The SEC issued an Order (Release No. IA-6961) on April 28, 2026, increasing the qualified client thresholds under Rule 205-3 of the Advisers Act. These thresholds determine whether an SEC-registered investment adviser may charge performance-based fees. The new thresholds became effective June 29, 2026 and reflect the SEC’s required five-year inflation adjustment under the Dodd-Frank Act.
Key threshold changes
Assets Under Management Test: Increased from $1.1 million to $1.4 million
- A client must have at least $1.4 million managed by the adviser immediately after entering into the advisory agreement or subscription agreement.
Net Worth Test: Increased from $2.2 million to $2.7 million
- An adviser must reasonably believe a client has a net worth exceeding $2.7 million immediately before entering the agreement.
- For natural persons, net worth excludes the value of the primary residence.
Important considerations
Existing advisory contracts and subscription agreements that complied with the pre-June 29, 2026 thresholds remain valid and are not affected retroactively. Any new investor added to an existing fund or contract after June 29, 2026 must satisfy the updated thresholds.
Action items for advisers
- Private Fund Advisers
Update subscription agreements, offering documents, and investor qualification language to reflect the new thresholds. - Separately Managed Account (SMA) Advisers
Revise advisory agreements and related client onboarding materials to incorporate the new thresholds. - All Advisers
Update compliance policies and procedures, including qualified client verification processes and new account review controls.
Train relevant personnel and revise compliance checklists and forms used to determine eligibility for performance-based fee arrangements.
Compliance takeaway
Advisers charging performance fees should ensure all client qualification documentation, contracts, offering materials, and compliance procedures were updated by the June 29, 2026 effective date and are applied to all new investors and clients going forward.
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