable employees” of the private fund in which they are investing. However, the monetary thresholds remain unchanged.
But SEC Chair Paul Atkins is already signaling a shift.
During opening remarks on Monday at the Practicing Law Institute’s “SEC Speaks” Conference in Washington, D.C., Atkins said he would direct the agency to reconsider guidance prohibiting how much closed-end funds can invest in private funds (currently, only accredited investors can invest in closed-end funds investing 15% or more in private funds).
“This common-sense approach will give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds,” Atkins said.
According to Nelson, Atkins (as well as SEC commissioners Mark Uyeda and Hester Peirce) have “emphasized” the importance of expanding retail investors’ access in the private markets, and suggested the regulator consider more changes to the accredited investor definition.
But during a recent speech at the SEC’s Annual Small Business Forum, Caroline Crenshaw (the current sole Democratic member of the commission) expressed misgivings about the definition, including the commission’s “failure” to index its wealth thresholds to account for inflation.
“I worry that leaving the accredited investor definition in its outdtated form provides a de facto—and significant—expansion in access to private markets,” she said. “We should not passively scope investors out of the protections of the Securities Act purely due to the passage of time and related macroeconomic changes.”
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