SEC Proposes Broadening 'Accredited Investor' Definition to Widen Private Market Access

The U.S. Securities and Exchange Commission (SEC) on Wednesday proposed new regulations to expand the definition of an "accredited investor," a move that could grant hundreds of thousands of professionals access to private market investments currently limited to high-net-worth individuals.

Expanding the Criteria

The proposals, issued in five separate notices, would allow certain certified professionals to qualify for accredited investor status based on their expertise rather than their income or wealth. Currently, the status is largely restricted to individuals who meet specific financial thresholds or hold certain professional designations, such as being a broker-dealer.

Under the proposed changes, the following professionals could become eligible:

• Certified accountants
• Financial analysts
• Financial planners
• Licensed research analysts

This expansion could significantly increase the pool of investors eligible to participate in private capital markets, including private equity, private credit, real estate, and venture capital.

Rationale and Market Impact

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SEC Chair Paul Atkins framed the proposal as a matter of equitable market access. "Exposure to the full dynamism of our markets should not be reserved for the wealthiest or for those who are deemed to be the most sophisticated," Atkins said at a public meeting, according to the SEC.

The regulator also proposed changes to how investment advisers can charge performance fees. If adopted, asset managers would have greater flexibility to charge fees based on capital gains, which officials believe would encourage them to offer retail investors more access to funds holding private assets.

Investor Protection Concerns

While acknowledging the inherent risks of private investments, Chair Atkins stated that "the mere presence of investment risk is not grounds to exclude individual investors in perpetuity." However, critics have raised concerns about the move.

Concerns center on whether newly eligible investors will fully understand the risks associated with private assets. These investments are often illiquid, meaning they cannot be quickly converted to cash, can be difficult to value accurately, and may carry complex fee structures unfamiliar to those accustomed to public markets.