SEC Again Makes It Harder for Advisers to Offer Performance Fees (5/27/21)
The SEC intends to raise the threshold for qualified clients to whom advisers can charge a performance fee.
Unless a hearing occurs (which is unlikely) an adviser will only be able to charge a performance fee to clients who have at least $1.1 Million in assets under management with the adviser or $2.2 Million in net worth. Rule 205-3 allows advisers to charge performance fees only to these qualified clients. The SEC is required to adjust the qualified client definition every 5 years to account for inflation. The SEC increased the thresholds in both 2011 and 2016. The new qualified client standards will apply after July 10.
We would prefer that the SEC make it easier for advisers to offer performance fees rather than more difficult by reducing the number of possible clients who could benefit. But, the law is the law is the law.
Read Release here.