SEC Proposes to Expand Access for Individual Investors to Private Equity, Early-Stage Startups, and Other Alternative Assets
On Wednesday, the U.S. Securities and Exchange Commission (SEC) proposed a package of rules aimed at expanding access for individual investors to private equity, early-stage startups, and other alternative assets, while also revising advisor fees and the definition of accredited investors.
A proposal that has already been approved by the Commission for public comment allows registered investment advisors to charge a performance fee of up to 20% based on fund performance. If finalized, this fee structure would be closer to the "management fee plus 20% incentive" model used by some hedge funds, aimed at attracting private fund managers who are currently reluctant to serve retail investors. Current rules generally only allow performance fees to be charged to "qualified clients," with the threshold previously raised to about $1.4 million in assets under management or $2.7 million in net worth.
Chairman Paul Atkins referred to this direction as "responsible retailization," stating that the full momentum of public and private markets should not be reserved solely for wealthy insiders, while also addressing fraud and misconduct. The agenda also includes revising the rules for interval funds that periodically repurchase shares at net asset value, facilitating registered closed-end funds to provide retail investors with private market exposure. The proposal touches on the Investment Advisers Act of 1940 and the Investment Company Act, and is classified as a rule of economic significance.
The Commission also plans to issue five notices of intent regarding the expansion of the "accredited investor" definition: individuals who pass an exam developed by FINRA, hold a U.S. CPA license, have a Chartered Financial Analyst designation, are Certified Financial Planner professionals, or hold FINRA investment banking representative or research analyst licenses may qualify. This adds a pathway beyond the already recognized licenses for general securities representatives, private placement representatives, and investment advisor representatives, moving away from solely considering an annual income of about $200,000 or net worth of about $1 million.
According to regulatory compilation data, the private market is projected to reach approximately $30 trillion in total assets by the end of 2025. Critics argue that this move favors Wall Street fundraising, pushing illiquid, subjectively valued, and poorly disclosed assets onto ordinary accounts. Currently, there are no Democratic members among the three commissioners. The rules still need to undergo public comment before a vote and have not yet become final regulations.
Buyers include private equity, venture capital, and alternative managers lacking retail funding pools, as well as registered advisors able to charge a 20% performance fee; sellers are individuals blocked by wealth thresholds but holding licenses or able to qualify through exams. If implemented, funds will shift from public equities and mutual funds into interval funds and registered closed-end products, indirectly entering unlisted equity. Beneficiaries will be private institutions needing long-term locked-in capital, while pressured parties will be retail investors accustomed to daily redemption and small listed companies relying on public offerings for pricing. This event is driven by regulatory agendas, not just individual fund issuances.
The Department of Labor is also discussing a safe harbor for fiduciary duties regarding alternative asset allocations in 401(k) plans, and related legislation passed by the House requires the establishment of free qualification exams within a year. The SEC is simultaneously advancing three gates: advisor incentives, fund structures, and identity verification.
Source: Public Information
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Paul Atkins has redefined "freedom and fairness" as a regulatory slogan, taking a path contrary to the previous round of strengthening private advisor quarterly reports and fee disclosures: instead of first increasing transparency obligations, the focus is now on who can enter and how advisors share fees. He has called for discussions between the corporate finance department and FINRA on qualification exams, and after the March capital formation forum, he has downgraded wealth thresholds as arbitrary standards. This aligns with his public stance against locking high-growth private companies to insiders, and connects with administrative directives to evaluate the definitions of accredited investors and qualified purchasers.
The core of capital mobilization is not fiscal allocations, but the opening of a 20% performance fee, transforming retail funds into assets that private managers are willing to serve. Money will flow through registered advisors and interval funds, registered closed-end funds, rather than allowing retail investors to directly sign subscription agreements. Managers will have incentives similar to hedge funds, motivating them to package private equity and early-stage companies into regulated products. The misalignment between the qualified client threshold and the accredited investor threshold has long existed: some may qualify to buy 3(c)(1) funds but not qualify to be charged performance fees. This move lowers the incentive threshold in exchange for managers entering retail channels.
This is analogous to the 2012 JOBS Act, which relaxed private placement advertising, the 2020 inclusion of certain license holders as accredited investors, and recent eliminations of the 15% private placement limit for registered closed-end funds. Blackstone, KKR, and Carlyle have tested retail alternatives through interval funds and registered products, but lack the ability to charge contingent equity-style compensation to a broader client base. The industry is in a period of expansion from institutional closed pools to retail packaged pools, with control mechanisms shifting to licenses, exams, and registered fund intermediaries, rather than continuing to increase net asset figures.
The essence is a transfer of pricing power. As private companies go public later, public investors have less access to growth, and the pricing power of the IPO itself is taken away by private rounds. If regulation only maintains wealth thresholds, growth pricing will remain with institutions; if licenses and exams replace wealth, some pricing power returns to retail channels that can be packaged, but valuation methods and redemption restrictions will still be controlled by managers. The mechanism is that the $30 trillion private market stock has already surpassed many public market segments; without opening retail access, advisors have no incentive to share fees, and once opened, liquidity mismatches and subjective valuations will transfer from institutional accounts to ordinary accounts. The rules need to address the source of funds, not turn private markets into public ones.
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- The threshold shifts from wealth to licenses, but risks do not disappear.
- Once the fee-sharing opens, managers will serve retail investors.
- The later a company goes public, the more public markets are left with residual value.