Client Alert

The Securities and Exchange Commission recently adopted amendments to the dollar amount tests for the “qualified client” definition in Rule 205-3 under the Investment Advisers Act of 1940. Rule 205-3 provides exemptions from the general Advisers Act prohibition on performance-based compensation for registered investment advisers. The revised rule changes the current $750,000 assets under management test to $1 million and changes the current $1.5 million net worth test to $2 million. The SEC also amended Rule 205-3 to:

  •  provide that the SEC will issue orders making future inflation adjustments every five years;

  •  exclude the value of a personʼs primary residence for purposes of the qualified client net worth standard; and

  •  include transition provisions to take into account performance fee arrangements that were permissible when they were entered into, so that new dollar amount thresholds do not require investment advisers to renegotiate the terms of arrangements that were permissible when the parties entered into them. 

Relevant Documents

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