The Securities and Exchange Commission (SEC) issued an order on June 14, 2016 increasing the dollar amount thresholds of the assets under management test and net worth tests used to determine if a client meets the qualified client standard under Rule 205-3 of the Investment Advisers Act of 1940. That Rule allows investment advisers registered with the SEC to charge their managed account clients and private funds they manage performance-based compensation only if the client meets the qualified client standard.
As of August 15, 2016, in order for a client to meet the qualified client standard, that client has to have either (1) $1,000,000 in assets under management with the investment advisor, or (2) a net worth of more than $2,100,000. Currently, a qualified client is a person that has at least $1,000,000 in assets under management with the investment advisor or a net worth of $2,000,000. This new Order increases the threshold of net worth by $100,000.
Although this order was initiated by the SEC, many of the states incorporate this Rule for state registered investment advisors, as well. Be sure to amend your documents with this important new update!
