Executive Summary
On August 7, 2025, President Trump signed an executive order, “Democratizing Access to Alternative Assets for 401(k) Investors” (the “Executive Order”), aimed at expanding access for participants in 401(k) and other defined-contribution retirement plans to alternative assets, including private equity, venture capital, hedge funds, real estate, and digital assets. The directive initiates a comprehensive, multi-agency regulatory review of their existing practices and consideration of new initiatives designed to expand investment choices within defined-contribution plans. The Executive Order is one of a series of measures by the Trump Administration concerning financial services deregulation, tax reform, and expansion of investment access to alternative assets. Depending on the specific measures taken by the Department of Labor (DOL), the Securities and Exchange Commission (SEC), and other federal regulators, the Executive Order could result in sweeping changes to retirement investing practices and increased participation by so-called “retail investors” in certain less regulated, less liquid assets, and higher risk assets that are currently only available to institutional and high net worth investors.
The Executive Order seeks to modify current restrictions on retirement plan investment in alternative assets. Specifically, the Executive Order defines “alternative assets” to include private market investments, real estate interests, holdings in actively managed investment vehicles that are investing in digital assets, commodities, interests in projects financing infrastructure development, and lifetime income investment strategies including longevity risk-sharing pools. While this democratization may enhance portfolio diversification and potential returns for retail savers, it may also introduce significant complexity and risk. Alternative assets such as private equity, venture capital, hedge funds, private credit, real estate and vehicles investing in digital currencies often carry layered fee structures, limited liquidity, and complex valuation methodologies—characteristics that may conflict with the expectations and timelines of people investing their retirement assets. Financial advisors and plan sponsors, who are subject to elevated fiduciary standards under ERISA, could face increased legal and regulatory scrutiny absent regulatory guidance or rule changes aimed at insulating them from such risk. If access is expanded, mistakes or misunderstandings in product selection, fee disclosure, or suitability assessments by this new, expanded group of investors could result in litigation, regulatory investigations, penalties, and reputational damage, particularly in the event of a market downturn or other events resulting in retail investor losses.
Regulatory Directives and Agency Coordination
While the Executive Order itself does not change relevant laws or create any safe harbors, it does direct several federal agencies to take coordinated action to facilitate the integration of alternative assets into retirement plans:
- The DOL has been instructed to:
- Reexamine its existing guidance on fiduciary duties as they relate to alternative assets in ERISA-governed plans; and
- Within 180 days (i.e., by February 2026): clarify its past and present guidance regarding a fiduciary’s duties under ERISA; and prioritize actions that may curb ERISA litigation that constrains fiduciaries’ ability to apply their judgment in offering investment opportunities to relevant plan participants.
- This review is expected to clarify the responsibilities of plan sponsors and fiduciaries when offering complex investment products to retail participants. Since the Executive Order, the DOL has moved quickly to begin providing this clarification. Specifically, on August 12, 2025, the DOL rescinded a 2021 supplemental letter issued during the Biden Administration, which had narrowed the feasibility of alternative asset investments in retirement accounts. As a result of this rescission, the Information Letter issued by the DOL in June 2020, which stated that a plan fiduciary of an individual retirement account plan may offer an asset allocation fund with a private equity component, is now the operative DOL guidance unless and until further DOL guidance or regulation is developed.
- Over the longer term, this directive for the DOL to reexamine and clarify its guidance could result in the DOL adopting rules or guidance that establish safe harbors for allocation of a certain portion of retirement account assets to alternative investments.
- The Executive Order also instructs the DOL to consult with other federal regulators, including the Treasury Department and the SEC to carry out these policy objectives and potential parallel regulatory changes.
- The SEC has been directed to consider:
- Ways to facilitate access to investments in alternative assets by participants in participant-directed defined-contribution retirement savings plans; and
- Revising regulations and guidance concerning accredited investor and qualified purchaser status. A change in either definition could also allow a broader universe of investors, including retail investors who are currently excluded from investing in alternative assets, to directly and indirectly access alternative investment opportunities outside of 401(k) plans (including investments in, private equity, venture capital, hedge funds, private credit, and pre-IPO companies) that are currently limited to institutional investors and high net worth investors.
- Other potential measures by the SEC that could facilitate investment in alternative assets by retirement accounts and retail investors generally may entail reforms relating to funds that are registered under the Investment Company Act of 1940 (“Investment Company Act”), such as modifying requirements for disclosing acquired fund fees and expenses and providing increased flexibility with respect to liquidity rule requirements and affiliated transactions. Such measures would build on other recent steps taken by the SEC to facilitate broader investor access to alternative assets, such as the May 2025 termination of a previous staff position that registered funds investing more than 15% of their assets in private funds must be limited to accredited investors and have $25,000 minimum investment amounts.
- The Treasury Department, along with other federal regulators, will work in concert with the DOL and SEC to ensure regulatory consistency and alignment across agencies.
All of those directives should be viewed in the context of other actions and statements by the Administration. For example, the Executive Order appears to build on a prior action by the DOL in May 2025 which, in a notable shift, rescinded prior guidance that restricted the inclusion of digital assets in retirement plans and signaled a more favorable stance toward cryptocurrency and blockchain-based investments.
