On April 28, 2026, the Securities and Exchange Commission issued an order adjusting for inflation the dollar‑amount thresholds used to determine “qualified client” status under Rule 205‑3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”). These thresholds govern when SEC‑registered investment advisers may charge performance‑based compensation, including performance fees and carried interest.
The order increases both the assets under management and net worth tests applicable under Rule 205‑3. Effective June 29, 2026, the SEC has increased the dollar amount tests under Advisers Act Rule 205‑3 as follows:
- Assets‑Under‑Management Test – A client must have at least $1.4 million in assets under management with the adviser, up from $1.1 million.
- Net Worth Test – A client must have a net worth in excess of $2.7 million, up from $2.2 million. In calculating net worth for natural persons, assets held jointly with a spouse may be included, and the value of a primary residence generally is excluded.
These revised thresholds apply only to advisory contracts entered into, renewed, or extended on or after the effective date; existing contracts are generally grandfathered.
Advisers should review performance‑fee arrangements, investor onboarding procedures, and related disclosures to confirm compliance with the revised standards and update internal compliance policies.
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If you have questions about how these updated thresholds may affect your business, please contact us for guidance.
