Increasing the assets-under-management test to $1 million and the net worth test to $2 million (these thresholds conform with those set by the SEC in July 2011 to comply with requirements under the Dodd-Frank Act (see Legal Update, SEC Raises Qualified Client Performance Fee Thresholds for Investment Advisers)).

Excluding the value of an individual investor's primary residence and the amount of debt secured by the property from the determination of the net worth test. However, if the secured debt exceeds the property's estimated fair market value or the secured debt was incurred within 60 days before the advisory contract was entered into (other than as a result of acquiring the primary residence), the excess or additional debt will be considered a liability in calculating net worth.

Requiring the SEC to issue an order every five years adjusting for inflation the dollar amounts of the assets-under management and net worth tests. The Personal Consumption Expenditures Chain-Type Price Index, published by the Department of Commerce, will be the inflation index used to calculate future inflation adjustments.

Modifying the transition provisions to allow an investment adviser to continue charging clients performance fees if the clients were considered qualified clients before the amendments and to allow newly registering investment advisers to continue charging performance fees to those clients who were already being charged performance fees. The transition provisions also allow for limited transfers of interests by gift or bequest, or pursuant to an agreement relating to a legal separation or divorce, to transferees who are not qualified clients.