October 20, 2021
Economy

Dollar Threshold Change for “Qualified Client” Definition under the Investment Advisers Act | Pillsbury Winthrop Shaw Pittman LLP

Section 205(a)(1) of the Advisers Act generally restricts an investment adviser from entering into, extending, renewing, or performing any investment advisory contract that provides for compensation to the adviser based on a share of capital gains on, or capital appreciation of, the funds of a client (“performance compensation prohibition”). Rule 205-3 of the Advisers Act provides a limited exemption from the performance compensation prohibition and permits investment advisers to receive performance-based compensation (incentive allocations, carry, carried interest, performance fee etc.) from “qualified clients.”

After August 16, a “qualified client” is a person that:

(i) has at least $1.1 million in assets under management with the investment adviser immediately after entering into the advisory contract (AUM test); or

(ii) has a net worth (in the case of a natural…

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