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ARTICLE · 22 JUNE 2016

SEC Adopts Higher Net Worth Threshold For Qualified Clients Under The Advisers Act

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In an order dated June 14, 2016, the SEC adopted its prior proposal to increase the net worth threshold for "qualified clients" under Rule 205-3 of the Investment Advisers Act of 1940 (the Advisers Act) from $2 million to $2.1 million.

United StatesFinance and Banking
Anthony Drenzek
Anthony Drenzek
Michael Mavrides
Michael Mavrides
Robert Leonard
Robert Leonard
Christopher Wells
Christopher Wells
Howard Beber
Howard Beber
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Sean Hill
Michael Suppappola
Michael Suppappola
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Katharine Parker
Charles Parsons
Charles Parsons
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In an order dated June 14, 2016, the Securities and Exchange Commission (SEC) adopted its prior proposal to increase the net worth threshold for "qualified clients" under Rule 205-3 of the Investment Advisers Act of 1940 (the Advisers Act) from $2 million to $2.1 million. This adjustment is being made pursuant to a five-year indexing adjustment required by section 205(e) of the Advisers Act.

Registered investment advisers generally are prohibited by section 205(a)(1) of the Advisers Act from charging performance-based compensation. An exemption from this prohibition is provided by Rule 205-3 under the Advisers Act for clients that meet the definition of a "qualified client."

Currently, Rule 205-3 provides that in order to be a qualified client, a client must have either (i) at least $1 million of assets under the management of the investment adviser1, or (ii) a net worth (together, in the case of a client which is a natural person, with assets held jointly with a

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