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Alternative Market Briefing

SEC sets higher net worth threshold for qualified clients under the Advisers Act

Thursday, June 23, 2016

Komfie Manalo, Opalesque Asia:

The Securities and Exchange Commission (SEC) moved to adopt a proposal to increase the net worth threshold for 'qualified clients’ under Investment Advisers Act of 1940 (the Advisers Act) from $2m to $2.1m. This adjustment is being made pursuant to a five-year indexing adjustment required by the Advisers Act.

The order was released on June 14.

In a client alert, Proskauer said that registered investment advisers generally are prohibited by the Advisers Act from charging performance-based compensation. An exemption from this prohibition is provided by Rule 205-3 under the Advisers Act for clients that meet the definition of a 'qualified client.'

Currently, Rule 205-3 provides that in order to be a qualified client, a client must have either at least $1m of assets under the management of the investment adviser, or a net worth (together, in the case of a client which is a natural person, with assets held jointly with a spouse) which the investment adviser reasonably believes to be in excess of $2m. These amounts were last adjusted on September 19, 2011, when the assets under management threshold was increased from $750,000, and the net worth threshold was increased from $1.5m. A qualified client also includes both a 'qualified purchaser’ as defined in section 2 of the......................

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