Reforming the Accredited Investor Rule: A Path to Wealth Access

In recent weeks, President Trump has taken significant steps to attract investment to the United States. His proposed initiatives would allow foreign investors to purchase legal status in the U.S. for $5 million. Additionally, he has lauded a remarkable $200 billion direct investment from Japan’s SoftBank. While there’s nothing inherently wrong with soliciting offshore investment, the government is overlooking a crucial source of investment right at home. The accredited investor rule — which stipulates that individuals must have a net worth exceeding $1 million or an annual income surpassing $200,000 — effectively excludes too many Americans from participating in our most lucrative securities markets. It’s time to change that.

Understanding the Securities Landscape

In the U.S., securities broadly fall into two categories: public and private. Public securities trade freely on national exchanges and are accessible to all investors, but they come with extensive regulatory and compliance requirements that make it onerous for companies to “go public.” As a result, many companies, including notable names like Stripe and SpaceX, are opting to remain private. However, this choice comes with a significant caveat. In exchange for easing the regulatory burden, private markets restrict access to accredited investors only. This means that a substantial portion of American households, which do not meet the accredited investor criteria, are effectively shut out from these investment opportunities.

The Impact of Exclusion

As more businesses choose to stay private, an increasing number of everyday Americans are prevented from building wealth alongside these companies. Historically, public markets served as the deepest and most reliable sources of capital for large, high-growth companies. This was beneficial for the public, as it allowed them access to some of the best investment opportunities available. However, times have changed. According to SEC Commissioner Hester Peirce, “The once aspirational goal of becoming a public company seems to have lost its luster.” In recent years, private markets have been growing at approximately double the rate of global public equity markets.

The Accredited Investor Rule Explained

The accredited investor rule, established by the SEC, is a regulation that restricts access to private investments. It sets specific criteria that investors must meet to participate in offerings such as Regulation D, which is the primary exemption private companies utilize to raise capital. Consequently, this rule effectively blocks millions of Americans from investing in some of the most promising companies shaping the future.

Arguments for the Status Quo

Proponents of the accredited investor rule argue that it serves a protective function. “Knowledge cannot protect people from potential losses… Only financial resources can,” stated Patrick Woodall, director of policy at Americans for Financial Reform, last year. However, this paternalistic perspective assumes that the public must be “protected” from itself. In reality, the accredited investor rule does not safeguard the public; it locks them out from investing in innovative companies like OpenAI, Anthropic, and Perplexity.

The Case for a Test-In Policy

Implementing a test-in policy for accredited investors presents several clear advantages. First and foremost, it is fair. Any American who passes the test would be allowed to invest, thus democratizing access to private markets. Secondly, broader access to these markets would enable more Americans to share in the economic success of the country. If we are building innovative companies here, everyone should have the opportunity to invest in them. Thirdly, expanding access to private markets enhances their overall utility.

Legislative Considerations

While some may argue that Senator Scott’s bill is necessary to implement these changes, a test-in accredited investor rule does not require new legislation. The SEC already possesses the authority to implement such a policy through Section 2(a)(15) of the Securities Act of 1933. This means that the necessary reforms could be enacted without the lengthy legislative process.

Conclusion: A Call to Action

In conclusion, the time has come to reform the accredited investor rule. By doing so, we can unlock a wealth of opportunities for millions of Americans who are currently excluded from participating in the private investment landscape. This reform is not just about financial access; it is about ensuring that all Americans have a stake in the economic growth of our nation. As we move forward, it is essential for policymakers to recognize the importance of inclusivity in investment opportunities and take the necessary steps to implement these changes.

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