One of the most versatile and popular ERISA exemptions used by discretionary investment managers is the QPAM Exemption. Embedded in the exemption are financial requirements (i.e., capital and assets under management requirements) applicable to the investment manager based on the manager’s prior fiscal year.
The DOL explained that the minimum capital and assets under management requirement are designed to ensure that the investment manager (i.e., the QPAM) is large enough to ward off undue influence over its decision-making by parties in interest. This can prove very challenging for brand new managers because the exemption requires the manager have a prior fiscal year under its belt. There can be work-arounds for new managers, but they should be carefully considered before sending out an investment manager agreement that includes a representation that the investment manager is a QPAM.