Institute Comment Letter on SEC's Proposed Amendments to Investment Advisers Act

Washington, DC, January 16, 1998 - Last November, the Securities and Exchange Commission proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, the rule that permits investment advisers to charge certain clients performance fees. The Institute has filed a comment letter on the proposal.

Amng other comments, the letter supports the proposed amendments to Rule 205-3 that would permit investment advisers to enter into performance fee arrangements with any client with a net worth in excess of $1,500,000 or assets under the management of the investment adviser of at least $750,000 ("qualified clients"). (The current requirements are $500,000 and $1,000,000 respectively.) The letter states that it is reasonable to revise the thresholds in the current rule, as proposed, to reflect the effects of inflation since Rule 205-3 was adopted in 1985. The letter also recommends that the Commission revise the proposed definition of qualified clients to include certain "knowledgeable employees" of the investment adviser even if they do not meet the rule's criteria regarding net worth or assets under management. Because of their financial acumen and experience in working in the investment advisory industry, these persons should be capable of protecting their own interests in negotiating performance fees.