Performance Fee Thresholds for Investors to be Raised by the SEC

June 9th, 2011
by Daniel Carlson
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High net-worth investors will enjoy lower fees—that is, if the Securities and Exchange Commission’s (SEC’s) proposed changes to performance based fees proceed as planned.

The SEC intends to increase the dollar thresholds investors must meet before financial professional can charge them performance based fees. Currently, the thresholds are determined under two provisos of Rule 205-3 of the Investment Advisers Act: (1) brokers must have a reasonable belief that the client has a net worth of more than $1.5M, or (2) they must manage a minimum of $750,000 worth of investments for the client.

According to investment recovery lawyer Daniel Carlson of Carlson Law Firm, APC the current Act contains inherent risks for the average investor because it could encourage brokers to take big risks in order to make bigger fees: “If a high-risk investment fails, brokers don’t experience the financial consequences personally, but investors, particularly retirees, can end up losing everything.”

The SEC says it will issue an order revising the test for allowing performance fees to (1) a reasonable belief that the investor has $2 million in net worth or (2) $1 million of assets under management. In addition, the SEC order will exclude an investors primary residence from consideration in the 2 million dollars net worth evaluation, add a method for factoring inflation into the dollar amount tests.

If you are a high net-worth investor and have been exposed to unsuitable risk, you may have a claim for recovery of your losses.  Contact Carlson Law at 619-544-9300 for a free consultation.

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Posted in Fiduciary Duty Breach, Securities Law, Uncategorized | Comments (1)

  • Marcy Bowdre says:

    It is hard to search out knowledgeable individuals on this topic, but you sound like you know what you are talking about! Thanks

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