Introduction
In a recent speech before the New York Stock Exchange on revitalizing the securities markets, SEC Chairman Paul Atkins remarked that over the past three decades the number of public companies listed on U.S. stock exchanges has dropped by roughly 40%. Atkins attributed this decline in part to regulatory creep that has narrowed the path to public ownership and made the capital formation process costlier and overly burdened with rules that often create more friction than benefit.
Consistent with Atkins’ concern, on December 11, 2025, the U.S. House of Representatives passed the Incentivizing New Ventures and Economic Strength Through Capital Formation Act of 2025 (INVEST Act) on a bipartisan vote of 302 to 123. In a statement released at the time the act was passed, the House Committee on Financial Services outlined the act’s goals — expanding access to the capital markets for small businesses, increasing investment opportunities for retail investors, and strengthening public markets to promote growth and competitiveness.
The act is now being considered in the Senate and has been referred to the Committee on Banking, Housing, and Urban Affairs. We do not know whether and, if so, how quickly it may move through the Senate or what amendments may be proposed. There are many factors that can impact any legislation as it moves through Congress, but clearly the particular policy concerns reflected in the act will continue to be areas of focus for financial services firms.
This article analyzes the following key provisions of Title II of the INVEST Act — “Increasing Opportunities for Investors” — in order of the authors’ perceived significance and potential industry impact:
- Section 202, which puts 403(b) plan investors on a level playing field with other retirement plan investors.
- Section 205, which expands the electronic delivery of regulatory documents.
- Section 204, which increases the safeguards for senior investors against fraud and exploitation.
- Sections 201 and 203, which expand the ability of investors to qualify as “accredited investors” and therefore invest in the private markets.
- Section 206, which broadens closed-end fund (CEF) investor access to private market investments.
The article explains each provision, analyzes its practical implications, and identifies potential business opportunities for participants in the financial services industry.
Expanded Investment Options for 403(b) Plans (Section 202)
Section 202 of the INVEST Act would amend the federal securities laws to expand investment options for 403(b) retirement savings plans, which are plans that serve employees of public schools, colleges or universities, tax-exempt organizations (e.g., hospitals and charities), and churches and certain ministers. The goal of the amendments is to permit 403(b) plans to offer collective investment trusts (CITs), providing investors in those plans the same opportunities as investors in 401(k) and governmental plans.
CITs are like mutual funds in that both are pooled investment vehicles, except that while mutual funds are sponsored by investment advisers registered under the Investment Advisers Act of 1940, CITs are sponsored and maintained by banks or trust companies governed by the Comptroller of the Currency or state banking authorities. Like a mutual fund, a CIT is managed and operated in accordance with its governing documents, including a declaration of trust (or trust document) and the trust’s underlying fund descriptions or investment guidelines. A CIT may have multiple collective investment funds or series like a mutual fund, each with its own investment objectives and strategies.
Despite these similarities, CITs offer certain advantages for their bank sponsors, and thus investors, over mutual funds. A primary advantage is that CITs are excluded from the definition of “investment company” under the Investment Company Act of 1940 (1940 Act) and therefore are not subject to myriad regulatory and compliance obligations under the 1940 Act. CITs can therefore be set up more quickly and less expensively and operated more flexibly than mutual funds. Because of the lighter regulatory framework, CITs generally can have lower fees than mutual funds.
On the other hand, only specified retirement plans may invest in CITs. This limitation knocks out the entire retail investor market. Moreover, even in the retirement plan market, CITs have characteristics that can be perceived as disadvantages — most CITs are sold to retirement plans covered by the Employee Retirement Income Security Act (ERISA) and are thus subject to regulation by the Department of Labor (DOL) under ERISA, which makes their trustees and asset managers ERISA fiduciaries.
CITs have been used widely for decades in defined benefit plans. Increasingly, they have also become popular investment options for defined contribution plan sponsors, especially if the fees are lower. Retirement plan record-keepers and consultants have become more familiar and comfortable with the operations of CITs. In addition, because most CITs are regulated by the DOL under ERISA, they are required to provide plan sponsors with relatively standardized disclosure documents. Moreover, as noted above, to the extent ERISA is applicable to a CIT, it subjects the CIT’s trustees and money managers to ERISA fiduciary standards. Plan sponsors receive additional comfort from these additional investor protections.
