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SEC proposes to update performance fee rules

May 11 2011 Stuart Gittleman, Compliance Complete

The Securities and Exchange Commission has requested public comment on a proposal to raise certain dollar thresholds for investment advisers to charge their clients performance fees. Rule 205-3 of the Investment Advisers Act of 1940 lets advisers charge clients performance fees in certain circumstances, two of which are if: the client has at least $750,000 under management with the adviser; and the adviser reasonably believes the client has a net worth over $1.5m. Section 418 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to issue an order to adjust these dollar amount thresholds for inflation by July 21, and every five years thereafter. The SEC intends to revise the dollar amount tests to $1m for AUM and $2m for net worth. The SEC has also proposed related amendments to the rule 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

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