SEC raises monetary thresholds for certified prospects – company / industrial regulation
August 18, 2021
On August 16, 2021, the
Definition of “qualified customer” according to rule 205-3 of the
Investment Advisers Act of 1940 (“Advisers Act”)
Increase (i) from $ 1 million to $ 1.1 million (assets below
Management test) and (ii) from USD 2.1 million to USD 2.2 million (net
worth a test). Contracts entered into before August 16, 2021 will be
Be “grandfather” and not be subject to
Adjusted dollar amounts unless a customer was not a party
this Agreement becomes a party after this Effective Date.
Investment advisers and fund managers should consider their
Agreements need to be updated to reflect the new thresholds.
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Section 205 (a) (1) of the Consultants Act generally prohibits
Investment advisory agreements that provide compensation to a
Investment advisor based on a share of capital gains, or
Capital growth of a customer’s funds. However, rule 205-3
The Advisory Act provides a limited exception to this
Prohibition and allows investment advisors to
performance-related remuneration (e.g. performance assignments and
Carried Interest) by “qualified customers”. Under Texas
Law, any private hedge fund that (i) exempts from one
Filing advisor to the Texas State Securities Board and
(ii) relies on Section 3 (c) (1) of the Investment Company Act of
1940, as amended, may only have investors who are “qualified”
The Dodd-Frank Wall Street Reform and Consumer Protection Act
Changed Section 205 of the Advisors Act to require that the
Securities and Exchange Commission to adjust this financial
Threshold amounts every five years from July 21, 2011 for
Inflation based on personal consumption expenditure chain type
Price index published by the US Department of Commerce.
After raising the financial threshold on August 16, 2021 and
Investment advisors only receive performance-based
Fees if: (i) the client has assets of at least $ 1,100,000
Management with the consultant immediately after joining the
Consulting contract; or (ii) immediately prior to the completion of the
The advisor reasonably assumes that the client has a net
Valued at $ 2,200,000 or more.
Look at the SEC’s order.
The content of this article is intended to be general
Instructions on the subject. Expert advice should be sought
about your particular circumstances.
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