SEC proposes 20% performance fees for RIAs and a wider accredited-investor test

A registered investment adviser could charge a fee of as much as 20% based on a fund's performance under a proposal the Securities and Exchange Commission approved Wednesday, the arrangement the agency says hedge funds use to draw managers who would otherwise stay away from retail investors.

The performance fee was one of three proposals the commission advanced, alongside a second that would add certified public accountants and chartered financial analysts to the licenses that can qualify an individual as an accredited investor and a third that would give interval funds more flexibility around redemptions, with public comment running 60 days on each.

"One of my priorities for the commission is to explore ways to facilitate the ability of individual investors to participate in private markets while at the same time protecting those investors from bad actors and fraud," Chairman Paul Atkins said during the meeting.

Atkins's framing puts the fee ceiling on the supply side: twenty percent is the arrangement the agency says managers want before they will take individual investors' money, which makes the number as much a recruiting pitch to funds as a price list for advisers. The fee in question is the adviser's own, so for a practice that bills on assets the proposal introduces a second compensation logic alongside the first: a share of how a private sleeve performs, which cuts both ways in a down year and requires a disclosure that says so.

For a practice, the useful part of the fee proposal is narrower than the headline. It establishes that performance-based pricing is available for an illiquid sleeve, and it gives the adviser who recommends one a regulatory reference point when a client asks why the private allocation costs more than the index fund sitting beside it. The two other proposals reach further into the daily mechanics of a practice, and the accreditation change is the one a firm can act on before any rule is written.

The accredited-investor definition generally turns on a net worth above $1 million excluding a primary residence, or income over $200,000 for an individual and $300,000 for partners, so adding professional licenses to that list would let an adviser answer the eligibility question with a credential rather than a tax return. It is the second time under President Donald Trump that the SEC has moved to expand the definition, after easing some restrictions during his first term, so the direction has been consistent even if the specific licenses are new.

A CPA or a CFA in the client file is faster to verify than a balance sheet and easier to raise in a first meeting than a question about someone's income — which is roughly the point in the conversation where an alternatives discussion either begins or dies. The accredited-investor exam turns private-market access into a credential race, and advisers who do not pre-qualify clients lose the first alts conversation. A definition built on licenses shortens the runway to that conversation, and the work of identifying who qualifies does not have to wait for the comment period to end, because the designations the commission named are already in circulation.

Interval funds typically let investors redeem their shares at set periods and are less liquid than open-end mutual funds, and Brian Daly, who directs the SEC's Division of Investment Management, said the vehicles have "tremendous utility" but that the prescriptiveness of their existing structure is restricting their use. Redemption terms are what separate an interval fund from a vehicle that locks capital away for years, and any loosening of the schedule changes the liquidity paragraph in the material a client signs.

The three proposals sit inside a broader push that has already seen officials take steps this year toward opening private-market access, including a proposal that could make it easier for retirement savings plans to include private credit and private equity. Proponents say the moves would let individual investors reach higher-yield products that have mostly been offered only to pension funds and high-net-worth individuals, and the packaging aimed at those investors is arriving ahead of the rules: the WealthManagement.com page carrying the Bloomberg report on the SEC package lists a related item on Raymond James launching public/private model portfolios for high-net-worth clients.

Selling the sleeve is the easy half, because alts in a client portfolio are a document problem before they are a performance problem — subscription agreements, capital notices, valuation memos, and the question of who checks the machine that reads them. The operational plumbing for alts came into the adviser's spotlight with Bloomberg's Canoe deal, and none of the three proposals shrinks that workload; widening who can buy private funds and loosening interval-fund redemptions adds accounts to process, not fewer.

Sixty days of comment separate the proposals from any rule, and the fee ceiling is the piece likeliest to change in that window. The credential route is the one a practice can use before the period ends, because the licenses the commission named already exist on client files and staff bios, and working out which ones carry an accreditation is an exercise that costs a firm nothing and does not depend on how the comment period closes.