SEC raises monetary thresholds for certified prospects – company / industrial regulation

Winstead PC
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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