Question

An Investment Adviser Representative (IAR) is also a registered broker-dealer. The IAR has a brokerage client who has a $1,200,000 account; and a net worth of $2,500,000. The client wants the IAR to take over the management of the account, with the IAR to be compensated on a performance basis. The IAR should tell this client that the account:

Answer 1

Performance fees are only permitted for wealthy clients who have at least $1,000,000 invested or have a minimum $2,100,000 net worth, therefore this client qualifies under the Investment Advisers Act of 1940.

Who is an Investment Adviser Representative?

A representative of an investment adviser is typically someone who, in exchange for payment,

• makes recommendations or otherwise renders advice regarding securities.
• manages client accounts or portfolios.
• chooses which recommendations or advice regarding securities should be given.

Investment Advisory Act of 1940

Investment consultants are governed by this statute. With few exceptions, this Act mandates that businesses or single proprietors who get payment for advising people on securities investments register with the SEC and abide by rules meant to safeguard investors.

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