INVEST Act: Potential Implications for Financial Services

On December 11, 2025, the US House of Representatives passed the Incentivizing New Ventures and Economic Strength Through Capital Formation Act of 2025, otherwise known as the INVEST Act, a bipartisan bill aimed at updating US securities laws to expand investment opportunities, support small businesses, and strengthen public markets in order to promote growth and competitiveness.

The INVEST Act (or the Act) passed in the House of Representatives (H.R. 3383) on a vote of 302-123 and now awaits further consideration and potential amendment in the Senate, where prioritization and a possible timeline to enactment remain unclear. While this bill is only in nascent form (and could very well never be enacted), the themes laid out in the bill provide useful insight into areas of potential future legislative focus that could substantially affect the financial services industry.

Set forth below is a summary of the potential impact of the INVEST Act.

CODIFICATION AND EXPANSION OF ‘ACCREDITED INVESTOR’ DEFINITION

Section 201 of the Act would amend Section 2(a)(15) of the Securities Act of 1933, as amended (the Securities Act), by codifying the following parts of the definition of “accredited investor,” which currently is defined by the US Securities Exchange Commission in Rule 501(a) of Regulation D under the Securities Act:

• The Net Worth–Based Standard. This qualifying standard is currently set forth in Rule 501(a)(5) and qualifies natural persons whose individual or joint net worth exceeds $1 million at the time of the applicable transaction (excluding the value of the individual’s primary residence).
• The Income-Based Standard. This qualifying standard is currently set forth in Rule 501(a)(6) and qualifies natural persons with individual income in excess of $200,000, or $300,000 jointly with a spouse or spousal equivalent, in each of the two most recent years, provided that there is a reasonable expectation of attaining the same income level in the current year.
• Broker-Dealers and Investment Advisers. This qualifying standard is currently set forth in Rule 501(a)(1) and qualifies certain licensed or registered brokers and investment advisers in good standing.
• Certain Professionals. This qualifying standard is currently set forth in Rule 501(a)(10) and authorizes the SEC to designate individuals as “accredited investors” based on education or job experience evidencing professional investment knowledge, provided that such individual’s education or job experience is verified by a self-regulatory organization.

Further, the INVEST Act would require the SEC to make inflation adjustments (to the nearest $10,000) to the net worth– and income-based standards every five years and obligate the Commission to amend Regulation D to conform to these changes within 180 days of enactment. The SEC has historically considered but declined to make such inflation adjustments.[1]

Section 203 of the INVEST Act would also establish a new competency-based pathway for an individual to qualify as an “accredited investor.” If enacted in its current form, the Act would require the SEC, within one year, to revise the definition of an “accredited investor” to include individuals who are certified through an SEC-established examination, which would be offered free of charge. In its 2020 expansion of the “accredited investor” definition, the SEC requested public comment on creating such an examination, but did not include this in the final rule.[2]

The examination would be administered by a registered national securities association and assess the financial sophistication and knowledge of key investment concepts of examinees. The Act does not currently require such exam to be retaken on any cadence to maintain qualification as an “accredited investor.”

If enacted, these changes would expand the universe of “accredited investors” and enlarge the number of prospective investors for privately offered securities, including interests of certain private funds. As a practical matter, private fund sponsors and other issuers making continuous or periodic offerings should carefully monitor these potential changes of law and consider corresponding revisions to offering documents and related subscription materials.

EXEMPTION FROM ‘INVESTMENT COMPANY’ STATUS FOR 403(B) PLANS

As drafted, the INVEST Act would expand opportunities for investment of retirement assets by 403(b) plans, including those adopted by employees of public schools, nonprofit organizations, and certain religious institutions.

Specifically, Section 202 of the INVEST Act would amend Section 3(c)(11) of the Investment Company Act of 1940, as amended (the 1940 Act), and make conforming changes to the Securities Act and the Securities Exchange Act of 1934, as amended, to expressly exclude from the definition of “investment company” custodial accounts, separate accounts, and collective trust funds holding assets related to certain retirement plans that rely on Section 403(b)(7) of the Internal Revenue Code of 1986, as amended, for their tax-exempt status.

If enacted, these changes would, for instance, broadly allow plan sponsors at public schools and certain tax-exempt organizations (i.e., charities, nonprofits, churches, hospitals) that have adopted 403(b) plans to allow their plan to invest in collective investment trusts (CITs), instead of being restricted to investments in annuities and mutual funds.

