The Securities and Exchange Commission recently gave notice ofits plan to raisecertain dollar thresholds that would need to be met beforeinvestment advisers can charge their clients performance fees.

The plan would satisfy a requirement of the Dodd-Frank Act.

Currently, Rule 205-3 under the Investment Advisers Act allowsan adviser to charge its clients performance fees in certaincircumstances, which include:

1. The client has at least $750,000 undermanagement with the adviser.
2. The adviser reasonably believes theclient has a net worth of more than $1.5 million.

Section 418 of the Dodd-Frank Act requires the SEC to issue anorder to adjust the dollar thresholds for inflation by July 21,2011, and every five years thereafter. As a result, the SEC issuedlast week's notice that it intends to issue an order to revise thedollar amount tests to $1 million for assets under management and$2 million for net worth.

The SEC also proposed related amendments to Rule 205-3. Thefirst would provide the method for calculating future inflationadjustments of the dollar amount tests, and the second wouldexclude the value of a person’s primary residence from thedetermination of whether a person meets the net worth standard. Thethird amendment would modify the transition provisions of the ruleto take into account performance fee arrangements that werepermissible at the time the adviser and client entered into theiradvisory contract.

The SEC is seeking public comment on both the threshold changesand the proposed related rule amendments. Hearing requests on theSEC’s notice for an order should be received by June 20, 2011, andcomments on the SEC’s proposed rule amendments should be receivedby July 11, 2011.