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Tuesday, May 18, 2021 On Monday, May 10, 2021, the U.S. Securities and Exchange Commission (“SEC”) issued a Notice of Intent to Issue an Order that “would adjust for inflation dollar amount thresholds in the rule under the Investment Advisers Act of 1940 (the “1940 Act”), which permits investment advisers to charge performance-based fees” to certain clients. That Rule, 205-3, was originally adopted in 1985 and has been revised in 1998, 2011, and 2016, in each case adjusting the thresholds higher. Performance-Based Fees Rule 205-3 was adopted under Section 205(a)(1) of the 1940 Act, which prohibits an investment adviser from charging fees based on capital gains or capital appreciation of the client’s funds. This was intended to protect clients from adviser arrangements that “might encourage advisers to take undue risks with client funds.” Indeed, in a February 1, 1994, letter from the SEC’s Division of Investment Management, the Division Director explains that the prohibition in Section 205 (a)(1) was included because “Performance fees in effect …[in 1940] rewarded an adviser …for good performance, without penalizing it for poor performance.”