SEC proposes an exam-based path to accredited investor status

Anyone who passes a securities exam would qualify as an accredited investor under a rule change the Securities and Exchange Commission voted Wednesday to put out for public comment, with the three currently active commissioners voting unanimously to invite comment on a testing path and a short list of professional credentials added to the definition that determines who may put money into private offerings. Financial Planning first reported the vote.

Today that definition is a money test and nothing else: accredited status requires either at least $1 million in assets excluding the value of a primary residence, or income of at least $200,000 in each of the past two years for single earners and $300,000 for married couples. The proposal would open a second route in which a passed exam supplants those thresholds, with the Financial Industry Regulatory Authority, the broker-dealer self-regulator, writing a test open to anyone 18 or older that would most likely follow the blueprint of its existing Securities Industry Essentials exam.

The stated purpose, as Kenisha Nicholson, senior special counsel in the SEC's Office of Small Business Policy, described it, is to let takers "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 an investment's merits and risks. Testing is not the only new route: the proposal also names certified financial planners, certified public accountants, chartered financial analysts, and holders of FINRA licenses related to banking and research analysis.

SEC Chairman Paul Atkins made the case for a broader standard before the vote, saying he agreed that "accredited investor access to private offerings should not be limited solely to individuals satisfying financial thresholds," and that those thresholds are not the only gauge of a person's ability to judge an investment's merits and risks. The push behind the change, older than the current commission, has for years floated letting anyone who passes a securities exam or holds certain professional certifications into private markets without meeting the income and net worth criteria; on Wednesday the idea became an actual proposal, with the dollar thresholds themselves unchanged as a parallel route for anyone who clears them.

For advisory portfolios, the definition does the work of an eligibility screen: a household that clears neither the asset nor the income test is at present out of reach for private offerings no matter how well it understands them, while under the proposal the same household could sit an exam and qualify instead. The credential route reaches a related group, planners, accountants and analysts whose working lives center on securities and investments even when their personal balance sheets fall short of $1 million; whether a credential should carry the same weight as a passed exam is the kind of question a comment period exists to surface.

The vote is the second piece of the SEC's private-market agenda: its September draft gave advisers two levers — retail clients reaching private markets through registered funds, and performance-fee flexibility on separately managed accounts — while holding the diligence bar in place, as this publication reported. Wednesday's proposal works the other end of the question: not the wrapper that carries a private allocation, but the investor allowed to hold it.

That split matters to how alternatives get built into client accounts: wrappers govern the mechanics — liquidity, pricing, the plumbing of a private-credit sleeve inside a model portfolio — while eligibility governs the size of the book an advisor can work from. A wider definition would put more clients within reach of private offerings without changing anything they already hold.

Eligibility is only the first hurdle for private-market allocations; what follows — valuation, liquidity terms, fee transparency — does more to decide whether an alternative belongs in a client account than how the client qualified.

How much the change matters in practice turns on two details: the exam's content, which the proposal does not spell out beyond its general purpose and which FINRA would develop, and the credential list, which arrives as a flat enumeration — planners, accountants, analysts and certain FINRA license-holders — with no stated reasoning in the coverage for why those four categories, and not others, made the cut.

Until a final rule exists, the $1 million asset floor and the $200,000 income test still govern every conversation an advisor has about placing a client in a private offering. What stands between the proposal and any change is a 60-day comment period that begins when the rule runs in the Federal Register, and an exam FINRA has yet to write.