The U.S. Securities and Exchange Commission on February 15, 2012 adopted amendments (the “Amendments”) to Rule 205-3 under the Investment Advisers Act of 1940 (“Advisers Act”), which tighten the net worth eligibility requirements for “qualified clients” who may pay performance fees to a registered investment adviser.
Rule 205-3 provides an exemption from the general prohibition on charging performance fees under Section 205(a)(1) of the Advisers Act. Under current Rule 205-3, a registered investment adviser is permitted to charge clients a performance fee if the client’s net worth or the assets managed for the client by the investment adviser meet certain thresholds. The current rule allows the payment of performance fees if the client has at least $750,000 of assets under management with the adviser prior to entering into the advisory contract, or if the adviser reasonably believes the client has a net worth exceeding $1.5 million at the start of the contractual relationship.
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