The Securities and Exchange Commission has adopted amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the Advisers Act), to revise the definition of "qualified client." Under Rule 205-3, accounts of qualified clients are exempted from the Advisers Act's general prohibition against SEC-registered investment advisers charging performance-based fees to their advisory clients. Currently, a qualified client generally includes any client that has either (1) $750,000 or more under management with the investment adviser or (2) a net worth of at least $1.5 million.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC is required to adjust the dollar amount tests set forth in certain of its rules, including the qualified client definition, for inflation. Under the amendments to the rule, the qualified client definition will be revised to increase the "assets under management" threshold described above from $750,000 to $1 million and the "net worth" threshold from $1.5 million to $2 million. In addition, the revised definition will exclude the value of a natural person's primary residence (and associated secured indebtedness) for purposes of the net worth threshold. The SEC will make similar inflation adjustments every five years.

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