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SEC Raises Net Worth Threshold for ‘Qualified Client’ Status to $2.1 Million Effective Aug. 15, 2016

As it previously signaled it would do, on June 14, 2016, the SEC issued an Order (available here) increasing the net worth threshold for qualification as a “qualified client” under Rule 205-3 under the Advisers Act from $2 million to $2.1 million (the SEC did not adjust the assets under management of the adviser threshold, which remains at $1 million). This is the Rule that permits registered investment advisers (and their affiliates) to charge and receive capital gains-based fees, including performance fees characterized as carried interest or promote interest payments.

The change becomes effective on Aug. 15, 2016, although the Order indicates that the increase will not be applied retroactively to contractual relationships entered into prior to that date (provided the transition conditions of Rule 205-3 are met).  Registered investment advisers who charge such fees, including investment advisers sponsoring or otherwise affiliated with private fund offerings that anticipate holding one or more closings on or after contact their attorney assisting them with regulatory and/or fund formation matters now to begin the process of updating the necessary documentation and com August 15, 2016, should consult with their counsel orpliance procedures.

Special thanks to Michael Feldman* for his assistance with this blog post.

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About this Author

Richard Cutshall, Greenberg Traurig Law Firm, Chicago, Corporate, Finance and Real Estate Law Attorney

Richard M. Cutshall has experience representing clients in a variety of investment management, corporate, and general securities matters, including the representation of mutual funds and other funds registered under the Investment Company Act of 1940, fund independent directors, unregistered investment companies, federally registered and state registered investment advisers, broker-dealers, and an array of public and private companies. 

Rich represents clients in all aspects of investment company practice, including organizing and forming new...