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GAO-12-503R 1 (2012-03-02)

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          GAO
        Accountability * Integrity * Reliability
United States Government Accountability Office
Washington, DC 20548


          B-323172


          March 2, 2012

          The Honorable Tim Johnson
          Chairman
          The Honorable Richard C. Shelby
          Ranking Member
          Committee on Banking, Housing, and Urban Affairs
          United States Senate

          The Honorable Spencer Bachus
          Chairman
          The Honorable Barney Frank
          Ranking Member
          Committee on Financial Services
          House of Representatives

          Subject: Securities and Exchange Commission: Investment Adviser Performance
                  Compensation

          Pursuant to section 801 (a)(2)(A) of title 5, United States Code, this is our report on a
          major rule promulgated by the Securities and Exchange Commission (Commission),
          entitled Investment Adviser Performance Compensation (RIN: 3235-AK71). We
          received the rule on February 17, 2012. It was published in the Federal Register as
          a final rule on February 22, 2012, with an effective date of May 22, 2012. 77 Fed.
          Reg. 10,358.

          The final rule amends the rule under the Investment Advisers Act of 1940 that
          permits investment advisers to charge performance based compensation to
          qualified clients also known as rule 205-3. The amendments revise the dollar
          amount thresholds of the rule's tests that are used to determine whether an
          individual or company is a qualified client. These rule amendments codify revisions
          that the Commission recently issued by order that adjust the dollar amount
          thresholds to account for the effects of inflation. In addition, the rule amendments:
          provide that the Commission will issue an order every 5 years in the future adjusting
          the dollar amount thresholds for inflation; exclude the value of a person's primary
          residence and certain associated debt from the test of whether a person has
          sufficient net worth to be considered a qualified client; and add certain transition
          provisions to the rule.


GAO-12-503R

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