The Securities and Exchange Commission (SEC) announced a proposal for Investment Adviser Performance-Based Compensation Modernization, which calls for an exemption from the statutory prohibition on registered investment advisers receiving compensation on the basis of a share of capital gains in or capital appreciation of an advisory client’s account. It would require specialized disclosures in the fee table and management discussion.
Funds are already required to tag their fee tables in Inline XBRL so the new disclosure requirements about performance-based compensation, including the footnote to the fee table and the expense example, would also need to be tagged. The Commission will need to make taxonomy changes to reflect the revised disclosures.
The proposal notes that the Commission considered requiring Inline XBRL for performance fee arrangement disclosures, for example, whether the fund has a performance compensation arrangement, the basis of performance compensation, frequency of payment, whether a hurdle rate applies, percent of profit subject to the performance fee, etc. (see page 196). The proposal notes about a scenario where Inline XBRL would be required, “Under this alternative, performance fee information would be easily accessible to investors and information intermediaries in a standardized, machine-readable format. Structured XBRL disclosure would enable systematic comparison of performance fee arrangements across funds, reduce investor search costs, and facilitate Commission staff examination and analysis. This approach would also complement the proposed fee table disclosure by providing granular, field level data that the fee table’s line-item format cannot capture.”
The published proposal, however, opts not to propose Inline XBRL, suggesting that this approach would “impose significant initial implementation burdens on regulated funds and their service providers, requiring the application of new elements from updated data taxonomies and adjustment of tagging infrastructure.” The proposal also suggests that the varied nature of performance fee arrangements may not be easily captured in structured format.
Comments are due by December 7, 2026.