The current landscape, with many retirement plan sponsors favoring CITs, brings us to the purpose of Section 202 of the INVEST Act. Under federal tax law, permitted CIT investors include pension and profit-sharing plans qualified under Internal Revenue Code (IRC) Section 401(a) (i.e., 401(k) plans), eligible governmental 457(b) plans, Puerto Rico plans qualified under Section 1022(i) of the Puerto Rico code, and now 403(b)(7) custodial account plans due to recent amendments to the IRC enacted by the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE 2.0 Act).
Under federal securities laws, however, CITs may not accept assets of 403(b) plans. Although the initial version of the SECURE 2.0 Act included amendments to both the IRC and applicable federal securities laws that have historically prohibited 403(b) custodial accounts from investing in CITs, the SECURE 2.0 Act as passed did not include the necessary federal securities laws amendments for 403(b) accounts to invest in CITs.
Interests in CITs typically qualify as “exempt securities” under Section 3(a)(2) of the Securities Act of 1933 (1933 Act) and are therefore exempt from registration under the 1933 Act, so long as the CIT is “maintained by a bank” and participation in the fund is limited to certain investors. As noted above, however, shares of CITs sold to 403(b) plans are not currently eligible for this exemption. Moreover, while most CITs avoid registration as investment companies under the 1940 Act by relying on an exclusion from the definition of an investment company found in Section 3(c)(11) of the 1940 Act, which is substantially similar to the 1933 Act exemption, CITs sold to 403(b) plans are not currently eligible for the Section 3(c)(11) exclusion.
Section 202 would broaden the exemption under the 1933 Act for offerings of CITs sold to certain 403(b) plans (i) that are subject to ERISA; (ii) under which the employer agrees to serve as fiduciary for the plan with respect to the selection of the plan’s investments; or (iii) that are governmental plans. In addition, in the case of governmental plans, the employer, a fiduciary of the plan, or another person acting on behalf of the employer would have to review and approve each investment alternative prior to being offered under the plan. Section 202 also would broaden the exclusions from categorization as an investment company under the 1940 Act to include (i) 403(b)(7) custodial accounts and (ii) those CITs and insurance company separate accounts whose assets consist of 403(b) plans that satisfy the same conditions discussed above with respect to the 1933 Act exemption.
It is unclear how receptive the Senate will be to 403(b) accounts investing in CITs. Detractors of this expansion, such as Rep. Maxine Waters and others from the Congressional Progressive Caucus, have raised concerns regarding the absence of consumer protections afforded by SEC regulation. In particular, the detractors highlight that CITs lack the types of disclosure that mutual fund prospectuses are required to provide and the safeguards afforded by independent mutual fund board member requirements under the 1940 Act. While some proponents of CITs assert that the lack of SEC oversight is more than made up for by application of ERISA law and DOL protections, detractors point to the inapplicability of ERISA to governmental plans, such as 403(b) plans in which many public school teachers participate.
In response, proponents note that due to defined contribution market demands, most CITs now provide robust offering documents and fund fact sheets. The Office of the Comptroller of the Currency or state banking authorities, as applicable, also require consumer protection safeguards including fiduciary obligations, reportable event requirements, and risk management oversight. Investment managers to CITs must be licensed in the same manner as other fund investment managers.
Even more compelling, if a single “benefit plan investor” participates in a CIT, the trustee and investment managers become ERISA fiduciaries and as a practical matter, generally comply with ERISA with respect to the governance of the entire CIT. One could thus counter the detractors by arguing that investments by non-ERISA 403(b) accounts in ERISA-governed CITs would actually add additional protection to participants in those plans that otherwise would not have ERISA protection. In any event, the vast majority of governmental plans are subject to state law “mini ERISA” statutes that afford similar protections as ERISA does for private-sector plans. Those statutes include fiduciary duty provisions and, in some states, provide “prohibited transaction” restrictions that may mimic or exceed those of ERISA.
Should Section 202 of the INVEST Act become law, it would open up opportunities for new investment products and strategies. A prime example is a CIT with a target-date strategy that utilizes annuity contracts to provide lifetime income payouts to participants. 403(b) plan participants who are hesitant to purchase annuity contracts would have the ability to allocate a portion of their accounts to an investment option with a lifetime income component, while also being able to transfer in and out of the investment like any other investment option on the plan’s menu. If and when the 401(k) market begins to accept alternative assets (such as private equity, hedge funds, and other investments outside traditional stocks and bonds), CITs that are professionally managed to include a strategy with an alternative asset component will also be available to 403(b) plans — with the added benefit of whatever ERISA safeguards are put into place in final ERISA regulations.
