SEC Moves to Implement Trump Directives for “Retailization” of Private Investment Markets

President Trump and key federal officials under his administration consistently have pushed to ease the restrictions on the availability of, and other burdens on, various types of nonpublic investments. On September 30, 2026, the SEC took several additional major steps in that direction, which are discussed below.

1. SEC Proposal to Expand the Types of Performance Fees That RIAs May Charge Their Clients

Section 205 of the Investment Advisers Act of 1940 (Advisers Act) generally prohibits registered investment advisers (RIAs) from receiving compensation on the basis of a share of realized or unrealized capital gains (performance fees) in a client’s account, except pursuant to an applicable exception or exemption.

The Limited Scope of Existing Exceptions to the Performance Fee Prohibition

An exception in Section 205 currently permits RIAs to receive a limited type of performance fee, commonly known as a “fulcrum fee,” in connection with many types of investment funds and clients. But fulcrum fees have not been widely adopted for a variety of reasons, including because the permitted terms of the fulcrum fees are not broad enough to cover the type of significant performance fee (often 20% or more of capital gains) that has become customary in recent decades for private equity funds, venture capital funds, and other major institutional investment accounts.

Section 205 does, however, provide a complete exception that allows RIAs to receive performance fees from funds that rely on the exemption from registration provided by Section 3(c)(7) of the Investment Company Act of 1940 (1940 Act). Nevertheless, under the terms of that exemption, only certain institutional-type investors and individuals having at least $5 million of investments may invest in the fund. This precludes the availability of such 3(c)(7)-exempt funds to a wide swath of retail investors.

Section 205 of the Advisers Act also specifically permits RIAs to receive performance fees of up to 20%, subject to certain conditions, from business development companies (BDCs) that are regulated under the 1940 Act. But, because BDCs make up only a limited segment of the securities investing universe, the flexibility afforded by this exception is of somewhat limited application.

Finally, Rule 205-3 under the Advisers Act provides an exemption from the performance fee prohibition if the RIA’s client is a “qualified client,” which the rule defines to include a client that (a) has at least a specified amount (currently $1.4 million) of assets under the RIA’s management; (b) has a net worth (including assets held jointly with a spouse but excluding any primary residence) of more than a specified amount (currently $2.7 million); or (c) would be a permitted investor in a fund relying on the Section 3(c)(7) exemption, as mentioned above.

However, the rule treats any company that is registered under the 1940 Act, any BDC, or any private investment company that relies on the exemption in Section 3(c)(1) of the 1940 Act as a qualified client only if all of that company’s security holders who bear the performance fee are themselves qualified clients. Therefore, given the above-mentioned substantial dollar amounts for qualified client status, Rule 205-3, as with the other currently available exemptions and exceptions, fails to provide a basis for most retail investors to gain exposure to investments that entail substantial performance fees.

The Expanded Availability of Performance Fees That the SEC Now Proposes

In its September 30 release, the SEC is now proposing major revisions to Rule 205-3. Importantly:

• The above-mentioned hurdle rates for assets under RIA management and net worth would be deleted from Rule 205-3’s definition of qualified client and, in effect, would be replaced by the “accredited investor” standard from the SEC’s Regulation D. The accredited investor standard is more easily satisfied by a relatively broad spectrum of retail investors, because, among other things, its net worth hurdle for individuals currently is much lower (i.e., only $1 million), and, as an alternative, it also provides a relatively modest individual annual income hurdle of $200,000 ($300,000 including spousal income).
• The rule would no longer require that, in order for a BDC or an open-end or closed-end management investment company to be deemed a qualified client, all of the company’s security holders who bear a performance fee must themselves be qualified clients. Rather, all such regulated funds (including interval funds) would be considered qualified clients, provided that certain new conditions specified in the proposal are satisfied. These conditions include that:
  • The performance-based compensation does not exceed 20% of the regulated fund’s net gains over a specified period;
  • The regulated fund satisfies the fund governance standards that are prescribed by Rule 0-1(a)(7) under the 1940 Act; and
  • The regulated fund’s board, including a majority of independent directors, determines that the performance-based compensation arrangement is in the best interest of the regulated fund and its shareholders and makes specific findings regarding the arrangement’s appropriateness, structure, and investor protection features.

Because open-end investment companies generally must promptly honor all redemption requests from their shareholders, regulatory and practical considerations greatly limit the amount of illiquid assets that such funds may own. Accordingly, this change for regulated funds would probably be most useful for closed-end (including interval) funds, as they are generally better able than open-end funds to hold the types of relatively illiquid assets that are most frequently associated with substantial performance fees. This change would likely be less important for most BDCs, because, as noted previously, Section 205 of the Advisers Act already provides significant leeway for BDCs to charge substantial performance fees.

The comment period for these proposals expires on December 7, 2026.

2. SEC Proposed Expansion of Accredited Investor Definition

Also on September 30, the SEC proposed adding several new categories to those qualifying as accredited investors for purposes of Regulation D. These expansions of the definition would facilitate the creation and operation of private funds in various ways. Among other things, to the extent that the SEC incorporates the “accredited investor” definition into Rule 205-3 as discussed above, the proposed expansion of that definition would further expand the availability of that rule’s exemption.  

