SEC accredited investor rule changes: What it means for you in 2025

In 2020, the Securities and Exchange Commission (SEC) amended the definition of an accredited investor, directly impacting accredited investor verification requirements. This update expanded the pool of investors eligible to participate in private securities offerings. These regulatory changes broadly impact how companies verify accredited investors and raise capital in the private markets.

In fact, the number of accredited investors has soared in the last five years, largely because financial thresholds are not tied to inflation. As wealth and incomes grow over time and as the barriers to registration decrease, more people and private entities have gained access to accredited investor status.

Previously, investing in early-stage startups and high-growth companies before their IPOs was largely limited to high-net-worth individuals and institutional investors who could satisfy accredited investor verification standards. The rule change not only redefined who qualifies as an accredited investor but also influences the process for verifying accredited investor status in private sales of unregistered securities. Since these investments often carry greater risk and limited transparency with minimal SEC oversight, proper verification remains critical for both issuers and investors seeking higher returns.

The SEC registration process and its history

Most securities sold to investors in regulated financial markets are subject to a rigorous registration process facilitated by the SEC. Securities issuers, who are often Registered Investment Advisers (RIAs), must offer extensive disclosures covering their business operations, management team, and any risks associated with the investment. This essential information is necessary to legally register securities with the SEC, ensuring transparency for all market participants.

The rationale for the SEC’s registration requirements traces back to the period before the Securities Act of 1933. In the early 1900s, there were minimal regulations governing the sale of securities, and investors faced considerable risks. Companies could offer shares without providing accurate or complete disclosures about business performance or investment risks, leading to frequent fraud and misrepresentations such as fabricated investment promises.

With the advent of the Securities Act of 1933, registered securities transactions offer investors critical protections. Most disclosure obligations are fulfilled through prospectuses, legal documents that summarize key facts and risks for new securities being sold. This registration process ensures that the industry benefits from increased market integrity. If issuers make false statements or intentional omissions, they face substantial SEC-enforced penalties and fines, holding both organizations and executives accountable for investor protection.

Cost of registration

Although registering securities has proven effective at reducing investment fraud, there’s a considerable cost associated with this process. The issuer must spend significant amounts of money on legal and compliance-related expenses, mainly attorneys, accountants, and compliance officers. If the information disclosed is inaccurate or incomplete, it can result in large monetary losses and liabilities for the issuer. Additionally, issuers can be required to pay registration fees to the SEC in the six-figure range.

Regulation D

With the high cost of registration, the SEC provides exemptions that allow certain issuers to avoid the traditional registration process through options like Regulation D, a rule highly relevant for both accredited investor verification and Series 82 professionals. Regulation D, known as the private placement exemption, permits the sale of unregistered securities primarily to select private investors. This set of rules governs how unregistered securities offerings are marketed to specific investors, including:

• Unlimited sales to accredited investors following proper accredited investor verification procedures
• Sales to no more than 35 non-accredited investors in any given offering

Traditionally, accredited investors were defined as affluent individuals or institutions with substantial financial experience and resources. The condensed list below highlights some of the most common qualified accredited investors before the rule updates:

• Individuals with a net worth exceeding $1 million (excluding primary residence)
• Individuals earning $200,000 or more annually for the past two years
• Married couples with a joint annual income of $300,000 or more for the past two years
• Officers, directors, or partners of the issuer
• Corporations, partnerships, or charitable organizations possessing assets over $5 million
• Banks, insurance companies, and registered investment companies

When utilizing Regulation D, issuers focus on raising capital by engaging accredited investors who have successfully completed accredited investor verification. This approach allows unlimited issuance of unregistered securities to qualified individuals and institutions that are considered “sophisticated,” with the financial expertise to understand and evaluate investment risk. While up to 35 non-accredited investors may participate in these offerings, issuers must adhere to heightened disclosure and suitability rules to ensure compliance. Due to these additional requirements for non-accredited investors, most Regulation D transactions overwhelmingly involve accredited parties who meet strict verification standards.

The “new” accredited investor

The change to the accredited investor definition significantly expanded accredited investor verification criteria. As of late October 2020, these additional parties now qualify as accredited investors:

• Investors who have earned the Series 7 license, Series 65, or Series 82 certification
• “Knowledgeable” employees of private fund companies
• Limited liability companies (LLCs) with $5 million in total assets
• Indian tribes possessing assets greater than $5 million
• Foreign governments, funds, and legal entities with assets exceeding $5 million
• Family offices managing at least $5 million in assets
• Spouses of accredited investors

Historically, entities and organizations holding over $5 million in assets generally qualified for accredited investor verification. The updated SEC rule further clarifies that new entity types, such as LLCs, Indian tribes, family offices, and foreign government funds, are also included in the expanded definition of accredited investors.

On the individual level, there are now more distinct paths to achieving accredited investor status. Passing recognized financial industry exams, such as the Series 7 license, Series 65, or Series 82, is a pivotal addition to these pathways. The Series 7 and Series 82 usually require employment with a sponsoring financial services firm, while the Series 65 may be obtained independently without an employer sponsor. These licenses represent rigorous exams designed to validate a high level of investment knowledge and competence. The SEC recognizes that those passing these licensing exams demonstrate the financial acumen necessary for making informed decisions in private investment opportunities. Additional accredited investor verification avenues include qualifying as a knowledgeable fund employee or being the spouse of an accredited investor.

By broadening the accredited investor definition through mechanisms such as the Series 7 license, Series 65, and Series 82 certifications, as well as other pathways, the SEC aims to better reflect the diverse qualifications present in today’s investment landscape.

The end result

The SEC’s rule change broadens the field of accredited investors that an issuer may pursue when selling unregistered securities. Issuers can raise more capital without the formal registration process, which affects the number of public offerings that require registration. Individuals and organizations now have several new ways to meet the definition of an accredited investor, which will lead to more participation in the private securities market.

The consequences of the rule change will be inspected and analyzed over the next several years, but the change certainly benefits issuers raising capital that prefer to avoid registration requirements. Those aiming to achieve Series 7, Series 65, or Series 82 licensure now have a direct path to becoming accredited investors. With recent pushes in Congress to expand the definition of an accredited investor even further, the pool of investors may see even more expansion in the near future.