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ARTICLE · 10 JUNE 2016

SEC To Increase Qualified Client Net Worth Threshold

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Every five years, the US Securities and Exchange Commission is required to adjust for inflation the agency's dollar-based qualification tests for when an SEC-registered investment adviser can receive compensation...

United StatesCorporate/Commercial Law
A&O Shearman
A&O Shearman
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John Adams
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Lorna Xin Chen
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Azam Aziz
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Geoffrey Goldman
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Every five years, the US Securities and Exchange Commission is required to adjust for inflation the agency's dollar-based qualification tests for when an SEC-registered investment adviser can receive compensation based on investment performance. Those tests establish "qualified client" status, which requires that the client generally should have $1 million under management with the adviser or a net worth of $2 million. The $2 million net worth test is set to increase to $2.1 million.

Background

Section 205 of the US Investment Advisers Act of 1940 generally prohibits a registered investment adviser from receiving compensation based on a share of capital gains on or appreciation of funds of an advisory client (in what is variously termed "performance compensation," "carry" or an "incentive interest"). Recognizing that these arrangements nonetheless can be appropriate, Rule 205-¬3 under the Act permits such compensation or incentives so long as the advisory

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