The Securities and Exchange Commission (SEC) recently adopted a
final rule (Rule) to raise the requirements for investors who pay
performance-based fees. Registered investment advisers may only
charge performance fees to "qualified clients" that meet
required net worth or assets under management thresholds. The Rule
increases these thresholds, as mandated by the 2010 Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act), and
excludes the value of the client's primary residence from the
net worth calculation.
Pursuant to the Rule, clients must have at least a $2 million
net worth or $1 million of assets under management with the adviser
to meet the new qualified client thresholds. Previously, these
amounts were $1.5 million and $750,000, respectively. The
client's net worth must now be calculated by excluding the
value of the primary residence as well as the debt secured by the
residence, up to the fair market value of the residence. The
Rule's
