Investment Adviser Performance-Based Compensation Modernization

The SEC is proposing to amend the rule under the Investment Advisers Act of 1940 that exempts registered investment advisers from the prohibition on receiving compensation based on a client account’s capital gains or appreciation. Specifically, the amendments would expand the ability of investment advisers to receive this compensation from registered management investment company and business development company clients, subject to certain conditions, while requiring funds to separately disclose performance-based compensation paid to the adviser in registration and reporting forms. Additionally, the proposal would broaden the rule’s “qualified client” definition to include “accredited investors” under Regulation D.