SEC Raises Qualified Client Thresholds for Performance Fees Effective June 2026
SEC³
June 1, 2026
SEC3 is monitoring the SEC’s recent inflation adjustment to the “qualified client” thresholds under Advisers Act Rule 205-3, which affects advisers that charge performance-based fees.
What Happened
On April 28, 2026, the SEC issued an order increasing the dollar thresholds used to determine whether a client qualifies as a “qualified client” under Rule 205-3 of the Investment Advisers Act. The new thresholds become effective June 29, 2026. See official SEC Release here: SEC Release No. IA-6961 – Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3
Rule 205-3 permits advisers to charge performance-based compensation, including performance fees or incentive fees, only if the client satisfies the “qualified client” standard.
Effective June 29, 2026, the thresholds will increase as follows:
Current thresholds:
- $1.1 million in assets under management with the adviser; or
- More than $2.2 million in net worth.
New thresholds:
- $1.4 million in assets under management with the adviser; or
- More than $2.7 million in net worth.
For natural persons, the net worth calculation may include assets held jointly with a spouse.
Why This Matters
Advisers charging performance-based fees should confirm that new clients, private fund investors, and separately managed account clients meet the updated thresholds before entering into advisory contracts or accepting investments on or after June 29, 2026.
The new thresholds generally do not apply retroactively to existing advisory relationships entered into before the effective date, subject to the transition provisions of Rule 205-3.
What Advisers Should Do Now
Advisers should consider reviewing and updating:
- Subscription documents and investor questionnaires
- Advisory agreements
- Account opening procedures
- Policies and procedures relating to performance fees
- Private fund offering documents, where applicable
- Training materials for investor relations, operations, and client-facing personnel
Firms should also ensure employees involved in onboarding and account opening understand that the updated thresholds apply beginning June 29, 2026, and that the qualified client analysis is generally performed at the time the advisory relationship is established.
How SEC3 Can Help
SEC3 Compliance can assist advisers in reviewing performance fee practices, updating compliance policies and procedures, revising investor qualification documentation, and helping ensure onboarding and subscription processes reflect the updated qualified client thresholds before the effective date.
This alert is provided for informational purposes only and does not constitute legal or investment advice.
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