SEC Issues Order Raising Threshold For Net Worth Test To Adjust For Inflation

On June 14, 2016, the Securities and Exchange Commission (the "SEC") issued an order, effective August 15, 2016, with respect to Rule 205-3 under the Investment Advisers Act of 1940 (the "Advisers Act"), raising the net worth test for a "qualified client" from $2 million to $2.1 million.

On June 14, 2016, the Securities and Exchange Commission (the "SEC") issued an order¹, effective August 15, 2016, with respect to Rule 205-3 under the Investment Advisers Act of 1940 (the "Advisers Act"). Rule 205-3 creates exemptions to Section 205(a)(1) of the Advisers Act such that investment advisers may enter into performance-based compensation arrangements with "qualified clients." Prior to the August 2016 Order, based upon an SEC order effective May 22, 2012², "qualified clients" included (i) clients that had at least $1,000,000 in assets under the management of the investment adviser immediately after entering into the contract (the "AUM Test"), and (ii) clients that