The House of Representatives passed the INVEST Act on December 11, 2025. The Act purports to protect investors but may increase investor vulnerability.
The Act weakens the accredited investor standard. A large portion of private investments require that investors be “accredited.” Currently, to be an accredited investor, an investor must have a certain level of income or net worth. This is to protect individuals with limited worth from these speculative investments. Private investments typically provide little financial transparency and cannot be easily sold if the investment underperforms.
In the place of the economic standard, the Act authorizes the creation of a competency-based exam. The Act directs FINRA, the Financial Industry Regulatory Authority, to create such an exam. Under this framework, brokers will now be able to recommend such speculative investments regardless of an investor’s financial ability to sustain losses.
A foreseeable problem is broker participation in the completion of the exams. Private investments generally pay brokers higher commissions than publicly traded securities. Brokers have, in prior cases, commonly completed, or falsified, account opening documents to allow trading in more lucrative investments. Investors could lose substantial portions of their savings if a broker assists in taking the exam or improperly advises an investor regarding the exam responses.
Recent Comments