SEC Considers Expanding Retail Access to Private Markets
From the desk of Jim Eccleston at Eccleston Law
The Securities and Exchange Commission (SEC) is considering a proposal that could expand retail investors' access to private markets and allow investment advisers to charge performance fees to a broader group of clients.
According to AdvisorHub, the SEC's proposed rule has reached the White House Office of Management and Budget for review, according to the agency. The proposal would amend the Investment Advisers Act of 1940 and the Investment Company Act of 1940 by modernizing the framework governing performance fees and allowing retail investors to gain private-market exposure through registered funds.
AdvisorHub reports that the SEC has not yet released details of the proposal. The agency said that access to the full range of public and private markets should not remain limited to wealthy investors.
Investment advisers currently may charge performance fees only to clients who meet the definition of a qualified client.
Private markets historically have attracted institutional investors and wealthy individuals. Those investors generally have greater resources and financial knowledge to evaluate private investments. AdvisorHub reports that SEC Chairman Paul Atkins has repeatedly criticized restrictions that prevent most retail investors from investing in fast-growing companies that raise capital through private markets. At an SEC event in March, Atkins described broader access as a matter of "freedom and fairness."
On the other hand, private investments present investor protection concerns. Unlike public-market investments, privately offered securities generally provide fewer disclosures, which can make them more difficult to evaluate and to value.
The SEC's proposal remains subject to the federal rulemaking process. After the White House completes its review, the Commission is expected to release the proposal for public comment. The SEC would then consider those comments before adopting a final rule, which would require another Commission vote.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, sec regulations, private markets, retail investors, investment advisers, performance fees