Expanded Regulatory Document Delivery Options (Section 205)
Section 205 of the INVEST Act directs the SEC to propose rules to permit electronic delivery (e-delivery) of regulatory documents required to be delivered under the federal securities laws by covered issuers and market participants. Registered investment companies (e.g., mutual funds, CEFs, and exchange-traded funds or ETFs), investment advisers, broker-dealers, BDCs, municipal securities dealers, government securities broker-dealers, and registered transfer agents could rely on e-delivery as the default method of delivering required regulatory documents. Covered documents would include prospectuses and summary prospectuses, shareholder reports, trade confirmations, proxy statements, and other regulatory documents required to be delivered by covered issuers and market participants. E-delivery would include email as well as posting documents online and “any other electronic method reasonably designed to ensure receipt of such regulatory document by the investor.”
Section 205 requires the SEC to propose e-delivery rules within 180 days of the date of enactment and adopt final e-delivery rules within one year of the date of enactment. Importantly, Section 205 would permit covered issuers and market participants to rely on e-delivery in accordance with Section 205 if the SEC does not adopt final rules within the mandated timeframe. Section 205 also requires FINRA to adopt or amend rules and regulations consistent with Section 205.
Under the current regulatory framework, prior informed consent to e-delivery is required. Section 205 requires the SEC to review its existing rules to identify those rules that require delivery of written documents to investors and amend each such rule to specifically provide that any requirement to deliver a regulatory document “in writing” may be satisfied by e-delivery. Section 205 also requires the SEC to adopt “rules, regulations, amendments or interpretations, as appropriate,” to implement the new e-delivery requirements. Section 205 would therefore provide welcome regulatory certainty. Section 205 also expressly provides that Section 101(c) of the federal E-Sign Act, which requires a consumer to affirmatively consent to e-delivery and to be provided with specified e-delivery disclosures, will not apply with respect to regulatory documents delivered electronically in conformity with Section 205. Perhaps most importantly, Section 205 would institute a change long sought by the industry — “opt out” would become the default delivery method — meaning prior consent for e-delivery from the intended recipient of a regulatory document would not be required.
Section 205 requires the SEC to adopt appropriate safeguards in its new e-delivery rules. Such safeguards include a requirement for covered issuers and market participants using e-delivery to implement measures reasonably designed to identify and remediate failed delivery of regulatory documents and to protect the confidentiality of personal information in documents delivered to investors electronically.
There are gaps in Section 205 that hopefully either the Senate will address in its version of the legislation or the SEC will address in the rulemaking process:
- One potentially significant gap is that Section 205 does not appear to contemplate e-delivery for certain non-investment company pooled investment products that bear a close resemblance to investment company products such as mutual funds, CEFs, and ETFs. These non-investment company products include registered index-linked annuity contracts and life insurance policies, market value adjustment annuity contracts, contingent deferred annuity contracts, and certain exchange-traded products (as opposed to exchange-traded funds). The offerings of these products are registered under the 1933 Act, but product issuers are not required to register as investment companies under the 1940 Act. These issuers are clearly not included in the definition of “covered entities” under Section 205, which covers only registered investment company and BDC issuers.
In this regard, Section 205 seems to have been tailored for the registered investment company industry (e.g., mutual funds, CEFs, and ETFs). Insurance companies and exchange-traded product issuers would be well advised to participate in the legislative process in the Senate (as noted below, H.R. 3383 has been received in the Senate and referred to committee).
- Another gap is that Section 205 would not appear to cover certain privately offered funds that have disclosure document delivery obligations under Regulation D but are not registered investment companies based on an exclusion from the definition of “investment company.”
Section 205 would provide much-needed regulatory certainty to e-delivery practices under the federal securities laws. These changes would also result in significant cost-savings across the industry, including potentially millions of dollars annually in reduced printing and mailing expenses. Finally, given that many investors prefer to read documents online, the changes could enhance the readership of these materials.
