A fresh legal challenge is taking aim at one of the most entrenched — and controversial — rules in securities law: the Securities and Exchange Commission’s accredited investor standard.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas, argues that the SEC’s wealth- and income-based requirements for accredited investor status are “arbitrary and capricious” under the Administrative Procedure Act. At the heart of the complaint is a claim that the rule unfairly uses personal wealth as a proxy for financial sophistication, while excluding capable, knowledgeable professionals from accessing private market opportunities.
For wealth advisors and RIAs, the case highlights a pivotal issue: who gets to participate in alternative investments, and on what terms. The outcome could reshape the way clients — especially those on the cusp of accredited status — gain access to private funds, venture capital, and other high-growth vehicles.
The Case and Its Players
The lawsuit was filed by The Investor Choice Advocates Network (ICAN), a nonprofit public interest law firm led by Nicolas Morgan, a former senior trial counsel at the SEC and longtime industry commentator. ICAN is representing Emily Kapszukiewicz, CEO of Owl Therapy, a healthcare startup. Kapszukiewicz holds a master’s degree in applied economics, manages multimillion-dollar budgets, and earns roughly $195,000 annually. She also has a net worth of about $850,000.
Despite her professional background and experience, she does not meet the SEC’s definition of an accredited investor. Under current rules, individuals must earn over $200,000 annually for the past two years (or $300,000 jointly with a spouse) or hold a net worth of at least $1 million, excluding their primary residence.
Kapszukiewicz wanted to invest between $25,000 and $35,000 into Healthcare Shares Fund, a public benefit corporation focused on financing medical innovation. But after going through third-party accredited investor verification providers AngelList and Verify Investor, she was told she did not qualify.
The irony, as Morgan notes, is clear: “Emily is qualified to serve as the CEO of a healthcare company, yet she’s barred from investing in the very fund she believes in. The SEC has been warned for years that this rule widens the wealth gap and blocks capital from reaching entrepreneurs who need it most. Policymakers have discussed reform, but meaningful change hasn’t materialized. This lawsuit is the next, and most powerful, step.”
Why Advisors Should Pay Attention
For RIAs, the accredited investor rule has long been both a gatekeeper and a headache. It determines which clients can access a range of alternative investments — hedge funds, private equity, venture capital, and direct placements — while shutting out those who fall below arbitrary thresholds.
The rule was originally designed to protect less sophisticated investors from risks associated with private offerings. Yet critics argue that wealth and income are poor measures of financial literacy or investment acumen. Many clients with advanced degrees, professional certifications, or deep business experience remain locked out, while some wealthy individuals with little financial knowledge are given a free pass.
This creates a two-tiered investment world. On one side, accredited clients gain access to high-growth, illiquid opportunities that can diversify portfolios and boost long-term returns. On the other, non-accredited clients are restricted to public markets, mutual funds, and ETFs, even when they demonstrate the skill and willingness to take on private market risk.
Advisors working with emerging professionals, entrepreneurs, or clients in transition (for example, those building wealth but not yet at the million-dollar mark) often encounter frustration. These clients may be ideal candidates for exposure to alternatives but remain excluded by SEC definitions.
A Push for Reform
The lawsuit isn’t happening in a vacuum. Momentum has been building in Washington to revisit the accredited investor standard. Two bills recently passed the House:
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H.R. 3394, the Professional Experts Act — which would expand eligibility to include individuals with relevant professional credentials or demonstrable investment experience, not just high income or net worth.
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H.R. 3339, the Equal Opportunity for All Investors Act of 2025 — which would allow individuals to qualify by passing an SEC-developed knowledge exam administered by FINRA.
Both bills reflect growing recognition that the wealth-based standard is outdated. For advisors, these potential reforms could open alternative markets to a broader client base, creating new planning opportunities.
Imagine being able to guide a physician, a business owner, or a CFA charterholder who doesn’t yet meet income or net worth thresholds but clearly has the sophistication to evaluate private investments. Advisors could help these clients pursue diversification strategies previously off-limits, aligning portfolios more closely with their goals and risk tolerances.
Implications for Capital Formation
Beyond the advisor-client dynamic, there’s a broader capital formation issue at play. By limiting who can invest in private funds, the SEC effectively constrains the pool of available capital for startups, growth-stage companies, and funds tackling innovation — particularly in sectors like healthcare, where the need for funding is immense.