Strategic Implications for Market Participants
The Executive Order carries several strategic implications for financial institutions, advisors, and plan sponsors, the extent of which will depend on the specific measures taken by the DOL, SEC, and other regulators:
Retailization of Private Markets
By opening access to asset classes traditionally reserved for institutional investors, the Executive Order could accelerate the current “retailization” market trend, i.e., the opening up in recent years of private market investing to a broader group of smaller, non-traditional individual investors. While this may enhance diversification and long-term return potential, it also brings added complexity and risk. Retail investors may lack the expertise, experience and access to advisors to properly evaluate the risks associated with investing in illiquid, fee-paying products, increasing the potential for misalignment with retirement goals. The Executive Order is also likely to increase demand for target date mutual funds and hybrid funds that offer periodic liquidity such as interval or tender offer funds, subject to their ability to manage obligations under the Investment Company Act. The full implications of this evolution will occur over time and could be significant.
Fiduciary and Legal Exposure
Advisors and sponsors must currently navigate heightened fiduciary obligations under ERISA. Any perceived missteps in product selection, fee transparency, or suitability assessments could expose firms and individuals to litigation, regulatory enforcement, and reputational harm. This risk is particularly acute during periods of market volatility or dislocation, when losses may prompt scrutiny from state and federal regulators and plaintiffs’ attorneys, notwithstanding the Executive Order’s directive to consider litigation and regulatory obstacles and prioritize actions that may curb ERISA litigation.
Fee Structures and Liquidity Constraints
Alternative assets such as private equity and vehicles investing in digital assets often involve complex fee arrangements, including performance-based compensation and layered management fees. These products also tend to have limited liquidity and long lock-up periods, which may not align with the liquidity needs or expectations of retirement plan participants. Advisors must carefully assess whether such products are appropriate for inclusion in defined contribution plans.
Regulatory Oversight and Enforcement Risk
As discussed above, the Executive Order specifically references the SEC, which is expected to play a central role in shaping the regulatory framework governing alternative assets in retirement plans. Key areas of focus for the SEC include:
- Monitoring disclosure practices related to fees, risks, and performance metrics to ensure transparency and informed decision-making by retail investors.
- Regulating marketing practices to prevent misleading claims and ensure that promotional materials accurately reflect the risks and limitations of alternative investments.
- Monitoring conflicts of interest in product recommendations and fee structures, which have been identified as a priority area by the current SEC leadership.
Market disruptions or other events resulting in investor losses could prompt SEC or other regulatory investigations and enforcement actions resulting in a range of remedies, including civil penalties, disgorgement of allegedly ill-gotten gains, cease-and-desist orders, and public censures. Such actions may bar firms from offering certain products and trigger reputational damage, asset outflows, and private litigation exposure. Violations of ERISA’s prohibited transaction rules could also result in excise taxes and personal liability for fiduciaries.
Advisory Guidance for Risk Mitigation
To proactively manage exposure and prepare for increased regulatory scrutiny, financial institutions should consider the following best practices:
- Regulatory Monitoring: Closely track rulemaking and guidance from the DOL, SEC, and Treasury. As noted above, the DOL is directed to take certain actions by February 2026, whereas other measures are expected to take substantially longer to implement. Anticipate new compliance requirements and enforcement trends and adjust policies and procedures accordingly.
- Enhanced Due Diligence: Thoroughly vet asset managers, fund structures, and liquidity terms. Avoid products with unclear valuation methodologies, excessive leverage, or opaque fee arrangements.
- Investor Education and Suitability Protocols: Provide clear, jargon-free explanations of investment risks, fee structures, and lock-up periods. Document suitability assessments for each client to demonstrate compliance with fiduciary obligations.
- Plan Governance Review: Reassess investment menus, Qualified Default Investment Alternatives (QDIAs), and participant communications to ensure alignment with fiduciary standards and regulatory expectations.
- Crisis Preparedness: Develop contingency plans for adverse market events, including communication strategies, legal response protocols, and investor outreach initiatives to maintain trust and transparency.
Conclusion
The Executive Order potentially represents a transformative shift in the landscape of retirement investing and has the potential to accelerate the current trend to making alternative investments available to a broader group of retail invests. While the Executive Order, and the regulatory guidance and rulemaking that will follow in its wake, presents retail investors with a new array of potentially higher-returning assets in which to invest, and offers managers and advisors to alternative asset products access to previously unavailable pools of capital, it also presents an array of potential risks to all parties which may reveal themselves over time. How these risks are managed will be important and likely be a key theme of the public discussion as the new regulatory framework begins to emerge.
As most alternative investment managers and other financial institutions operate their businesses on a global basis, it will be important for them to understand where this new regulatory framework fits into the regulations of other countries in which they operate. Freshfields regularly provides its clients with advice on how to navigate the global regulatory framework. It is also important to note that this is an area where rapid development and new ways of doing business are likely to occur, and it will be critical for market participants to keep themselves apace with the changes that are likely to unfold. As the regulatory landscape continues to take shape, we will provide ongoing analysis and commentary to keep you informed of key developments.
