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.
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Johnny Minassian Johnny Minassian is a partner providing assurance, accounting and consulting services to investment advisers and private funds. He serves hedge, commodity, private equity, venture capital, loan and real estate funds throughout their life cycles. Johnny has helped grow the Firm’s Financial Services practice in Southern California and is connected to the deal community,…
