SEC Raises “Qualified Client” Dollar Thresholds – Action May Be Required for Performance Fee Arrangements

Effective June 29, 2026, the U.S. Securities and Exchange Commission (the “SEC”) increased the dollar-amount thresholds used to determine “qualified client” status under Rule 205-3 of the Investment Advisers Act of 1940. The SEC adjusts these thresholds for inflation every five years; the current order is available here: https://www.sec.gov/files/rules/ia/2026/ia-6961.pdf.

What changed:

• Assets-under-management test: increased from $1,100,000 to $1,400,000 (assets under the adviser’s management immediately after entering into the advisory contract); and
• Net worth test: increased from $2,200,000 to $2,700,000 (excluding the value of the client’s primary residence).

Why it matters

Registered investment advisers may charge performance-based compensation – including carried interest and incentive allocations in fund structures – only to clients who are “qualified clients.” For funds relying on Section 3(c)(1) of the Investment Company Act, each investor generally must be a qualified client if the adviser charges performance-based compensation. Several state exemptions for private fund advisers also incorporate the qualified client standard, so exempt and state-registered advisers may be affected as well.

What you should do

• New investors and new contracts: Any investor subscribing to a 3(c)(1) fund, or any client entering into an advisory contract with performance-based compensation, on or after June 29, 2026 must satisfy the new thresholds.
• Update your documents: Subscription agreements, investor questionnaires, and advisory agreements should be revised to reflect the new dollar amounts for offerings and engagements going forward.
• Existing clients and investors are grandfathered: The new thresholds apply prospectively. Clients and investors who satisfied the qualified client standard in effect when they entered into their arrangements may maintain – and generally add to – their existing investments.

Please reach out to Geoffrey Perusse or any member of our Investment Management team with any questions or for assistance updating your fund or advisory documents.

This alert is provided for informational purposes only and does not constitute legal advice.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

Rimon’s Investment Management Practice advises investment advisors, private fund managers, broker-dealers, family offices, and institutional investors on the full spectrum of regulatory, transactional, and operational issues. Our attorneys provide practical, business-minded counsel on fund formation, securities regulation, compliance, trading, and governance. Read more here.