Compliance Solutions for Investment Advisers

SEC Proposes to Update Investment Adviser Performance Fee Rules

Last week, the SEC proposed adjusting the financial thresholds used to define a “qualified client” for purposes of the performance compensation rules under the Advisers Act, generally raising the net worth test from $1.5 million to $2 million and the assets under management test from $750,000 to $1 million. For the most part, only a “qualified client” may be charged performance-based fees by SEC-registered investment advisers, and the Dodd-Frank Act had directed the SEC to revisit these thresholds.

The new thresholds would NOT apply retroactively, so that performance fee arrangements entered into under the earlier rules would not be affected. The SEC also proposes that newly registered investment advisers need not retroactively apply any qualified client thresholds to performance fee arrangements entered into prior to a firm’s registration with the SEC.

 

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