AttorneysEd Center

The Dodd-Frank Wall Street Reform and Consumer Protection Act has brought about significant changes to the suitability standards used to determine whether investors can invest in private offerings or private funds or be subject to certain fee arrangements with respect to private funds. In this program, K&L Gates LLP presenters Kay Gordon and Yusef Alexandrine explain the regulatory requirements surrounding the new SEC rules governing these suitability standards, including the following:
• amendments to the net worth standard to exclude the value of a person’s primary residence and certain related secured debt used to determine whether a person qualifies as an “accredited investor” eligible to purchase unregistered securities pursuant to private and other limited offering exemptions under the Securities Act of 1933, such as offerings pursuant to Regulation D;
• amendments to the net worth standard and asset threshold used to determine whether a person is permitted to be subject to a performance fee or allocation (and is therefore a “qualified client,” as defined under the Investment Advisers Act of 1940) paid or allocated to the registered investment adviser with whom such person invests; the amended rule requires “qualified clients” to have at least $1 million of assets under management with the adviser, up from $750,000, or a net worth of at least $2 million, up from $1 million.
• new grandfather provisions to permit registered investment advisers to continue to charge clients performance-based compensation if the clients were considered “qualified clients” before the rule changes and to preserve certain investors’ ability to purchase privately offered securities pursuant to the pre-Dodd-Frank accredited investor net worth test.