Kapszukiewicz’s case illustrates this perfectly. As CEO of a healthcare company, she sought to invest her own money in Healthcare Shares Fund, which supports medical research and innovation. Yet she was barred from doing so because she fell short of the accredited thresholds. The lawsuit underscores the paradox: capable leaders who drive innovation are often unable to support similar ventures financially.
For advisors, this capital bottleneck matters. The more difficult it is for entrepreneurs and innovators to raise capital, the fewer opportunities flow back to clients in the form of private offerings. A rule change that widens investor participation could expand deal flow and opportunity sets for accredited and near-accredited clients alike.
The Legal Path Forward
The lawsuit’s claim of arbitrariness centers on the Administrative Procedure Act, which requires that agency rules have a rational basis. By equating wealth with sophistication, the plaintiffs argue, the SEC fails to justify the correlation and effectively discriminates against individuals who may have equal or greater ability to understand complex investments.
If the courts side with ICAN and Kapszukiewicz, the SEC could be forced to revisit and potentially revise the accredited investor definition. This would mark a significant shift in regulatory thinking and could accelerate legislative efforts already underway.
For advisors, any such change would have direct, practical consequences. It would expand the universe of eligible clients for alternative investments, requiring firms to update compliance protocols, marketing materials, and suitability assessments. At the same time, it could place greater responsibility on advisors to evaluate whether newly eligible investors truly understand the risks involved.
A Balancing Act: Protection vs. Access
At its core, the accredited investor debate is about striking the right balance between investor protection and investor access.
The SEC has historically leaned heavily toward protection, erring on the side of exclusion to prevent retail investors from being harmed by opaque, illiquid, and risky private investments. But as public markets become increasingly concentrated in large-cap tech firms and private markets account for a growing share of innovation, the cost of exclusion rises.
Advisors know this tension well. Many have sophisticated clients who are locked out of private deals they could evaluate and afford. Others worry that broadening access could lead to mis-selling or increased risk exposure for clients who may be ill-prepared for the volatility and illiquidity of private investments.
The debate is not about whether risk exists — it does — but whether wealth is the right metric for determining who can bear that risk.
What Advisors Should Do Now
While the lawsuit and legislative efforts unfold, advisors should stay attuned to several key considerations:
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Client Conversations — Clients just shy of accredited thresholds may ask about these developments. Advisors can explain the current rules, the rationale behind them, and potential changes on the horizon.
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Pipeline Planning — If reforms expand the definition, advisors should be ready to integrate alternative investments into planning for newly eligible clients. This includes updating IPS documents, risk assessments, and product due diligence.
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Education First — Even if access widens, education will remain critical. Advisors must ensure clients understand liquidity constraints, valuation risks, and the long-term nature of private market commitments.
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Firm Readiness — Compliance and operations teams will need to adapt quickly if new pathways to accreditation emerge. Advisors should advocate for internal planning now, so firms are not caught flat-footed.
Looking Ahead
The accredited investor lawsuit may or may not succeed in court, but it has already intensified the conversation around who gets to invest in private markets. For RIAs, the stakes are high. A more inclusive definition could unlock opportunities for a wider swath of clients while expanding the advisory toolkit for portfolio construction and diversification.
At the same time, broader access comes with new responsibilities — ensuring that the clients who qualify truly understand the unique risks of private investments. Advisors will need to step into a more prominent role as educators and gatekeepers, balancing opportunity with prudence.
Ultimately, whether through the courts or Congress, the accredited investor standard appears headed for change. Advisors who monitor these developments closely, prepare their firms for transition, and engage clients in thoughtful conversations about access and risk will be best positioned to turn this regulatory shift into a competitive advantage.
For now, the lawsuit filed by ICAN and Kapszukiewicz stands as a direct challenge to decades of regulatory orthodoxy. If successful, it could open the door to a more modern, knowledge-based approach to private market access — one that recognizes sophistication not just by wealth, but by experience, expertise, and informed judgment.
For wealth advisors and RIAs, that shift could transform client conversations, portfolio strategies, and the role of alternatives in wealth management.
