July 14, 1989
TO: INVESTMENT ADVISER MEMBERS NO. 37-89
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 36-89
RE: NEW JERSEY ADOPTS PERFORMANCE FEE COMPENSATION RULE
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Effective June 19, 1989, New Jersey has adopted a
performance fee compensation rule for investment advisers. A
copy of the rule is attached.
While the New Jersey rule generally mirrors Rule 205-3
under the Investment Advisers Act of 1940, it differs from the
federal rule in two material ways. First, the New Jersey rule
requires that an investment advisory client who enters into a
performance fee arrangement with an investment adviser have a net
worth at the time the contract is entered into which exceeds $1
million. As you know, the federal rule requires that an
investment advisory client have either $500,000 or more to place
under management with the adviser or $1 million in net worth at
the time of entering into a performance fee arrangement. The New
Jersey rule also excludes a prospective client's home, farm, car
and furnishings from the net worth computation. The federal rule
is silent on this issue.
Second, "independent agent" has been deleted and replaced
with "representative" to make it clear that investment adviser
representatives may be required to register or otherwise comply
with certain provisions in the New Jersey investment adviser law.
Robert L. Bunnen, Jr.
Assistant General Counsel
Attachment