Financial Advisor IQ (March 11, 2024) By Glenn Koch

The Expanding Access to Capital Act of 2023 broadens the definition of an “accredited investor” for the purpose of nonpublic offerings.

The House of Representatives on Friday passed legislation that would expand the definition of an "accredited investor" for the purpose of private equity offerings.

The Expanding Access to Capital Act of 2023 includes a provision that loosens the definition of accredited investor to include any individual receiving individualized investment advice or recommendations from a qualified professional about a nonpublic offering.

Meanwhile, individuals who do not meet income or net-worth thresholds for accredited investors may invest as much as 10% of the greater of their net assets or annual income in nonpublic offerings, per the legislation, H.R. 2799.

The act, introduced by Republican Representative Patrick McHenry of North Carolina's 10th District, is intended to facilitate capital formation by strengthening public markets, helping small businesses and entrepreneurs, and creating new opportunities for all investors, according to a press release issued by McHenry's office.

"This legislation ... will benefit Americans from all walks of life — whether they're saving for retirement or launching a startup," McHenry said in a statement. "I'm proud House Republicans advanced H.R. 2799 to provide more people with the opportunity to achieve their American dream."

The legislation passed the Republican-tilted House along party lines, at 212 to 205, with 15 no-votes. It now advances to the Senate, where, even with full Republican support, it would need votes from at least two Democratic or independent senators to pass.

The House's vote drew criticism from investor advocates, among them Houston-based attorney Sam Edwards, a former president of the Public Investors Advocate Bar Association.

"This is yet another example of Congress, under the guise of 'choice', favoring the interests of Wall Street over Main Street," Edwards told FA-IQ via email.

"The new bill essentially assumes that all financial advisors have the knowledge and capability to appropriately evaluate unregistered securities at the time they are sold and then to continue with that throughout the life of the investments. In truth, very few financial advisors have that knowledge or the resources to be able to do this," added Edwards, of Shepherd Smith Edwards & Kantas.

Earlier last week, in a public letter to several members of Congress, the Americans for Financial Reform Education Fund said the legislation "weakens regulation of both the public markets and the private markets, making it a bad deal for investors of all types, and a boon to issuers interested in raising capital with the lowest possible degree of disclosure, compliance, accountability, and overall economic inefficiency."