The prognosis for Senate passage of the provisions of Section 205 is unclear. Even though Section 205 will doubtless receive strong industry support, certain consumer groups pushed back on e-delivery in a letter to House Financial Services Committee Chair French Hill and Ranking Member Maxine Waters, which was signed by, among others, AARP, the AFL-CIO, Consumer Federation of America, and Public Citizen. Among other things, the letter notes that a “significant majority of older adults” prefer to receive paper statements, and according to testimony from the Consumer Federation of America, the rate of persons receiving an email link actually clicking through to the link is only 1% for the financial services industry. Proponents of e-delivery may further scrutinize claims like these going forward, however, due to apparent gaps in study methodology. For example, the study described in the consumer group letter did not discuss for comparative purposes what the read rate might be for investors who received a paper disclosure document by regular mail and yet still did not read the document.
Protecting Senior Investors (Section 204)
Section 204 of the INVEST Act establishes a Senior Investor Taskforce at the SEC to protect a vulnerable group of investors — senior investors (those 65 and older). Among other things, the taskforce is required to request the Government Accountability Office (GAO) to conduct a study on senior financial exploitation, focusing resources where abuse is prevalent.
From a regulatory perspective, the taskforce is designed to combat financial fraud targeting seniors and is expected to:
- Identify and assess emerging threats and schemes disproportionately affecting senior investors and report to Congress.
- Improve coordination and information sharing among federal regulators, self-regulatory organizations, state securities regulators, and law enforcement authorities in enforcement, examinations, and investigations.
- Promote enhanced investor education and outreach initiatives targeted to seniors.
- Support the development of best practices for firms supervising accounts held by senior or vulnerable investors.
The taskforce is intended to work together with other regulators such as FINRA. Given the SEC’s long-standing focus on protection of retail investors, the SEC’s creation of the taskforce will further the focus on addressing the exploitation of senior investors, including safeguards such as trusted contact requirements, temporary holds on disbursements, and heightened supervision.
The taskforce would be headed by a director appointed by the SEC chairman in consultation with the SEC and would report directly to the SEC chairman. The appointee may be currently employed by the SEC or from outside the SEC and must have experience in advocating for the interests of senior investors. The SEC chairman must ensure the taskforce is adequately staffed with current SEC personnel or individuals from outside the SEC (without additional compensation beyond their standard federal salaries) and that personnel include individuals drawn from the SEC’s Division of Enforcement, Office of Compliance Inspections and Examinations (currently the Division of Examinations), and Office of Investor Education and Advocacy (now Office of Investor Education and Assistance).
Although the creation of the taskforce itself does not immediately impose new obligations, its creation could signal an increase in regulatory scrutiny, examinations, and enforcement activity relating to senior investor protections. Firms should anticipate closer scrutiny of whether their policies, supervisory systems, and training programs are reasonably designed to identify, escalate, and address risks of financial exploitation, diminished capacity, and undue influence affecting senior investors. Regulators are likely to evaluate firms’ compliance through the lens of existing SEC and FINRA obligations, including SEC Regulation Best Interest (Reg BI), supervisory rules, trusted contact requirements, and temporary hold provisions.
The taskforce is designed to terminate after a 10-year period from the date of the act's enactment, although it is possible that may change in the future, as the baby boomer generation continues to age.
Broadening the Investor Base for Private Offerings (Sections 201 and 203)
The INVEST Act proposes to modernize the definition of accredited investor (the standard that the SEC uses to decide who may participate in private securities markets). Apart from codifying accredited investor categories based on securities-related credentials, this section requires wealth thresholds for qualification to be adjusted for inflation and authorizes the SEC to establish procedures for qualification based on education, experience, and/or competence, including an SEC-administered exam-based track to accredited status.
Section 201 of the act would amend the definition of accredited investor in the 1933 Act to codify the net worth and the income standards currently defined by SEC Regulation D. The current net worth standard qualifies as accredited investors natural persons whose individual or joint net worth exceeds $1 million at the time of sale of a transaction, not including the value of the individual’s primary residence. The current income-based standard qualifies natural persons with individual income in excess of $200,000, or $300,000 jointly with a spouse or spousal equivalent, in each of the two most recent years and who have a reasonable expectation of attaining the same income level in the current year.
The Regulation D net worth and income-based standards have been largely unchanged since they were first adopted as part of Regulation D in 1982, and the SEC from time to time has since then considered but declined to make any inflation adjustments. Section 201, however, would now require the SEC to make inflation adjustments (to the nearest $10,000) to the net worth and income-based standards every five years and direct the SEC to amend Regulation D to conform to these changes within 180 days of enactment.
