Compliance May 16, 2011

SEC Proposes Changing Definition of Qualified Clients for Performance Fees

The Securities and Exchange Commission (SEC) last week proposed raising certain dollar thresholds that would need to be met before investment advisers can charge their clients performance fees.
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The Commission plans to adjust two dollar amount tests in Rule 205-3 under the Investment Advisers Act of 1940 that permits investment advisers to charge performance based compensation to “qualified clients.”  As the rule reads currently, an adviser is permitted to charge clients performance fees in certain circumstances, including if:
   1. The client has at least $750,000 under management with the adviser.
   2. The adviser reasonably believes the client has a net worth of more than $1.5 million.

In the propsed rule, the SEC revises the dollar amount tests to account for the effects of inflation; revising the dollar amount tests to $1 million for assets under management and $2 million for net worth.  The Commission noted the Dodd-Frank Act requires the SEC to issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011 and every five years thereafter.  Therefore, the Commission’s proposal also includes amending the rule to provide that it will issue an order every five years adjusting for inflation the assets-under-management and net worth tests, as mandated by the Dodd-Frank Act.

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The SEC also proposed amending the net-worth standard to exclude the value of a person’s primary residence and debt secured by the property from the determination of whether a person meets the net worth standard. “The value of a person’s residence may have little relevance to an individual’s financial experience and ability to bear the risks of performance fee arrangements,” the Commission wrote.

The Commission’s also proposed related amendments to Rule 205-3 that would:

  • Provide the method for calculating future inflation adjustments of the dollar amount tests.
  • Modify the transition provisions of the rule to take into account performance fee arrangements that were permissible at the time the adviser and client entered into their advisory contract.

The SEC is seeking public comment on these proposed related rule amendments. Hearing requests on the SEC’s notice for an order should be received by June 20, 2011, and comments on the SEC’s proposed rule amendments should be received by July 11, 2011.

Products May 13, 2011

Russell Launches Client Engagement Platform

Russell Investments has launched LifePoints CONNECT, a client engagement platform for investment advisers.
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The Web-based tool enables individual advisers to engage particular clients with profiling tools, investment and savings plans, access to globally diversified portfolios, and quarterly economic and portfolio reviews. It automates the client and investment management process from planning through to implementation and reporting, and facilitates regular interaction between the adviser and the client, Russell said.

Specifically, Russell said the tool allows advisers to:

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  • Engage clients and prospects efficiently and easily with personalized communications.
  • Streamline the client assessment and investment recommendation process with integrated profiling and proposal tools.
  • Implement a solution to diversify and manage clients’ assets, including an investment plan and turnkey access to Russell’s asset allocation LifePoints Funds.
  • Deliver scalable, ongoing service that can be delivered according to a client’s needs, including a combination of fund information, quarterly reviews and investor newsletters, and additional information such as investor events that clients can participate in to help them stay engaged.
  • Manage clients through the LifePoints CONNECT dashboard, where the adviser can see clients at-a-glance and review the status of clients for each stage of the LifePoints CONNECT process.

LifePoints CONNECT is initially available to selected Russell adviser clients, including some 130 financial advisers with Raymond James Financial Institutions Division.


 

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