The proposal would expand the number of people allowed to invest in private securities offerings, hedge funds and private-equity funds—vehicles that are more opaque and riskier than securities traded on closely regulated public exchanges.

Currently, people who may invest in those markets, known as accredited investors, must have the financial resources to withstand big losses: either $1 million in net assets, not counting their home, or at least $200,000 in annual income.

The SEC proposal, which was approved by a vote of 3-2, would allow investors with certain qualifications, such as an entry-level stockbroker’s license, to sidestep the income and wealth thresholds.

Proponents, including SEC Chairman Jay Clayton, say that many people who don’t meet the financial qualifications for accredited-investor status are nevertheless knowledgeable enough to participate in private markets, where startups like Uber have grown into multibillion-dollar companies before offering to sell their shares to the public.

“Our current definition includes investors that spend their days cruising around in a Ferrari that Daddy paid for,” SEC Commissioner Hester Peirce said. “Yet it excludes investors who spend their days earning money and their weekends and nights figuring out how to invest it.”

The proposal goes to the heart of the SEC’s Depression-era mandate to protect Main Street investors from the vagaries of financial markets. While Republican-appointed commissioners like Ms. Peirce and Mr. Clayton want to expand individual choice, those picked by Democrats object that the proposal would expose many Americans, including retirees, to undue risks.

“The issue is balancing investor protection with the more ideological notion that people should be able to put their capital where they want to,” said Elisabeth de Fontenay, a law professor at Duke University.

“The failure to update these thresholds may be less about providing American investors access to lucrative private markets, and more about providing private markets access to potentially vulnerable American investors,” said Allison Lee, a Democratic-appointed commissioner. “Once they cross the threshold, there are no limits on the amount that can be gambled and lost.”

The commission is also seeking comment on whether the financial thresholds should be reduced in areas with lower costs of living, and whether investors who are advised by professional brokers should also be considered accredited. By law, private issuers may only solicit accredited investors. The proposal is subject to a comment period before a final rule is proposed.

Supporters say the SEC plan would help level the playing field between the affluent and the knowledgeable, while creating deeper pools of capital for young companies and private-equity firms to tap. They add that the advent of the internet has given people more information to assess risk.

The move to expand access to private securities comes after decades of rapid growth in such markets, which once amounted to a tiny fraction of the funding raised on public debt and equity offerings. The SEC estimates that $2.9 trillion was raised through private channels in 2018, versus $1.4 trillion in registered offerings.

“Today’s proposals are an important step in our ongoing efforts to assess the private offering framework as a whole, including ways to increase opportunity for more of our Main Street investors to participate in the private capital markets,” Mr. Clayton said.

The SEC declined to estimate how many individual or institutional investors would become accredited under the new standards, though it said the proposal “may result in a significant increase in the number of individuals that qualify.”

Privately held companies aren’t required to provide audited financial statements, making their securities more difficult to value. And investments in private equity or venture capital take much longer to redeem than mutual funds, so investors must bear the risk of losses over longer periods.

Pension funds and other institutional investors often enjoy strong returns on private markets. That is partly because they employ lawyers and accountants who negotiate fair prices for prospective investments, as well as disclosure of earnings and other information that affects share prices. Many experts say individual investors would be hard-pressed to secure such concessions from private issuers.

Under the proposal advanced on Wednesday, current income and wealth requirements would remain unadjusted for inflation, making it likely that more households would qualify as accredited investors over time. The number of households who meet the current definition rose to 16 million in 2019 from 1.31 million in 1983.

Even the most experienced and deep-pocketed investors often fail to estimate accurately how much private companies are worth, critics say. They point to SoftBank Group Corp.’s recent fiasco with WeWork, whose valuation plummeted from $47 billion in a January funding round to $8 billion in October.

The proposal continues a decades long process of creating exemptions to securities laws, which critics say undermines more transparent public markets. This is one reason the number of publicly listed companies has fallen since the 1990s, experts say.

“The federal securities laws were established to ensure investors have the information they need about companies to accurately assess the companies’ values and allocate their capital wisely,” said Tyler Gellasch, executive director of Healthy Markets, an advocacy group. “The SEC is simply continuing to erode that basic regulatory framework, leaving in its place an opaque, two-tiered market that has greater risks and costs for investors.”