The US Securities and Exchange Commission has increased the asset and net worth thresholds for clients to be deemed ‘qualified’, impacting private fund management from June 2026.
The US Securities and Exchange Commission has lifted the financial tests that determine whether an investor or client can be treated as a “qualified client” under Rule 205-3, a change that will take effect on June 29, 2026. According to law firm alerts published in April and May, the agency issued the order on April 28, 2026, as part of its periodic inflation adjustment.
Under the revised rule, the assets-under-management test rises to $1.4 million from $1.1 million, while the net worth threshold increases to more than $2.7 million from $2.2 million. The net worth calculation still excludes the value of a primary residence, though assets held jointly with a spouse may be counted.
The adjustment matters because Section 205(a)(1) of the Investment Advisers Act generally bars advisers from charging performance-based compensation unless the client qualifies for an exception. In practice, that makes the rule especially important for private funds structured under Section 3(c)(1) of the Investment Company Act, as well as separately managed accounts for wealthy individuals.
By contrast, funds relying on the Section 3(c)(7) exemption are not subject to the qualified client test, and the requirement does not apply to non-US clients or investors. Qualified purchasers and knowledgeable employees continue to qualify under the rule without needing to meet the dollar thresholds.
Existing advisory agreements and fund subscriptions entered into before June 29, 2026, are not affected. New investors, new clients and certain transfers completed on or after that date will have to satisfy the updated standard in force at the time they come in.
- https://www.jdsupra.com/legalnews/new-sec-qualified-client-thresholds-6349823/ – Please view link – unable to able to access data
- https://www.alston.com/en/insights/publications/2026/04/sec-2026-inflation-adjustment-qualified-client – On April 9, 2026, Alston & Bird published an advisory detailing the SEC’s proposed inflation adjustment to the ‘qualified client’ thresholds under Rule 205-3. The proposed changes aim to increase the assets-under-management (AUM) test threshold from $1.1 million to $1.4 million and the net worth test threshold from $2.2 million to $2.7 million. These adjustments are intended to preserve the restrictive nature of the rule over time. The formal order is expected to be issued on or about May 1, 2026, with an effective date approximately 60 days later, implying a mid-2026 compliance deadline. Existing contracts are grandfathered; however, new parties—including new investors in 3(c)(1) funds—must satisfy the thresholds in effect at the time they become parties.
- https://www.kirkland.com/publications/kirkland-aim/2026/05/sec-announces-new-qualified-client-thresholds – Kirkland & Ellis LLP reported on May 4, 2026, that the SEC is raising the dollar-based thresholds for a client or private fund investor to be deemed a ‘qualified client’ under the Advisers Act, effective June 29, 2026. The new thresholds require clients to have at least $1.4 million in assets under management with the adviser immediately after entering into the advisory arrangement or a net worth greater than $2.7 million at the time of entering into the advisory arrangement. This change is relevant to SEC-registered investment advisers because they generally cannot charge performance-based fees unless the client or private fund investor is a qualified client.
- https://sec3compliance.com/sec-raises-qualified-client-thresholds-for-performance-fees-effective-june-2026/ – SEC³ Compliance highlighted on June 1, 2026, 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. The SEC issued an order on April 28, 2026, increasing the dollar thresholds used to determine whether a client qualifies as a ‘qualified client’ under Rule 205-3. The new thresholds become effective June 29, 2026. 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.
- https://www.gtlaw.com/-/media/files/insights/alerts/2026/05/gt-alertsec-raises-threshold-for-qualified-client-status-effective-june-29-2026.ashx?rev=-1 – Greenberg Traurig LLP issued an alert in May 2026 informing clients that the SEC has raised the ‘qualified client’ thresholds, effective June 29, 2026. On April 28, 2026, the SEC issued an order increasing the thresholds for a client or private fund investor to be deemed a ‘qualified client’ under Rule 205-3 under the Advisers Act. The change becomes effective on June 29, 2026. Qualified Purchasers will continue to be deemed ‘qualified clients’ after the rule’s effective date, with no change to the manner in which they currently qualify.
