SEC Adopts New Rules on Advisory Performance Fee Charges

On Wednesday February 15, 2012, the Securities and Exchange Commission (the "SEC") announced tightened rules on investment advisory performance fees, raising the net worth requirement for investors who pay performance fees by excluding the value of the investor’s home from the net worth calculation.  Under the SEC’s rule, registered investment advisers may charge clients performance fees if the client has at least $1 million of assets under management with the adviser (up from $750,000) or a net worth of at least $2 million (up from $1.5 million).  Investors who meet the net worth or asset threshold are deemed to be “qualified clients,” able to bear the risks associated with performance fee arrangements.

These rule changes conform the rule’s dollar thresholds to the levels set by a July 2011 SEC order pursuant to Section 418 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").  Section 418 requires that every five years the SEC adjusts these thresholds for inflation.  The revised rule will exclude the value of a client’s primary residence and certain property-related debts from the net worth calculation; the change is not required by the Dodd-Frank Act, but is consistent with changes the SEC approved in December to net worth calculations for determining who is an “accredited investor” eligible to invest in certain unregistered securities offerings.

Read the SEC press release

CFTC Adopts New Rules on Advisory Performance Fee Charges

On Friday February 17, 2012, the Commodity Futures Trading Commission (the "CFTC") adopted final rules to implement Section 4s(h) of the Commodity Exchange Act pursuant to Section 731 of the Dodd-Frank Act.  These rules prescribe external business conduct standards for swap dealers and major swap participants.  Swap dealers and major swap participants must comply with these rules on the later of October 14, 2012, or the date on which swap dealers or major swap participants are required to apply for registration pursuant to CFTC rule 3.10.

© 2012 Perkins Coie LLP