New Qualified Client Threshold Increases on June 29th: What this means for your Performance-Based Fees

May 11, 2026

What happened?

The SEC issued a final order that adjusts the dollar amount thresholds for “qualified clients” under Rule 205-3 of the Investment Advisers Act.  The rule prohibits registered investment advisers from charging performance-based fees to clients or investors unless they meet the definition of a qualified client (see our prior coverage here).  The final order increased the thresholds for both the net worth test and the assets under management test for inflation, as follows:

• The Net Worth Test: The adviser must reasonably believe that the client has a net worth above the minimum threshold, excluding the value of the primary residence, prior to entering into the advisory contract.
  • Current Minimum Net Worth = $1,100,000
  • New Minimum Net Worth = $1,400,000 (effective June 29, 2026)

• The Assets Under Management (“AUM”) Test: The client has at least the specific minimum dollar amount under management with the adviser prior to entering into the advisory contract.
  • Current Minimum Net Worth = $2,200,000
  • New Minimum Net Worth = $2,700,000 (effective June 29, 2026)

What does this mean for me?

Now is the time to review any agreement or documentation tied to performance-based fees. Agreements executed before June 29, 2026, can make use of the current thresholds, but starting June 29^th the new thresholds must be used. New clients and new investors must have higher net worth and/or AUM to qualify, otherwise firms may not charge a performance-based fee.

Review your template documents and procedures for the following to find any references to the dollar amounts of the net worth test or the AUM test:

• Private Fund Documents: Private Placement Memoranda, subscription documents, side letters, limited partnership agreements (or other governing agreements).
• Client Representations: Contract exhibits, suitability forms, questionnaires, or any document where a client or investor applies the qualified client threshold.
• Advisory Agreements: Agreements to pay an incentive fee or performance-based fee, and any corresponding documentation citing the net worth or AUM amounts.

These will all need to be updated on June 29, 2026. Prospects agreeing to pay a performance-based fee on or after that date must meet the new net worth or AUM amounts, and firms must apply the new amounts in their onboarding procedures after the June 29^th effective date.

We will continue to monitor new developments that impact investment advisers and compliance programs. If you have questions, contact us. Fairview is here to help.