On April 28, 2026, the Securities and Exchange Commission (the “Commission”) issued an order (Release No. IA-6961) raising the dollar thresholds that determine whether a client qualifies as a “qualified client” under Rule 205-3 of the Investment Advisers Act of 1940. The new amounts took effect June 29, 2026.
Section 205(a)(1) of the Advisers Act generally prohibits an investment adviser from charging performance fees—compensation based on a share of the capital gains or capital appreciation of a client’s funds. Section 205(e) permits the Commission to exempt contracts with clients determined not to need that protection. Rule 205-3 implements this exemption, allowing performance fees only where the client is a “qualified client,” as established through either an assets-under-management test or a net worth test. For private funds relying on Section 3(c)(1) under the Investment Company Act of 1940, as amended, each investor must satisfy the “qualified client” test.
The Dodd-Frank Act of 2010 requires the Commission to adjust these thresholds for inflation every five years, rounded to the nearest $100,000, using the Personal Consumption Expenditures (PCE) Index. Prior adjustments were issued in 2011, 2016, and 2021. The current order reflects inflation from 2021 through the end of 2025.
| Test | Previous | New |
| Assets under management | $1,100,000 | $1,400,000 |
| Net worth | $2,200,000 | $2,700,000 |
The order became effective June 29, 2026.
Advisory contracts and private fund subscriptions entered into before June 29, 2026 are generally not subject to the new thresholds, consistent with the transition (grandfathering) rules in Rule 205-3.
Clients must now hold at least $1.4 million in managed assets or have a net worth above $2.7 million before an adviser may charge performance-based fees—modestly tightening eligibility to keep pace with inflation.
For more information on this topic, please contact a member of our team.
The question of who qualifies as a “limited partner” for purposes of Section 1402(a)(13) is now before the federal appellate courts, with potentially significant implications for partnerships and their owners. What began as a dispute over a narrow statutory exception for limited partners has evolved into a fundamental debate over whether self-employment tax liability should…
Tokenized stocks are getting closer to becoming a reality in the U.S., and us accountants will soon have to review and audit them. These digital versions of stocks don’t always act like the regular shares we’re used to. As Nasdaq and the NYSE work on blockchain‑based versions of stocks, accountants need to prepare for assets…
On March 31, 2026, the Department of Labor (DOL) issued a proposed rule specific to 401k plans on “Fiduciary Duties in Selecting Designated Investment Alternatives.” This comes at a time when alternative investments are becoming more widespread. While alternative investments may have triggered this proposed ruling, the more important takeaway is how the DOL is…
