August 1, 2021

SEC Increases Slightly ‘Qualified Client’ Dollar Amount Thresholds | Kramer Levin Naftalis & Frankel LLP

On June 17, 2021, the Securities and Exchange Commission (SEC) issued an order (the “Order”) approving a revision to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which exempts investment advisers from the general prohibition against charging clients performance fees when the client is a “qualified client,” increasing the dollar amount thresholds that must be met in order for a client to be considered a qualified client.

Generally, under Section 205(a)(1) of the Advisers Act, an investment adviser may not enter into any investment advisory contract that provides for compensation to the investment adviser based on a share of capital gains on, or capital appreciation of, the funds of a client (which are commonly referred to as performance fees).

However, pursuant to Rule 205-3 under the Advisers Act, an adviser may charge…

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