The Investment Advisers Act of 1940, as amended (the “Advisers Act”), generally prohibits SEC‑registered investment advisers (“RIAs”) from entering into an advisory contract that charges a performance fee to a client who is not a “qualified client” under Rule 205-3(d)(1) under the Advisers Act.[1]  Effective Monday, August 16, 2021 (the “Effective Date”), an inflation adjustment has raised two of the thresholds for determining whether a client is a “qualified client” by $100,000.

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The SEC adjusted the definition of “qualified clients,” becoming effective on August 16, 2021, pursuant to the  Dodd-Frank Act of 2010, requiring such an adjustment for inflation every five years.  Investment Advisers Act of 1940 Section 205(a)(1) prohibits an RIA from charging a client a performance-based fee unless the client is a qualified client having a particular new work.

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