The change would align 403(b) plans more closely with private-sector 401(k) plans, offer a broader range of participants in 403(b) plans more flexibility in their investment strategies, and facilitate greater diversification of their assets. Put another way, the proposed amendments to Section 3(c)(11) of the 1940 Act would expand the universe of potential investors in bank-maintained CITs to include 403(b) plans.

CHANGES TO THE INTERSECTION OF PRIVATE FUNDS WITH REGISTERED CLOSED-END FUNDS AND BDCS

Section 206 of the Act would make certain enhancements for registered closed-end funds and business development companies (BDCs).

Specifically, the Act would amend Section 5 of the 1940 Act to authorize closed-end funds, including those that have elected to be treated as BDCs pursuant to Section 54 of the 1940 Act, to invest some or all of their assets in private funds and limit SEC authority to prohibit or impose conditions on such investments, the offer or sale of securities issued by such closed-end funds, or the listing of securities in such closed-end funds on national exchanges, except where restrictions are unrelated to the underlying private fund characteristics.

This provision would further liberalize development of closed-end funds, including those that have elected to be treated as BDCs, that invest substantially in private funds, following the recent withdrawal of a longtime SEC staff position that required registered funds that invest more than 15% of their assets in private funds to restrict sales of shares to investors who are accredited investors and impose investment minimums. These proposed amendments to the 1940 Act would effectively prohibit the SEC and its staff from reapplying their long-held position or similar restrictive positions in the future.

Also, the INVEST Act would protect listed closed-end funds from activist hedge funds by expanding the application of the 1940 Act’s anti-pyramiding framework. Specifically, the Act would amend Sections 3(c)(1) and 3(c)(7) of the 1940 Act to treat such private funds as “investment companies” for purposes of Section 12(d)(1)(C) of the 1940 Act, which would make it unlawful for any hedge fund or other private fund (or any company such a fund controls) to acquire the shares of a registered closed-end fund if, after such acquisition, the private fund, other private funds with the same fund manager, and any companies they control would own more than 10% of the register closed-end fund’s total outstanding voting shares.

Currently, private funds are treated as “investment companies” solely for purposes of Section 12(d)(1)(A)(i) and 12(d)(1)(B)(i) of the 1940 Act, which functionally prohibits a single private fund from acquiring more than 3% of the outstanding voting stock of any registered fund (open-end or closed-end), but those sections do not aggregate ownership across a group of affiliated private funds. As a result, activist hedge funds have been able to obtain controlling positions in listed closed-end funds by acquiring up to 3% of such fund’s shares in multiple affiliated vehicles.

In contrast, Section 12(d)(1)(C) does have an aggregating principle, but Sections 3(c)(1) and 3(c)(7) do not currently treat private funds as “investment companies” for purposes of Section 12(d)(1)(C). The intent of this provision—which has been sought after by the registered fund industry for some time—is to protect listed registered closed-end funds and their shareholders from activist hedge funds. Further, because Section 12(d)(1)(C) only applies to closed-end funds, the proposed amendments would not affect current limitations on private fund investments in mutual funds or ETFs.

BROADER EXEMPTIONS FOR VENTURE CAPITAL FUNDS AND MANAGERS

Section 108 of the Act would broaden the exemption for qualifying venture capital funds set forth in Section 3(c)(1) of the 1940 Act by increasing the permissible number of beneficial owners from 250 to 500 and raising the aggregate offering limit from $10 million to $50 million. Effectively, this would permit venture capital fund managers to raise larger funds without having to limit fund investors to qualified purchaser investors in accordance with Section 3(c)(7) of the 1940 Act.

Section 109 of the Act would direct the SEC to revise, within 180 days of enactment, the definition of “qualifying investment” set forth in Rule 203(1)-1 under the Investment Advisers Act of 1940, as amended, which provides venture capital fund managers an exemption from registration as an investment adviser.

As contemplated by the Act, qualifying investments would be expanded to cover investments in other venture capital funds and interests in qualifying portfolio companies obtained through secondary transactions, subject to an overall cap under which no more than 49% of a venture capital fund’s assets may be invested in one or more venture capital funds or interests in qualifying portfolio companies acquired in a secondary acquisition. 

