SEC proposes up to 20% RIA performance fees and looser interval-fund redemptions

The Securities and Exchange Commission proposed a set of changes Wednesday meant to widen individual investors' access to private markets, and two of them land directly on registered investment advisers: a fee of up to 20% based on a fund's performance, and more flexible redemption terms for interval funds. A third would add certified public accountants and chartered financial analysts to the licences that can qualify an individual as an accredited investor. The agency will take public comment on each proposal for 60 days.

The performance-fee measure, which the agency approved Wednesday, would let an adviser charge as much as 20% tied to a fund's performance. The agency said that if finalized, it would bring the fee structures closer to the traditional arrangement some hedge funds use, with the aim of incentivizing managers who normally would not want to work with retail investors.

"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.

The accredited-investor proposal works on eligibility rather than fees. That label helps determine who may invest in certain riskier assets, and it generally requires a net worth above $1 million, excluding a primary residence, or income above $200,000 for an individual and $300,000 for partners. Recognizing CPA and CFA credentials would shift part of the test from a balance sheet to a professional designation, and the move marks the second time under President Donald Trump that the SEC has acted to expand the definition, after some restrictions were eased in his first term.

The interval-fund plan is narrower and more mechanical. Interval funds typically let investors redeem shares at set periods, which is what makes them less liquid than open-end mutual funds. Brian Daly, who directs the SEC's Division of Investment Management, said the funds have "tremendous utility" but that the prescriptiveness of their existing structure is restricting their use.

For an adviser whose client money already sits in interval funds, the redemption proposal carries the most immediate operational weight. The redemption calendar is the part of such a position that clients ask about, and more room to manage flows could make it easier to hold inside a model portfolio; it could equally change the schedule an adviser puts in front of a client who wants to know when the money comes back. The proposal as reported does not settle which way that cuts, and commenters have 60 days to make their case.

The performance-fee provision reaches a different part of the business. An adviser whose vehicle charges on performance is paid on results rather than on assets alone, and a fee worth as much as a fifth of a fund's gain is a harder number to walk a client through than a basis-point line on a statement. The agency's stated purpose is to align incentives, so that managers who would otherwise steer clear of retail money have a reason to take it.

For client acquisition, the credential change is probably the broadest of the three. An individual who holds a CPA or a chartered financial analyst designation would qualify without waiting for net worth to cross $1 million, which widens the population an adviser can bring into a private placement.

Taken together, the proposals move several boundaries at once. The performance-fee change removes a fee-structure objection a manager might raise about working with retail money, the accredited-investor change widens the pool of people who can be sold a private placement, and the interval-fund change loosens the terms on vehicles that are less liquid to begin with.

All three sit inside the Trump administration's broader push to break down the barriers that have kept private markets off-limits to the average individual investor. Officials have already taken steps this year, including a proposal that could make it easier for retirement savings plans to include private credit and private equity. That earlier item and this week's package point the same way, which matters for advisers who serve plan sponsors and individual clients out of the same office.

Proponents of that direction argue the moves let mom-and-pop investors reach higher-yield products that have mostly only been offered to pension funds.

None of the three measures is final. Each is out for comment for 60 days, and for an adviser with client money in an interval fund, the redemption language is the first of the three worth reading closely.