SEC proposals give advisors more room to take a share of client capital gains

The fee proposal is the one that reaches an advisor's revenue soonest, because it ties pay to capital gains in the client's own account ^[1]. The fee comes out of the client's gain, so the advisor's income moves with the portfolio ^[1]. Brian Daly, director of the Division of Investment Management, said such pay aligns client and advisor priorities and can evolve to help curb "excessive risk-taking" ^[5].

The Daily Upside notes the vote came less than a year after a Schwab report found that firms with performance pay generated more long-term revenue and served more clients ^[10]. Both findings are about the firm: its revenue and its client count ^[10]. The report on the proposal does not say whether an advisor would have to recover a client's losses before charging on later gains ^[1].

Daly's wider case was about access. "Private market exposure is sought out and accessed by nearly every pension fund, every university endowment, every high-net-worth family office, and every other category of institutional investor," he said ^[9]. The interval-fund proposal is how retail investors would get that exposure, and its terms favor different parties ^[11]. Monthly repurchase intervals give holders more frequent exits. A longer deferral of the first repurchase offer gives the sponsor more time with new money before anyone can ask for it back ^[11]. Closed-end funds could also issue multiple share classes ^[11].

Commissioner Mark Uyeda anticipated critics who would call the package "a gift to shady financial product sponsors" ^[7]. His reply was a definition. "Interval structures provide periodic liquidity; they are not a promise of frequent redemption," he said ^[13].

Client eligibility is the least settled of the three measures. The Daily Upside's opening describes a separate proposal covering designations like the CFP, CFA and CPA ^[2]. Its later account describes notices that the SEC is considering credentials such as CFP status and Finra licenses ^[3]. Between them the two passages name four kinds of credential, and the CFP is the only one in both ^[12]. Jim Moloney, director of the Division of Corporation Finance, spoke in the conditional. "If the commission were to finalize these designations," he said, the result would be "additional non-financial pathways for investors to demonstrate their sophistication" ^[4].

The package can go roughly three ways from here ^[1][11][3]. The commission could adopt it close to the draft, and fee schedules get repriced first. The interval-fund terms could survive while the fee latitude is narrowed. Or the fee and fund rules could move while the credential route stays at the notice stage.

I think the fee proposal is the one advisory firms should model now. Of the three measures, it is the only one that changes what a firm earns from clients it already has ^[1]. Building new eligibility checks around credentials the SEC has only said it is considering would mean spending ahead of a rule ^[3]. That view is wrong if the notices become a formal proposal with a fixed credential list before the fee rule is adopted, or if the adopted fee rule gives advisors far less room than the proposal does ^[1].