These changes would effectively broaden the universe of venture capital investment funds in the market as fund managers would have a wider universe of permissible investments, while the venture capital fund manager would remain exempt from SEC registration. If enacted, these changes likely would also increase the market for secondary transactions in qualifying portfolio companies as it would open the ability for venture capital funds to be purchasers.

ELECTRONIC DELIVERY OF REGULATORY DOCUMENTS

The INVEST Act would direct the SEC to propose rules to permit e-delivery of certain documents by issuers and certain market participants. Registered investment companies (e.g., mutual funds, ETFs), investment advisers, broker-dealers, BDCs, municipal securities dealers, government securities broker-dealers, and registered transfer agents would all be permitted to rely on e-delivery.

E-delivery would include email as well as posting documents online. The SEC would have to propose rules within 180 days and adopt final rules within one year, and would implement changes long-sought by funds industry.

Covered documents would include prospectuses and summary prospectuses, statements of additional information, shareholder reports, Rule 19a-1 notices (i.e., dividend notices), trade confirmations, account statements, proxy statements, Regulation S-P privacy notices, Regulation S-AM affiliate marketing notices, and other regulatory documents required to be delivered by covered entities.

The Act would also require the SEC’s rules to address the identification and remediation of delivery failures and notably would permit covered entities to rely on e-delivery in accordance with the statute if the SEC fails to adopt final rules within the prescribed timeframe, effectively giving the SEC an ultimatum to enact rules.

If enacted, these changes would result in substantial cost savings across the industry, including potentially millions of dollars annually in reduced printing and mailing expenses, and could enhance the readership of these materials.

EXPANSION OF WELL-KNOWN SEASONED ISSUER ELIGIBILITY

The Act would modify the criteria for determining when an issuer qualifies as a well-known seasoned issuer (WKSI), which facilitates significantly reduced securities registration burdens for such issuers. Under the Act, an issuer would be deemed a WKSI if the aggregate market value of its voting and nonvoting common equity held by nonaffiliates of the issuer is at least $400 million or if the issuer otherwise satisfies the existing WKSI requirements set forth under Section 230 of Rule 405 under the Securities Act.

The Act would also direct the SEC to publish, within 90 days after the end of each calendar year, information and statistics regarding WKSI determinations, including applications for WKSI status and withdrawals of such applications. Effectively, this change could increase the number of companies qualifying for automatic shelf registration, potentially heightening market activity and expanding investment opportunities for both institutional and retail investors.

ESTABLISHMENT OF A SENIOR INVESTOR TASKFORCE

Section 204 of the Act would establish a Senior Investor Task Force within the SEC, which would be focused on issues affecting investors over the age of 65. A new task force director position would be created, which would directly report to the SEC Chair. The task force would be staffed by current SEC staff or individuals from outside the SEC; however, such SEC staff would receive no additional compensation. The Act would require that the Task Force include staff from the SEC’s Division of Enforcement, Division of Examinations, and Office of Investor Education and Advocacy.[3]

Intriguingly, the Act would also require that the task force terminate 10 years after its establishment. With a substantial (and growing) population of aging investors, coupled with more sophisticated and difficult to detect means for fraudsters to conduct nefarious activities in the marketplace, the task force could be a positive instrument for investor protection and market integrity.

If the Act becomes law, it will be interesting to see how the task force comes to fruition and intersects with other sections and functions of the SEC and its staff, who are largely already tasked with investor protection and market integrity.

IMPLICATIONS AND HOW WE CAN HELP

While it is very early in the life of this bill, if passed by the Senate and signed by the president the Act could significantly affect the financial services industry by expanding access to traditionally institutional investment strategies to retail investors, reducing paper materials, and enhancing investor readership.

Existing regulatory exemptions would be expanded to cover 403(b) plans and their participants more broadly, and encourage more investments by venture capital funds. Notably, the net worth– and income-based tests under the definition of “accredited investor” have not changed since their introduction in 1982.

We are closely monitoring the progression of the INVEST Act through the legislative process and related responses from the SEC and other regulators. Our team regularly advises investment advisers, plan sponsors, fiduciaries, asset managers, and public companies with respect to maintaining compliance with complex regulations as they develop and we are well positioned to help clients assess potential implications for their existing policies and practices.

Please contact the authors or your regular Morgan Lewis contacts with any questions or to discuss how these changes may affect your organization.