The Securities and Exchange Commission Investor Advisory Committee recommended Thursday that financial advisors should be barred from having financial stakes in private funds they recommend to clients who aren’t accredited investors.

Investors who do not make at least $200,000 ($300,000 for couples) or have $1 million in non-primary home asset are allowed to put their money in private funds with the advice of financial advisors and other “purchaser representatives.”

Currently, the fiduciary duty of financial advisors in the recommendation of private funds to non-accredited investors is limited to disclosing conflicts of interest.

“The appropriate approach is to eliminate financial conflicts of interest to the degree possible,” the committee wrote.

The advisory group warned many consumers who meet the agency’s wealth and income thresholds to be accredited investors may not be able to afford loses from private fund investments.

A significant percentage of even the wealthiest investors score poorly on basic tests of financial literacy, the committee noted, urging the SEC to base the status investors, at least in part, on financial sophistication.

The committee said the Chartered Financial Analyst designation would meet the sophistication standard, but opening up accredited investor status to CFAs would put pressure on the SEC to allow groups peddling lesser quality training to have their designations get the same privilege.

The group said eliminating retirement accounts from counting towards the $1 million accredited investor wealth threshold could save some financially fragile investors from the risk of private funds.

But the committee worried the move could be circumvented by consumers who would withdraw money from retirement vehicles so they could invest in private offerings.

The group cautioned the illiquidity of private investments poses a special problem for retirees and others who rely on regular income from their investments to meet monthly living expenses.

The Dodd Frank Act requires the SEC to look at the accredited investor definition every four years. This is the agency’s first analysis of the topic in the four years the law has been in effect.

SEC Chairman Mary Jo White wouldn’t comment on the recommendations. However, she noted the SEC’s Corporation Finance Division is doing an intense study of the accredited investor issue.