On April 28, 2026, the SEC issued an order (Release No. IA-6961) raising the dollar thresholds that decide whether a client is a "qualified client" — the status an investment adviser needs before it can charge that client a performance fee. The new numbers take effect June 29, 2026. The assets-under-management test rises from $1,100,000 to $1,400,000, and the net-worth test rises from $2,200,000 to $2,700,000. If your firm charges any fee tied to a share of a client's capital gains or capital appreciation, this is a date worth putting on the calendar — it is days away.
The adjustment itself is mechanical and easy to under-react to. But it has a sharp operational edge: any new advisory contract you sign on or after June 29 has to clear the higher bar. Here is what changed, why, and what to check before the end of the month.
The rule behind the numbers
Section 205(a)(1) of the Investment Advisers Act of 1940 generally prohibits an investment adviser from entering into a contract that compensates the adviser based on a share of the capital gains on, or capital appreciation of, a client's funds — in plain terms, a performance fee. Rule 205-3 is the exemption that lets advisers charge performance fees anyway, but only when the client is a "qualified client." A client gets there one of two main ways: the assets-under-management test or the net-worth test.
Under the assets-under-management test (Rule 205-3(d)(1)(i)), the client must have at least the threshold amount under the adviser's management immediately after entering into the contract. Under the net-worth test (Rule 205-3(d)(1)(ii)(A)), the adviser must reasonably believe, immediately before the contract is signed, that the client has a net worth above the threshold — counting assets held jointly with a spouse, but excluding the value of the client's primary residence. Meeting either test makes the client a qualified client.
What changed, and by how much
Effective June 29, 2026, the assets-under-management test rises from $1,100,000 to $1,400,000, and the net-worth test rises from $2,200,000 to $2,700,000. Those prior figures had been in place since August 16, 2021. The new amounts reflect inflation from 2021 through the end of 2025.
Why the SEC does this every five years
This is not a policy shift or a signal about enforcement priorities — it is arithmetic the Commission is required to run. The Dodd-Frank Act amended Section 205(e) of the Advisers Act to require the SEC to adjust these thresholds for inflation every five years, rounded to the nearest $100,000, using the Personal Consumption Expenditures Chain-Type Price Index published by the Department of Commerce. The Commission published its notice of intent on March 27, 2026, set an April 27 deadline for hearing requests, received none, and issued the final order on April 28. It was published in the Federal Register on May 1, 2026. The same exercise produced the 2011, 2016, and 2021 adjustments; the next one is due around 2031.
The part that actually trips firms up: it is not retroactive
The higher thresholds apply to contractual relationships entered into on or after June 29, 2026. They do not reach back to existing arrangements. If you signed a performance-fee client who met the $1,100,000 / $2,200,000 thresholds in effect at the time, that client stays a qualified client — you do not need to retest them or repaper the agreement. Rule 205-3 includes a transition provision (Rule 205-3(c)(1)) that treats an adviser as continuing to satisfy the rule for a contract it entered into while meeting the conditions then in effect.
There is a catch in that same provision, and it matters most for private funds. If a person who was not a party to the contract later becomes one — including a new investor coming into a private fund the adviser manages — the conditions in effect at that time apply to that new person. So a limited partner subscribing on or after June 29 is tested against the $1,400,000 / $2,700,000 numbers, even if the fund and its existing investors came in under the old thresholds. New money is measured under the new rule.
Who this does and does not affect
If your firm charges only asset-based or flat fees, the change is academic — Rule 205-3 is about performance fees. It bites for advisers to hedge funds, private equity and venture funds, and any separately managed account where compensation includes a share of gains or appreciation. It is also worth remembering that the dollar tests are not the only path to qualified-client status: "qualified purchasers" as defined under the Investment Company Act, and certain knowledgeable employees of the adviser, also qualify, and those routes do not reference these dollar amounts and are not changed by the order. But for the typical high-net-worth individual coming in under the assets-under-management or net-worth test, the bar just moved up.
What to do before June 29
Firms that charge performance fees should consider working through a short list now:
- Update your intake templates. Subscription documents, advisory agreements, and qualified-client representations or questionnaires that reference $1,100,000 or $2,200,000 should be revised to the new figures for any contract signed on or after June 29.
- Re-check anyone close to the line. A prospect who would have cleared the assets-under-management test at $1,200,000 last month no longer qualifies under that test for a new contract; evaluate whether they meet the net-worth test or another qualified-client category instead.
- Leave grandfathered clients alone. Existing performance-fee clients who qualified under the prior thresholds do not need to be retested, and repapering them is unnecessary.
- Watch the new-investor trap in funds. If you advise a private fund, confirm that subscription processing for closings on or after June 29 tests new investors against the new thresholds, even when earlier investors came in lower.
- Mind straddling closings. For a fund closing that spans June 29, consider preparing materials that capture both threshold sets so investors admitted before and after the date are tested correctly.
The bottom line
This is a routine inflation adjustment, but routine does not mean ignorable. The numbers are mandatory, the effective date is fixed, and the most common mistake — applying the old thresholds to a contract signed on or after June 29 — is also the easiest to make if your documents and subscription processes still carry the 2021 figures. Update the templates, brief whoever onboards new performance-fee clients, and the change becomes a non-event. (All figures and dates here are as of June 23, 2026, and come from the SEC's order, Release No. IA-6961.)
Compliance Approved's regulatory calendar lets firms track regulatory effective dates like this one alongside their SEC, FINRA, and state filing deadlines, with assignable owners and automated reminders — so a fixed date like June 29 does not slip past the person who onboards your performance-fee clients.