Fair Investment Opportunities for Professional Experts Act

Floor Speech

Mr. Speaker, I want to commend the gentlewoman from Missouri for all of her work chairing the Subcommittee on Capital Markets, but, particularly, for the hearings that we have had on this bill. I look forward to working with her on this subcommittee for many years to come.

Mr. Speaker, I rise in support of H.R. 3394, the Fair Investment Opportunities for Professional Experts Act, offered by my friend and Financial Services Committee chair, French Hill. This bill is the first step in what I hope will be an effort to reform the definition of ``accredited investor.'' This bill moves us to add to that definition by noting that certain experience, licenses, and education can, indeed, make one an accredited investor.

At the same time, I will point out that our definition of ``accredited investor'' was, I think, wrongfully decided that we should just focus on whoever is rich, then defined people as rich based on 1983 numbers. While $1 million may have made you rich then, Mr. Speaker, it does not mean that you are rich today.

I rise in support of this bill. The accredited investor framework has long protected the general public from investing in high-risk, illiquid private securities. Unlike our public capital markets, in the private capital markets, companies don't provide anywhere near the same financial and other disclosures to investors. There are not the same legal protections for investors either, nor is there the same ability of the SEC or the State securities regulators to police these markets.

When the accredited investor framework was first being debated, accredited investors were thought to be those who possess an intimate understanding and knowledge of the risks inherent in investing in private securities. These risks include heightened volatility, less transparency, difficulty obtaining accurate pricing, long lockup periods, and limited liquidity.

Ultimately, industry argued for a simpler approach, so the SEC adopted the current definition, which is based around income and wealth. Today, to be an accredited investor, the investor must have a net worth, either individually or, with spouse, exceeding $1 million excluding the value of their home, or they must make more than $200,000 a year or $300,000 with a spouse.

Those were definitions applicable in 1983 that may not have defined those with the requisite knowledge, but at least defined those who were high-income, high-net worth individuals. Of course, certain professional certifications or designations such as being an investment adviser could also qualify a person under the existing rules.

The wealth and income thresholds, as I have said several times, were set back in 1983. Back then, roughly 2 percent of all Americans were considered accredited investors. As of 2023, that number had risen to 20 percent. Clearly either the standard was wrong in 1983 or it is wrong now, because it is an entirely different level of real wealth and real income.

Mr. Hill's bill aims to return back to the original concept of accredited investor, which is that investors in private offerings should be fully aware and knowledgeable of the risks involved.

As my friend and ranking member of the Financial Services Committee, Ms. Waters, has said during our markup of this bill:

Just because you have $1 million doesn't mean you understand the complexities of the private markets. On the other hand, you shouldn't be prohibited from investing in products if you have full knowledge of the risks involved but don't happen to have $1 million.

I would add to that that our definition of ``accredited investors,'' when we are done improving it, and this bill is an important step toward improving it, should focus on what percentage of net worth a person is investing in the particular private offering or private offerings in general.

That is because one may be accredited to invest 5 or 10 percent of their net worth, but when you start betting the mortgage payments on one private investment, Mr. Speaker, then that is where our definition of ``accredited investor'' should protect you from that. So there should be diversification and limitation on the amount that an accredited investor can invest in any one or in all private offerings.

Nonetheless, that is for a different bill. This bill simply makes one important improvement in our definition of ``accredited investor.''

It is critical for the SEC to revise and update the accredited investor definition to protect those who don't possess the proper knowledge or information about the risks of private unregistered securities. Mr. Hill's bill moves us in the right direction by indicating that certain credentials, such as someone with a master's in business administration, an MBA, or a FINRA certification, for example, should be deemed accredited without needing to meet income or wealth requirements. It also reconfirms Congress' mandate to the SEC that it must adjust the wealth and income thresholds to account for inflation. This is the right balance.

I look forward to passing this bill, and I look forward to our subcommittee and the full committee making other changes in the definition of ``accredited investor.''

Mr. Speaker, I urge my colleagues to support this bill, and I reserve the balance of my time.

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Mr. SHERMAN. Mr. Speaker, I have no speakers on my side, and I yield myself the balance of my time.

Mr. Speaker, I rise in support of Chairman Hill's bill, H.R. 3394. This bill will improve the definition of ``accredited investor.''

Mr. Speaker, I urge a ``yes'' vote, and I yield back the balance of my time.

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