Accreditation test - good or bad?
A look at whether the proposed law benefits LPs
Happy Friday friends!
In case you missed it, there’s potential for a big change soon around investor accreditation. Among other things, the Equal Opportunity for All Investors Act of 2025 aims to allow investors to become accredited through a test. This change has already passed the House, meaning it now needs Senate and Executive branch approval.
The question I’d like to address today is a somewhat controversial one - is broadening the accreditation mandate actually a net positive outcome? This means you have to reserve your opinions until you read my entire article (by extension this also means that if nobody gets to the end there will be no opinions 😉).
There are numerous ways of becoming an accredited investor today, but the most common paths for individuals are:
Annual income of at least $200,000 individually or $300,000 jointly for the past two years, with an expectation of similar income this year
Net worth over $1 million excluding the primary residence
This means that any individual (with some exceptions such as having professional licenses that give you exceptions) that doesn’t meet the two criteria above cannot currently invest in broadly marketed investments (also called 506c).
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That, of course, is now subject to change per the accreditation reform for LPs. If the bill passes, those who do not currently pass the accreditation test will be able to “test in.”
Let’s dive into the main benefits and drawbacks that I see.
The 5 benefits of this legislation that I can think of:
Freedom - this is a broader topic and perhaps an article itself, but the relative argument here is “if someone can drop their entire retirement into a fake crypto coin (there’s another name for them but I’ll spare you) and lose all their money in seconds why can’t the same person invest in alternative investments”
If you enjoy the intersection of my writing, alternative investments, and rants feel free to read more on this topic here
Merit-based inclusion - smart, experienced individuals without high income or net worth could now participate - giving them a fairer chance to invest alongside incumbent LPs
Improved financial literacy - the test will definitely encourage people to learn key concepts like liquidity risk, capital stacks, and promote structures - helping raise the baseline understanding of the average investor
