Effective August 16, 2021, the Securities and Exchange Commission will apply new threshold amounts with respect to the definition of "qualified clients," raising the starting dollar amounts of the assets-under-management and net worth tests under Rule 205-3 of the Investment Advisers Act of 1940 ("Advisers Act").
Rule 205-3 allows an investment adviser to charge a qualified client performance fees. A qualified client meets one of the two following tests:
- Assets-under-management test: A client that has at least a certain dollar amount in assets under management (currently, $1,000,000) immediately after entering into the advisory contract; or
- Net-worth test: A client that the adviser reasonably believes, immediately prior to entering into the contract, has a net worth of more than a certain dollar amount (currently, $2,100,000).
Every five years, the SEC is ordered, under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), to adjust the threshold amount of the tests for inflation, increasing the dollar amount to the nearest multiple of $100,000. As it started to do in July 21, 2011, the SEC began to adjust the thresholds for inflation.
Now, another five years have elapsed since the most recent assessment, and the SEC has released its Order adjusting the thresholds again, bringing the assets-under-management test threshold to $1,100,000 and the net worth test to $2,200,000 (reflecting inflation adjustments from 2016 to the end of 2020).
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.