Adjustments to “Qualified Client” Dollar Thresholds

Icon ResourceThe SEC issued an order on June 14, 2016 approving inflation-related adjustments to the dollar amount tests in Rule 205-3 of the Investment Advisers Act of 1940. Under Rule 205-3, SEC-registered investment advisers are permitted to charge performance-based compensation to “qualified clients.” Currently, an adviser can charge performance fees if the client has at least $1 million under management with the adviser (assets-under-management test) or if the adviser reasonably believes that the client has a net worth of more than $2 million (net worth test).

While the “assets-under-management test” will remain the same at $1 million, effective August 15, 2016, the dollar amount of the “net worth test” will increase from $2 million to $2.1 million.

 

Note: This may affect your categorization of your Types of Clients in Form ADV Part 1, Item 5.D as the definition of High Net Worth Individuals relies on the definition of Qualified Clients under Rule 205-3.

 

View Order Approving Adjustment

 

 

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