SEC asks whether a CFP or CPA should count as an accredited investor

At a meeting that ranged across private-market fund rules, the SEC voted Wednesday to propose amendments it says will expand retail investor choice and encourage innovation in regulated fund structures, the agency's contribution to a wider federal push moving private-market strategies into products sold to ordinary investors. One proposal would widen the circumstances in which registered investment advisors may collect performance fees; the other overhauls the interval fund framework and makes it easier for closed-end funds to offer multiple share classes. The commission separately requested comment on widening the accredited investor definition itself, and that request asks the narrower, more consequential question for anyone who sells private placements: whether a credential should be enough.

Five new routes are under consideration: a U.S. CPA license, a CFA charter, a CFP certification, the FINRA Series 79 investment banking license, and the Series 86 and 87 research analyst licenses. The commission is also seeking comment on an accredited investor exam that FINRA would develop, which the agency frames as a non-financial way for an investor to demonstrate enough sophistication to judge a private investment. Only the fund amendments are formal proposals; the credential routes and the exam sit at the comment stage, a distinction that should govern how much is read into a Wednesday vote.

Today the label rests mostly on wealth: an individual generally must earn more than $200,000 a year, or $300,000 with a spouse, or hold a net worth above $1 million excluding a primary residence. The SEC has already designated the Series 7, Series 82 and Series 65 licenses as qualifying credentials, so the proposition that a professional exam can stand in for a balance sheet is settled practice at the agency. Five additional routes would take the credential door from three entries to as many as eight.

Those two tests measure different things, which is why the commission's willingness to treat them as substitutes is the part worth arguing about. A net worth threshold is a crude proxy for how much loss a household can absorb without changing its plans, while a CFP certification, a CFA charter, or a CPA license speaks to training and examination; neither speaks to whether the holder can sit through a write-down on an illiquid position, the property the wealth test was built to screen for.

Chairman Paul S. Atkins cast the change in terms of assessment rather than capacity, saying at the meeting that financial thresholds are "not the sole indicators of a person's ability to assess the merits and risks of an investment." The proposition is defensible on its own terms, and it implies a shift in what the definition is for, from shielding households that cannot afford a loss toward admitting individuals judged able to evaluate one. The population that passes a credential test and the population that passes a balance-sheet test overlap only partly, and the comment file is where the difference gets argued.

Atkins also tied the effort to President Trump's executive order opening 401(k)s to alternative assets, describing the commission's work as expanding opportunities for investors' "post-tax, pre-retirement dollars." That phrase names a population considerably wider than the households the income and net worth thresholds reach, and presumably a wider one than the interval fund overhaul was drafted around. With both routes open, the definition would sort by certification rather than account size.

Interval funds are where the two halves of Wednesday's agenda meet: the second proposal changes the rules governing liquidity within certain interval fund structures, and this publication has argued that private credit's liquidity gate is its real term sheet — what an investor owns is set by the redemption mechanics, not the coupon. The commission has now taken hold of the framework that writes those mechanics. Whether the liquidity provisions widen the gates or narrow them, the coverage does not say, and that is the largest open question in the package for anyone who holds one of these funds.

The performance fee proposal carries a related problem. On a liquid strategy, a performance fee is paid against a price the client can watch; on an illiquid one, it is paid against a valuation the manager produces. The commission has proposed to widen when advisors may charge the fee, and the coverage of the meeting describes no companion provision on valuation. That gap is where the next round of comments lands, because valuation is the point at which the two proposals touch the same client.

For advisors, the nearer change is the exam. If FINRA builds a sophistication test that does not run through a balance sheet, more clients who fail the wealth tests become eligible for private offerings, which, on InvestmentNews's account, means more suitability conversations in the meetings where those offerings are pitched. Suitability sits with the advisor, and the population it applies to would grow at the same moment the interval fund rulebook is rewritten underneath the products.

The policing side of the same boundary has been moving too: in August, this publication covered FINRA's request that the SEC double its fraud-hold window, a safe harbor that would let member firms freeze a suspicious transaction for 10 business days, with vulnerable-adult holds able to stretch to 145 business days. Wider admission on one side of the private-placement door and longer holds available on the other point the same way for firms: the compliant way to sell a private placement is about to get more documented.

Who may buy a private placement is the question the commission reopened on Wednesday; what a fund owes an investor who wants out is the question folded into the same package, and the same comment file will answer both.