Monthly Archives: May 2012

Amended SEC rule changes to whom advisers can charge incentive fees to

New Requirement for Performance Fees.

Under the New Rule, performance based fees, i.e., a percentage of the capital gain, can be charged generally to if the client has at least $1M in assets under management with the advisor; or the client has net worth of $2M, excluding the value of the client’s primary residence.

Grandfathered Clients.

Essentially, if the contract was legal when entered then it is still legal. Under the prior version of the rule the amount under management with the advisor was $750,000 and the net worth requirement was $1,500,000. In addition, the equity in one’s home was counted as part of the client’s net worth. Such equity is no longer counted! Different rules may apply to new owners of an existing client including individual members of a private investment fund.  Please direct your specific inquiries to author listed below.

Other wrinkles.

Debt secured by the primary residence are generally not counted in the client’s net worth calculations. The exception to this rule is that any increase in the amount of debt sixty (60) days before the advisory contract is entered into is to be included as a liability. Moreover, debt on the primary residence in excess of its fair market value must be included as a liability. Given the diminished value of housing, this may be a significant exception to the rule.

The effective date for the new rule is May 22, 2012.


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