Section 203, on the other hand, establishes a new way to become an accredited investor through an SEC-established exam that would allow individuals to qualify based on financial knowledge rather than just income/net worth thresholds. Before 2020, individuals could be deemed an accredited investor only if they satisfied either the net worth or income test. The SEC revised the definition of an accredited investor in 2020 to include individuals who had certain professional credentials, such as holders of certain licenses to sell securities and those who were considered knowledgeable employees of a private fund.
The INVEST Act would require the SEC to broaden this definition to include individuals who demonstrate what the act refers to as “financial sophistication” through an examination developed by the SEC and administered, free of charge, by FINRA. The SEC must establish the certifying examination within one year of enactment. The examination must be designed with an appropriate level of difficulty such that an individual with financial sophistication would be unlikely to fail. It must include methods to determine whether an individual seeking to be certified demonstrates competency with respect to, among other things: (a) the different types of securities; (b) characteristics of and disclosure requirements for unregistered securities; (c) financial statements; and (d) potential conflicts of interest between investors and financial professionals.
Section 203 has the potential to expand the pool of investors by allowing financially sophisticated individuals to have access to private offerings and issuers in the private markets. The devil will lie in the details of how the SEC structures the examination, and the proposal for the rule carrying out this mandate of the act could well draw significant attention. Moreover, for all that the INVEST Act could do to broaden investor access to private markets, its language gives the SEC wide discretion over the educational exam’s contents. The SEC could make the test as difficult as current professional trading certifications, undermining the goal of creating equal opportunity for all investors.
Expanding Investments by CEFs and Limiting Investments in CEFs (Section 206)
Another element in the INVEST Act aimed at expanding retail investor access to unregistered offerings is a codification and expansion of recent SEC staff guidance that ended a long-standing informal SEC staff position that limited the ability of CEFs to invest in private funds with up to 15% of the CEF’s assets. Citing a “significant” evolution in the SEC’s oversight of registered funds and private fund advisers over the past 20 years, the SEC staff stated in the guidance that it would no longer request that a CEF limit its investments in certain private funds to 15% of its assets. Section 206 of the INVEST Act would codify this position, amending Section 5 of the 1940 Act to prohibit the SEC from limiting a CEF from investing “any or all” of its assets in private fund securities.
Section 206 goes farther than the guidance, however, as it relates to limits on investments by listed CEFs. The SEC staff has taken an informal position that listed CEFs could not invest in private funds, and the guidance stated that the removal of the investment limit would not apply to listed CEFs. The prohibition in Section 206 against limits on CEF investments in private funds, however, would make no distinction between listed or unlisted CEFs, and in addition would prohibit national securities exchanges from imposing such a limit.
The removal of these limits on the ability of CEFs to invest in private funds raises the question of the extent to which the SEC might consider providing similar flexibility to other investment companies subject to the redeemability requirements of the 1940 Act, such as variable contract separate accounts. This question has garnered more attention given Atkins’ recent statement, which he made following Executive Order 14330 on democratizing retirement plan access to alternative investments, that the SEC “is exploring ways to facilitate the ability of individual investors to participate in the private markets.”
Under long-standing SEC precedent, most recently codified in Rule 22e-4 under the 1940 Act, open-end funds are limited in their investments in illiquid securities to 15% of the fund’s net assets. While separate accounts structured as UITs are technically not subject to this provision of the rule, the SEC made clear in the Rule 22e-4 adopting release its belief that a UIT holding more than 15% of its assets in illiquid securities would be “unlikely” to make a determination required by the rule that its securities were “consistent with its issuance of redeemable securities.”
As with retirement plans, registered insurance products are designed for long-term investment. Providing some relief from the redeemability requirements of the 1940 Act for these products could, with appropriate investor protections, help address the massive and well-documented shortfall in retirement savings. Whether the SEC will be willing to consider providing investors in these products with more access to private markets, however, remains to be seen.
Conclusion
On December 15, 2025, four days after the House of Representatives passed the INVEST Act, the bill was received in the Senate, read twice, and referred to the Committee on Banking, Housing, and Urban Affairs. As of the date of this article, there have been no further actions on the bill, nor have there been any Senate amendments or related bills introduced.
