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ARTICLE · 16 AUGUST 2021

SEC Increases Registered Investment Adviser Performance Compensation Net-Worth And Assets-Under-Management Tests

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Section 205 under the Advisers Act generally prohibits an RIA from receiving compensation based on a share of the capital gains on or appreciation of the assets of an advisory client.

United StatesFinance and Banking
Financial Markets And Funds Practice Group
Financial Markets And Funds Practice Group
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Key Points

  • Effective as of August 16, the dollar amount tests specified in the definition of "Qualified Client" in Rule 205-3 under the Investment Advisers Act of 1940 (Advisers Act) will increase for the net-worth threshold from $2.1 million to $2.2 million and for the required assets-under-management threshold from $1 million to $1.1 million. As a result, federally registered investment advisers (RIAs) should consider taking the following actions to with respect to their documentation:
    • RIAs who charge performance fees should revise applicable net-worth and assets-under-management representations in their 3(c)(1) fund subscription agreements to reflect the updated thresholds for new separately managed account clients and 3(c)(1) fund investors.

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