SEC increases monetary thresholds for “qualified clients”
On June 17, 2021, the Securities and Exchange Commission (the “SEC”) issued an order (the “Order”) increasing the monetary thresholds contained in the “qualified client” standard in Rule 205-3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Rule 205-3 of the Advisers Act allows SEC registered investment advisers to receive performance-based compensation from clients who qualify as “qualified clients.”
Pursuant to the Order, the SEC:
- increased the minimum net worth threshold for qualified clients from $2,100,000 to $2,200,000; and
- increased the minimum assets under management with the SEC registered investment adviser for qualified clients from $1,000,000 to $1,100,000.
The SEC issued the Order pursuant to Section 205(e) of the Advisers Act which requires the SEC to adjust the dollar amount tests contained in the qualified client definition every five (5) years to account for the effects of inflation, rounded to the nearest multiple of $100,000.
The Order will be effective on August 16, 2021. Any client who entered into an investment advisory contract with an SEC registered investment adviser, and any investor who invested in a private fund managed by an SEC registered investment adviser, prior to August 16, 2021 will be grandfathered in under the previous qualified client thresholds and will not be subject to the foregoing adjustments. Nevertheless, SEC registered investment advisers who receive performance based compensation (including those SEC registered investment advisers whose affiliated general partners are entitled to receive an incentive allocation or carried interest) should update their managed account agreements and their funds’ offering documents as necessary to reflect the revised qualified client standard.
For more information on the topic discussed, contact:
BulletPoint® is a newsletter of Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Investment Management practice. It is an alert covering recent regulatory and tax developments impacting the financial services industry. To subscribe for the newsletter, send email to firstname.lastname@example.org.