A $100 Exam Could Open Private Funds to Non-Wealthy Investors

What's New

Passing a single FINRA exam could make an individual an accredited investor, with no income or net worth test. The SEC set out the plan in a notice and request for comment issued September 30. The exam would take about 2 hours. FINRA expects a fee similar to the SIE exam, currently $100. Status would last 10 years before a retake. Distributors of private funds should prepare to verify exam holders through the lookup FINRA plans to build.

Why It Matters

Today, most individuals qualify as accredited investors on income or net worth. The exam moves part of that gate to demonstrated knowledge. Advisers selling private funds through wealth channels gain a larger eligible pool. The view that wealth is the only reliable proxy for sophistication loses ground. The SEC says it has seen no investor protection problems since it began accepting professional licenses in 2020.

By The Numbers

• About 75: multiple-choice questions, delivered in person and in English only.

• 20 to 28%: weighting of the investment risks section, the largest on the exam.

• 95%: share of U.S. test-takers FINRA expects to live near an in-person test center.

• About $400 billion: raised in Regulation D offerings outside pooled funds over the latest annual period the SEC measured.

What Changes

• Comments are due 60 days after the notice appears in the Federal Register.

• Issuers using Rule 506(c) would confirm status through a FINRA verification process. It would show each holder's pass date and expiration.

• Status lapses without a retake, so subscription documents need an expiration check.

• Candidates who fail 3 times within two years face a waiting period. That wait is 180 days.

• The SEC cannot estimate how many people will pass. Issuers should not plan capital raises around a new investor pool yet.

The Wrap

Accreditation by knowledge would widen the buyer base for private funds without changing the products themselves. The plan works if FINRA sets a passing standard that screens for real comprehension. Verification also has to be fast enough for subscription workflows. It does little if few investors take an in-person exam whose only payoff is access. The comment period closes about two months after publication.