Securities and Exchange Commission: Investment Adviser Performance Compensation
GAO-12-503R: Mar 2, 2012
- Full Report:
GAO reviewed the Securities and Exchange Commission's (Commission) new rule on investment adviser performance compensation. GAO found that (1) the final rule amends the rule under the Investment Advisers Act of 1940 that permits investment advisers to charge performance based compensation to qualified clients also known as rule 205-3. The amendments revise the dollar amount thresholds of the rules tests that are used to determine whether an individual or company is a qualified client. These rule amendments codify revisions that the Commission recently issued by order that adjust the dollar amount thresholds to account for the effects of inflation. In addition, the rule amendments: provide that the Commission will issue an order every 5 years in the future adjusting the dollar amount thresholds for inflation; exclude the value of a persons primary residence and certain associated debt from the test of whether a person has sufficient net worth to be considered a qualified client; and add certain transition provisions to the rule; and (2) Commission complied with applicable requirements in promulgating the rule.