An exam, not a net worth, could soon define a “sophisticated” investor
The SEC may let a FINRA exam, not income or assets, qualify retail investors for private markets.
By The Ledger · · 5 min read
The Securities and Exchange Commission voted on a package of rule changes on October 29, 2025, that would let retail investors reach private funds through new channels. One piece, still just a request for comment, would let an exam replace a net-worth test as proof an investor can handle the risk.
Right now, "accredited investor" status runs on money, not knowledge. A single person needs $200,000 in annual income or $1 million in net worth, excluding a primary home, to buy into hedge funds, private equity, and venture deals under Regulation D. The SEC's new proposal asks whether passing an exam built by FINRA, the industry's self-regulator, should count instead. No dollar figure required — just a passing score.
A retiree with a 401(k) and no exam score is the actual test case
Picture someone with $140,000 saved in a 401(k), two years from retirement, who has never owned anything but index funds and a mortgage. Under the current rule, that person cannot write a check into a venture fund even if they wanted to — their net worth falls short. Under the proposed exam pathway, if they study and pass a FINRA test on securities, valuation, and risk, they could. The dollar threshold disappears; the only gate is one afternoon in a testing center.
That is the actual shift being asked about: not "can retail money enter private markets" — a separate part of the same SEC package already answers yes, by letting performance-based fees extend to advisers of regulated funds, which makes those funds more willing to offer private strategies to ordinary retirement accounts. The exam question is narrower and more personal. It decides who, specifically, gets waved through the door.
The $200,000 line was drawn in 1982, not updated since
The accredited investor income and net-worth thresholds were set by SEC rule in 1982 and left untouched for more than three decades, even as the SEC's own 2015 staff report noted that if the thresholds had tracked inflation since 1982, they would exceed $900,000 in income and $5.4 million in net worth for an individual. Congress required the SEC to review the limits after Dodd-Frank in 2010, but the dollar figures themselves never moved. By 2024, SEC data showed roughly 19 million US households qualified as accredited investors by wealth alone — a pool that grew not because incomes jumped but because the bar stayed fixed while home equity and retirement balances rose around it.
The exam idea is not new, either. The SEC already added a narrow credentials path in 2020, letting holders of Series 7, 65, and 82 licenses — people who sell securities for a living — qualify as accredited investors without the wealth test. That 2020 change affected brokers and advisers, a few hundred thousand people already working inside the industry. What's under consideration now is a general-public exam with no employment requirement attached, which is a different scale of audience entirely: anyone willing to study for it.
Private funds have no obligation to tell you what you own
The catch is not the exam. It is what passing one actually proves. A FINRA test can measure whether someone can define a carried-interest fee or identify a liquidity lockup on a multiple-choice page. It cannot measure whether that person can absorb a private fund's basic structural fact: no daily price, no guaranteed exit, and reporting that comes quarterly at best, often with a lag of 45 to 90 days. Public companies file audited financials within 60 to 90 days of quarter-end under SEC rules; private funds answer to their limited partnership agreements, which vary fund to fund and are negotiated before retail investors are in the room. Veterans who put $8.7 million into a single fund promising 153% returns did not fail a knowledge test — the fund simply reported numbers that did not match its actual losses, and nothing in an accreditation exam would have surfaced that before the money moved. An exam checks vocabulary. It does not audit the fund on the other end of the wire transfer.
Who actually benefits if the exam path opens
The fund managers gain first and most directly. Expanding the accredited pool means a larger addressable market for products that already carry 2% management fees and 20% performance fees — the standard private-fund structure since the 1990s — without expanding the compliance obligations that come with public offerings. Retail investors gain access, which is the stated goal, and access to diversification that was previously closed to them is a real, defensible policy aim. But access and protection are not the same purchase. The SEC's own proposal keeps "appropriate investor protections" as a stated goal while loosening the gate that protections used to sit behind.
The 60-day comment window decides whether this becomes a rule at all
Nothing here is final. The SEC's public comment period runs 60 days from the proposing release's publication in the Federal Register, standard under the Administrative Procedure Act, and FINRA has not published a syllabus, a passing score, or a retest policy for any exam that might result. Investor advocacy groups, private fund managers, and state securities regulators will all file comments, and the SEC can revise or abandon the exam idea entirely based on what comes back. An exam built to industry specifications, administered by the industry's own regulator, is not automatically a weaker gate than a net-worth test — but it is a different one, and nobody has yet published what score counts as "sophisticated enough."
What does "accredited investor" actually unlock?
Access to hedge funds, private equity, venture capital, and other unregistered securities offerings exempt from standard SEC disclosure rules.
Does this rule change take effect immediately?
No — it is a proposal open for public comment for 60 days after Federal Register publication, with no enactment date set.
The question the SEC has not answered is who grades the exam's real-world performance once investors start using it — and who absorbs the loss if a passing score turns out to measure vocabulary, not judgment.