The Securities and Exchange Commission is tightening rules on investment advisory performance fees, raising the net worth requirement for investors who pay performance fees.

Under the Commission’s rules, registered investment advisors can charge performance fees providing that a client’s net worth or assets under management by the advisor reach a certain dollar threshold. Such clients are called “qualified clients,” and are considered able to bear the risks surrounding performance-fee agreements.

The revised rules raise the qualified client threshold from $750,000 to $1 million in assets under management with the advisor, or, in the case of net worth, from $1 million to $2 million, conforming with an order set by the SEC in July 2011 as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Additionally, the revised rules exclude the value of a client’s primary residence and certain property-related debts from the calculation. This further amendment to the rules was not required by Dodd-Frank, but was made as part of changes to the definition of an “accredited investor,” approved by the regulator in December.  

Registered investment advisors can, however, continue to charge clients who were considered qualified clients before the rule changes, due to a provision to the rule. The provision also allows newly-registering investment advisors to continue charging those clients performance fees whom they were previously charging.

In related news, as under Dodd-Frank the SEC is required to implement a number of rules, it said in its budget justification recently for FY 2013 that it will bolster its resources to meet growing demand for interpretive advice as these take shape.