- https://www.vedder.com/insights-events/sec-raises-qualified-client-thresholds-effective-june-29-2026/ – Vedder Price reported on May 27, 2026, that the SEC increased the financial thresholds for ‘qualified client’ status under Rule 205-3 of the Advisers Act. The change, which takes effect June 29, 2026, reflects the SEC’s required five‑year inflation adjustment and directly impacts when advisers can charge performance‑based fees, including carried interest. Pursuant to the updated rule, a client or private fund investor will qualify if they meet either of the following thresholds: $1.4 million in assets under management with the adviser (up from $1.1 million); or $2.7 million in net worth (up from $2.2 million), excluding the value of a primary residence (but including spousal assets).
- https://foleyhoag.com/news-and-insights/publications/alerts-and-updates/2026/may/sec-increases-qualified-client-thresholds-under-rule-205-3-of-the-investment-advisers-act-of-1940/ – Foley Hoag LLP published an alert on May 14, 2026, stating that the SEC has issued an order raising the ‘qualified client’ thresholds. An investor or client of an SEC-registered investment adviser must generally be a qualified client in order to be charged a performance fee (or ‘carry’). Under the new thresholds, an investor must have either (i) at least $1,400,000 in assets under management with the investment adviser (up from $1,100,000) or (ii) a net worth of at least $2,700,000 (up from $2,200,000), not including equity in a primary residence. The change becomes effective on June 29, 2026.
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score:
8
Notes:
The article references a press release from April 28, 2026, announcing the SEC’s adjustment of ‘qualified client’ thresholds under Rule 205-3, effective June 29, 2026. ([sec.gov](https://www.sec.gov/rules-regulations/2026/04/order-approving-adjustment-inflation-dollar-amount-tests-rule-205-3-under-investment-advisers-act?utm_source=openai)) Similar information has been reported by other reputable sources, such as Greenberg Traurig LLP on May 15, 2026. ([gtlaw.com](https://www.gtlaw.com/en/insights/2026/5/sec-raises-threshold-for-qualified-client-status-effective-june-29-2026?utm_source=openai)) However, the article’s publication date is June 1, 2026, which is within a reasonable timeframe for reporting on this development.
Quotes check
Score:
7
Notes:
The article does not include direct quotes. While this is acceptable, the absence of direct quotes makes it challenging to assess the originality and accuracy of the content. The information aligns with the SEC’s official release and other reputable sources, but without direct quotes, independent verification is limited.
Source reliability
Score:
6
Notes:
The article is published on JD Supra, a platform that hosts content from various law firms and professionals. While JD Supra provides a platform for legal insights, the content is user-generated and may not undergo the same editorial scrutiny as content from established news organizations. The article cites the SEC’s official release, which adds credibility, but the platform’s overall reliability is a concern.
Plausibility check
Score:
9
Notes:
The article’s claims are consistent with the SEC’s official release and other reputable sources. The information about the adjusted thresholds for ‘qualified clients’ under Rule 205-3 is accurate and aligns with the SEC’s announcement. ([sec.gov](https://www.sec.gov/rules-regulations/2026/04/order-approving-adjustment-inflation-dollar-amount-tests-rule-205-3-under-investment-advisers-act?utm_source=openai))
Overall assessment
Verdict (FAIL, OPEN, PASS): PASS
Confidence (LOW, MEDIUM, HIGH): MEDIUM
Summary:
The article provides accurate information about the SEC’s adjustment of ‘qualified client’ thresholds under Rule 205-3, consistent with the SEC’s official release and other reputable sources. However, the reliance on JD Supra, a user-generated content platform, raises concerns about the independence and reliability of the verification sources. The absence of direct quotes further limits the ability to assess the originality and accuracy of the content. Given these factors, the overall confidence in the article’s reliability is medium.