The proposed amendments to the accredited investor definition were contained in five different releases, each relating to a different proposed expansion of the definition. The title of each release previews the general nature of its proposal:

• Potential Designation of Passage of an Accredited Investor Exam to Be Developed by FINRA as Qualifying Natural Persons for Accredited Investor Status
• Potential Designation of U.S. Certified Public Accountant License as Qualifying Natural Persons for Accredited Investor Status
• Potential Designation of Chartered Financial Analyst Designation as Qualifying Natural Persons for Accredited Investor Status
• Potential Designation of Certified Financial Planner Certification as Qualifying Natural Persons for Accredited Investor Status
• Potential Designations of the Investment Banking Representative License (Series 79) and the Research Analyst License (Series 86 and Series 87) as Qualifying Natural Persons for Accredited Investor Status

Public comments on all of these proposals to amend the accredited investor definition, as well as on the proposals made in the separate Interval Fund Modernization Release discussed below under numbered Topic 3, are due by December 4, 2026.

3. Other SEC Proposed Changes to Rules Governing Operations of Interval Funds and Other Closed-End Funds

Also on September 30, the SEC proposed numerous rule and form amendments that would affect the manner in which interval funds and other closed-end management investment companies registered under the 1940 Act conduct their operations. Some of these revisions were proposed in the release discussed in Topic 1 above. Others were proposed in a separate release titled “Interval Fund Modernization; Expansion of Multiple Share Class to Registered Closed-End Management Investment Companies and Business Development Companies.” Most of these amendments would make the regulatory requirements to which these funds are subject less burdensome or otherwise provide them with greater flexibility in their operations.

As noted above, interval and other closed-end funds are likely to invest more of their assets in private (and thus often illiquid) investments than other categories of SEC-registered investment companies. Accordingly, the additional flexibility and reduced burdens afforded by these proposals would tend to encourage the growth of these funds. That growth, in turn, would give retail investors who often invest in these funds (including those who are not accredited investors) increased opportunities to obtain investment exposure to such private investment opportunities.

In Conclusion

The above-discussed September 30 proposals have numerous possible advantages and disadvantages (including potential risks for investors), and the details of some of the proposals are quite complex. The SEC’s releases also propose numerous related changes in disclosure and other requirements of its forms and rules. The releases discuss most of these subjects in considerable detail, and interested persons should consult the releases for more information on all of these topics.

If adopted, however, the potentially significant overall effects of the proposals would include:

• Funds, depending on their circumstances, would be able to invest more heavily — in many cases substantially so — in the types of assets that frequently are subject to substantial performance fees; and
• Retail investors would be better able to obtain exposure to privately offered securities, including those subject to substantial performance fees. Moreover, where such increased exposure is obtained indirectly via investment in a fund’s SEC-registered public offering, the retail investors would not need to qualify for accredited investor or any similar status.

As a result of these developments, the market for private investments, including those subject to substantial performance fees, could be expanded significantly. That could in turn benefit, for example, persons and funds seeking to market or dispose of such private investments. It could also benefit companies — often relatively small enterprises — that issue private equity or private debt instruments.

Although these proposals raise many diverse public policy issues, it is telling that the SEC’s September 30, 2026, press release announcing all of these proposals was titled “SEC Proposes Amendments to Expand Responsible Retailization of Private Markets.” The SEC apparently wished to underscore that it is basically reading from the same script as President Trump when he issued Executive Order 14330, titled "Democratizing Access to Alternative Assets for 401(k) Investors," signed August 7, 2025.

The SEC’s proposals also may help startup, private, and small businesses by making it easier for those businesses to raise capital, operate profitably, and compete with larger, more established rivals. These potential results also further important purposes of Trump's Executive Order 14219, titled "Ensuring Lawful Governance and Implementing the President's 'Department of Government Efficiency' Deregulatory Initiative," signed February 19, 2025, which targets regulations that:

• Impose significant costs upon private parties that are not outweighed by public benefits; or
• Impose undue burdens on small businesses and impede private enterprise and entrepreneurship.

Similarly, Trump's Executive Order 14267, titled "Reducing Anti-Competitive Regulatory Barriers," signed April 9, 2025, targets regulations that:

• Create unnecessary barriers to entry for new market participants; or
• Limit, or have the effect of limiting, competition between competing entities.

Although the SEC, therefore, is implementing Trump administration policy, its September 30 proposing releases confirm that, as previously mentioned, the SEC is mindful of the risks to investors and other possible “downsides” from its proposals. Many of these potential downsides result, directly or indirectly, from the fact that the private investments with which the Trump administration and SEC are largely concerned typically do not have active trading markets; and, for that and other reasons, determining the fair market value of, and making adequate disclosure regarding, these private investments can present a variety of difficult issues.

It probably is not coincidental, therefore, that, on September 28, 2026 — two days before the SEC issued its proposals — the chief accountant of the SEC and the director of the SEC’s Division of Investment Management issued a lengthy “Statement on Fair Value Measurement and Disclosure Considerations for Private Assets.” Although this joint statement does not seem to break much new ground, it does serve as a reminder of the many difficult disclosure and other legal requirements that issuers will need to continue to deal with. And the additional flexibility that the SEC’s September 30 proposals would provide to funds and advisers will, if anything, tend to increase those difficulties and the related potential legal exposures that they may face.

A discussion of all those subjects is beyond the scope of this article. But the joint statement seems designed, among other things, to caution that the SEC’s September 30 proposals do not mean that the SEC will be abandoning its investor protection and enforcement roles.

For more on this topic, see our previous articles:

• SEC Staff Continues March for Co-Investment: Still Stepping to Trump Administration Tune
• More CLOs in Retail Investors’ Diet: Will Their Financial Health Improve?
• Private Fund Reporting Form Moving in Trump’s Direction, But Form PF’s Basic Approach Is Not Changing
• A Safe Harbor in Rough Waters: Department of Labor’s Proposed Regulation on Alternative Assets
• New SEC Staff Guidance Furthering Policies of Trump Defined-Contribution Plan Executive Order
• Everyday Investor Participation in Private Strategies: What Role for Investor Advocate in SEC Drama?