Should Advised Clients Automatically Become Accredited Investors?

It’s open season on private markets.

A new proposal introduced last week would recognize clients working with advisors as accredited investors and potentially give millions more Americans access to private equity, private credit and other alternative investments, previously reserved for institutions and wealthy individuals. The Informed Investor Access Act, introduced by Rep. Troy Downing (R-Mont.), fits neatly with a broader push by the Trump administration and congressional Republicans to expand access to private markets. “Building wealth should not be reserved only for those who are already wealthy,” he said in a statement.

But many advisors see a catch: More investor choice could also mean more liability and more opportunities for clients to get hurt. “Just having an advisor doesn’t make you qualified,” said Tara Unverzagt, president of South Bay Financial Partners. “Your advisor is very possibly not qualified to help you with private investments any more than you are.”

Gotta Give ‘Em Accredit

At present, an individual accredited investor has to have a net worth of over $1 million or make more than $200,000 a year consistently, according to the SEC, to gain access to more sophisticated investments like private funds. However, some Americans already technically have stakes in private equity because they’ve started their own business or funded the launch of one owned by a friend or family member. Do they need protection from investing in a private equity fund? “The question comes down to who should have the right to take risks in their investments,” Unverzagt told Advisor Upside. Still, those positioned to take higher risks don’t always choose to do so:

• About 13% of the US population qualify as accredited investors, primarily based on net worth, according to the Financial Planning Review from CFP Board.
• However, less than 5% of those millions of people report owning private market securities.

From Enron and the 2008 financial crisis to Bernie Madoff and the 2023 regional bank failures, many Americans have become less willing to let traditional financial institutions decide what they can and can’t buy. “Investors have seen too much corruption and fraud on Wall Street, and they want to be able to make their own decisions,” said veteran securities lawyer Bill Singer, who expects some version of the legislation to eventually pass.

He also sees downsides. Private investments can be lucrative for advisors, but they also invite scrutiny. “We’re seeing an increasing amount of lawsuits involving private investments,” he said. “That means advisors would get sued, too.”

Wouldn’t It Be Nice? Not everyone thinks broader access solves a real problem. Alvin Carlos, a CFP with District Capital Management, argued that a diversified, low-cost portfolio focused on public markets is more than enough to build wealth. He added that his clients, mostly in their 30s and 40s, aren’t clamoring for private assets. “That said, someday, it would be nice to have a low-cost private equity ETF or something like that,” he told Advisor Upside.