{"id":886,"date":"2011-05-24T19:08:18","date_gmt":"2011-05-24T19:08:18","guid":{"rendered":"https:\/\/www.stockbrokerfraudblog.com\/2011\/05\/sec_to_up_dollar_thresholds_fo"},"modified":"2022-03-09T16:06:04","modified_gmt":"2022-03-09T22:06:04","slug":"sec-to-up-dollar-thresholds-fo","status":"publish","type":"post","link":"https:\/\/www.investorlawyers.com\/blog\/sec-to-up-dollar-thresholds-fo\/","title":{"rendered":"SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees"},"content":{"rendered":"

\t\t\t\tThe Securities and Exchange Commission says it will raise the dollar thresholds that would need to be met before an investment adviser can charge a client a performance fee. The monetary thresholds are related to two tests under the 1940 Investment Advisers Act that let investment advisers charge performance-based fees to “qualified clients.” <\/p>\n

Under the Act’s Rule 205-3, advisers can charge performance fees in certain circumstances: The investment adviser needs to be managing at least $750,000 for the client or the advisers must reasonably believe that the client’s net worth is over $1.5 million. Shepherd Smith Edwards & Kantas LTD LLP founder and securities fraud lawyer William Shepherd<\/a> says, “Sharing in performance is dangerous because the advisors can afford to take large risks with ‘other people’s money’ – risks that the investor may not be able to afford. A combined life savings of $750,000 is not a large sum for retirees, and what does it even mean to ‘reasonably believe’ someone has a net worth of $1.5 million?” <\/p>\n

The SEC says that now it will issue an order to revise rule 205-3’s dollar amount tests to $1 million for assets under management and $2 million for net worth. It also proposed amendments to the rule, including: <\/p>\n

\u2022\tExcluding the individual’s primary residence when determining net worth.
\n\u2022\tProviding a method to figure out future inflation adjustments of the dollar amount tests.
\n\u2022\tModifying the rule’s transition provisions to factor in account performance fee arrangements that were allowed when the client and the adviser entered into their contract. <\/p>\n

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 418, the SEC has until July 21, 2011 to adjust for inflation the dollar amount tests under Rule 205-3 of this year and after every five years from then on. The act has also directed the SEC to adjust under 1933 Securities Act the net worth standard of an “accredited investor” so that it doesn’t include that individual’s primary residence.<\/p>\n

Related Web Resources: <\/strong>
\nSEC Issues Notice of Plan to Adjust Adviser Performance Fee Dollar Thresholds, BNA Securities Law Daily, May 13, 2011
\nSEC Publishes Notice Regarding Inflation Indexing of Performance Fee Rule<\/a>, SEC.gov, May 10, 2011
\n1940 Investment Advisers Act<\/p>\n

<\/p>\n

More Blog Posts:<\/strong>
\nInvestments Advisers Told to Look at Recent SEC Enforcement Actions When Preparing for Exams<\/a>, Stockbroker Fraud Blog, April 20, 2011
\nNo Need for New SRO Overseeing Investment Advisers, Says NASAA Official to Congress<\/a>, Stockbroker Fraud Blog, April 10, 2011
\nSEC Extends Temporary Rule Allowing Principal Trades by Investment Advisers Registered as Broker-Dealers, Institutional Investor Securities Fraud Blog, January 13, 2011 Continue Reading \u203a<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The Securities and Exchange Commission says it will raise the dollar thresholds that would need to be met before an investment adviser can charge a client a performance fee. 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