SEC Takes Initial Step to Expand Accredited Investor Pathways – Considers CPAs, CFAs, CFPs, Additional FINRA License Holders, and a New FINRA “Accredited Investor Exam”

Today, the Securities and Exchange Commission (SEC) issued notices seeking public comment on six new ways it is considering for individuals to qualify as “accredited investors” based on professional credentials or a proposed examination, rather than net worth or income. The notices were issued under Rule 501(a)(10) under the Securities Act of 1933 (the “Securities Act”), which was adopted by the SEC in 2020 and allows the SEC to designate professional certifications, designations, or credentials that qualify a natural person holding them in good standing as an accredited investor, after notice and an opportunity for public comment. Each notice provides a 60-day comment period that begins on publication in the Federal Register. 

The accredited investor definition is the “cornerstone” of Regulation D, which lets companies raise capital in private offerings without registering them under the Securities Act. For individuals, the definition has long rested mainly on financial thresholds, notwithstanding the adoption of Rule 501(a)(10). In general, an individual qualifies with net worth over $1 million (excluding the primary residence) or annual income over $200,000 ($300,000 jointly with a spouse or spousal equivalent) in each of the two most recent years, with a reasonable expectation of the same in the current year.

At the time of Rule 501(a)(10)’s adoption, the SEC designated three examinations administered by the Financial Industry Regulatory Authority (FINRA)—FINRA Series 7 (General Securities Representative Qualification Examination), Series 82 (Private Securities Offerings Representative Qualification Examination), and Series 65 (Uniform Investment Adviser Law Examination)—as qualifying credentials for accredited investor status for individuals. 

If adopted by the SEC, the designations, which are aimed at expanding the access of individual investors to private securities offerings (especially offerings by private companies), would be the first expansion of the credential-based pathway since the SEC’s initial 2020 designations. 

The Proposed Designations

The notices cover the following pathways, each of which would need to be held in good standing:

• a license as a U.S. Certified Public Accountant (CPA); 
• a charter as a Chartered Financial Analyst (CFA); 
• certification as a Certified Financial Planner (CFP); 
• the FINRA Investment Banking Representative License (Series 79) and the FINRA Research Analyst License (Series 86 and 87), which are addressed in a single notice, but would each independently qualify a holder; and 
• passing a new accredited investor exam to be developed by FINRA. 

Each notice defines “good standing” by reference to the credentialing body’s own standards. In every case, a credential holder would qualify only for their own account and could not rely on that status to buy securities on behalf of another person. 

The FINRA Accredited Investor Exam

The proposed exam is the most novel part of the package. It would be open to anyone age 18 or older. Any investor could opt in to accredited investor status by passing it. Candidates would not need to be associated with a FINRA member firm, and passing the exam would not qualify anyone for FINRA registration. The exam is still being developed, however. The notice’s description reflects what FINRA staff currently anticipate and could change. Based on the notice:

• Format: The exam would be modeled largely on FINRA’s Securities Industry Essentials (SIE) exam, with about 75 multiple-choice questions and about two hours to complete. 
• Cost: The fee is expected to be similar to the SIE fee, which is currently $100. 
• Topics: Planned topics include definitions and structures of securities, investment risks, disclosure and regulatory requirements, financial statements, conflicts of interest, and corporate governance. Investment risks would carry the heaviest weighting, at 20% to 28% of exam items. The exam would specifically cover exempt offering structures, such as Regulation D, Regulation A, Regulation Crowdfunding, and SAFEs, as well as liquidity, dilution, and leverage risks. 
• Administration and verification: FINRA would create and administer the exam, with delivery by a third-party vendor. FINRA would also develop a process for issuers and others to independently verify whether a person has passed, the date of passage, and when the 10-year validity period ends. 
• Duration: Passing the exam would confer status for 10 years. After that, an individual would need to pass it again or qualify under another prong of the definition. 

The SEC is specifically requesting comment on the exam itself, including its content, format, administration, result verification, fees, and validity period, and will share those comments with FINRA.