The SEC today announced its plan to raise certain dollar thresholds for investment advisers to meet before they can charge their clients performance fees.  The SEC seeks public comments, to satisfy a requirement of the Dodd-Frank Reform Act.  Comments on the SEC’s proposed rule amendments should be received by 7/11.  Rule 205-3 under the Investment Advisers Act of 1940 allows an adviser to charge its clients performance fees in certain circumstances, 2 of them being:  

• The client has at least $750,000 under management with the adviser.
• The adviser reasonably believes the client has a net worth of more than $1.5 million.

Section 418 of Dodd-Frank requires the SEC to issue an order to adjust for inflation these dollar amount thresholds by 7/21/11, and every 5 years thereafter.  With yesterday's announcement, the SEC announced its intent to revise the dollar amount tests to $1 million for assets under management and $2 million for net worth.  The SEC also proposed related amendments to Rule 205-3 that would:

• Provide the method for calculating future inflation adjustments of the dollar amount tests.
• Exclude the value of a person’s primary residence from the determination of whether a person meets the net worth standard.
• Modify the transition provisions of the rule to take into account performance fee arrangements that were permissible at the time the adviser and client entered into their advisory contract.

For further details, go to:   [SEC PR 11-109, 5/10]   and   [SEC Proposed Rule Release IA-3198, "Investment Adviser Performance Compensation"]