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Net Worth Threshold for “Qualified Clients” Increased by SEC

Anchin AlertJuly 28, 2016

Jeffrey I. Rosenthal, Partner-in-Charge, Financial Services Practice

Net Worth Threshold for “Qualified Clients” Increased by SEC

The U.S. Securities and Exchange Commission (“SEC”) has decided to increase the net worth test threshold for “qualified clients” effective August 15, 2016. In accordance with Rule 205-3 of the Investment Advisers Act of 1940, as amended, the SEC will be raising the net worth threshold for clients from $2 million to $2.1 million (excluding the value of the client’s primary residence).

Starting in 2011 the Dodd-Frank Act required the SEC to adjust the thresholds for inflation every 5 years. While the net worth threshold has been increased, the assets under management threshold will remain at $1 million. Clients who fail to meet one of these thresholds cannot be charged performance based fees. Clients that enter into investment advisory contracts prior to the August 15, 2016 effective date will not be affected by the threshold increase.

See below for link to complete SEC order approving the adjustment:
https://www.sec.gov/rules/other/2016/ia-4421.pdf

For more information, contact your Anchin relationship partner or Jeffrey I. Rosenthal, Partner-in-Charge of Anchin’s Financial Services Practice at 212.840.3456.

David Horton contributed to the development of this Anchin Alert.

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