The SEC amended Advisers Act Rule 205-3, which permits advisers to charge performance-based compensation to "qualified clients." The amendments are intended to "streamline" the process for adjusting the assets-under-management and net worth tests for inflation.
Under the rule, a "qualified client" is defined by reference to specific dollar thresholds, which are updated every five years to account for inflation. This rulemaking amends references in the "qualified client" definition to (i) modify the process for changing assets-under-management and net worth tests, and (ii) ensure Rule 205-3 is always consistent with SEC adjustment orders accounting for inflation.
Citing the Administrative Procedure Act, the SEC did not provide notice of proposed rulemaking, stating the amendments did not "substantively change" the calculation methodology or amount for dollar amount thresholds. The SEC also chose to waive the 30-day delay in effectiveness, noting "the current rule's dollar thresholds do not conform to the dollar thresholds adopted pursuant to the most recent order." As a result, the rule amendment is effective as of November 10, 2021.
Primary Sources
- SEC Final Rule: Performance-Based Investment Advisory Fees
- SEC Fact Sheet: Inflation Adjustments of Qualified Client Thresholds
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