SEC to Propose Rules Opening Private Assets to Retail Investors

The US Securities and Exchange Commission will propose rules on Wednesday aimed at expanding retail investors' access to private assets that have traditionally been reserved for professionals, potentially offering higher returns while exposing everyday Americans to more risk.

The three-member commission, which currently has no Democratic commissioners, will consider the proposals at a public meeting set for 10 a.m. EDT (1400 GMT), according to a public notice. The changes form part of a broader push by President Donald Trump's administration to "democratize" private assets such as private equity, private credit, real estate and venture capital — assets that can potentially deliver higher returns than traditional stock and bond portfolios.

SEC Chair Paul Atkins, in remarks earlier this year, said the agency aimed to pursue such changes while preserving investor protections in what he called "responsible retailization," so that access to higher returns isn't limited to wealthy insiders.

Wednesday's agenda covers three fronts. The commission is set to propose changes to so-called performance fees for investment advisers and to share redemption rules at "closed-end" funds. It will also vote on issuing notices that it is considering allowing more people to qualify as "accredited investors," a designation that unlocks access to a broader range of private assets.

Performance fee liberalization

The SEC is expected to give asset managers more freedom to charge performance fees based on their clients' capital gains. SEC officials say the change would encourage advisers to offer retail investors access to funds holding private assets where compensation is structured this way. Currently, investment advisers can only charge performance fees to "qualified" clients whose net worth or portfolio assets surpass certain thresholds.

Several financial advisers told Reuters the changes could create a perverse incentive to expose clients to greater risk.

"An adviser paid a share of gains has a reason to reach for risk, so I'd want strong valuation policies and informed client consent," said Jeff Judge of Chesapeake Financial Planners.

Critics of the broader effort say it serves Wall Street at the expense of retail investors who may not understand the fees involved or the risks of such assets — which are often hard to price and cannot be immediately redeemed for cash.

Closed-end fund redemption rules

A second proposal would modify rules governing when closed-end funds — investment companies that raise fixed amounts of capital — can redeem investor shares and what classes of shares they can offer. The SEC has not yet disclosed the details of the proposal.

A regulatory advisory committee said last year that such moves would give retail investors better access to private assets.

Redefining accredited investors

The commission is also due to issue a notice that it is considering whether to designate certain certifications and credentials as qualifying individual investors to be accredited investors. Currently, investors meet that definition through wealth and income tests, or by being themselves licensed as broker-dealers or investment advisers, among other ways.

Analysts' views differ on the extent to which private investments typically outperform the stock market — a point likely to feature heavily in the debate ahead.

Any changes would be subject to public notice and comment before the SEC decides whether to adopt them, meaning the outcome for retail investors and asset managers will hinge on a comment process that has only just begun.