New Qualified Client Standards Take Effect on September 19
The SEC has issued an order setting September 19, 2011 as the date that higher qualification standards become effective for charging performance fees. As of that date, advisers can only charge performance fees to qualified clients that have either $1 Million under management with the adviser or more than $2 Million in net worth, which is an increase over the previous levels of $750,000 and $1.5 Million, respectively. Although it is not mentioned in the order, the previously issued notice of intent to issue the order indicated that (a) the value of a primary residence should be excluded from the calculation of net worth and (b) the higher thresholds would only apply to new agreements and fund investors.
OUR TAKE: Firms should begin amending disclosure documents and subscription and management agreements. Expect that these levels will rise over time, as the SEC has indicated that it will adjust the thresholds with inflation.