SEC Keeps Tinkering With Raising The Performance Fee Threshold

Friday, May 13, 2011 06:07
SEC Keeps Tinkering With Raising The Performance Fee Threshold

Tags: high net worth | profitability | registered investment advisors

Advisors who charge a hedge-fund-like fee for performance are going to need more hedge-fund-like clients soon starting in July. But the SEC still wants comments on the rule change.

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Right now, investors need to have $750,000 in an advisory account and at least $750,000 elsewhere before an advisor can charge added performance fees.


These fees return a percentage of the return on advisory assets to the advisor who made them possible, rewarding extraordinary efforts to find high-performing investments much like hedge fund managers are rewarded.


Under Dodd-Frank, the monetary threshold on what constitutes a "qualified" investor who can be charged such fees has to rise.


The SEC now warns that it's going to issue new guidance in July that raises the requirements to $1 million in the account and another $1 million in other assets -- and that it's leaning toward excluding the value of an investor's home from those calculations.


At the moment, the SEC says it's planning on grandfathering existing performance fee programs, but this part of the rule, like the residential exclusion, isn't set in stone yet.


They're still accepting comments on the proposed changes here.


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