The SEC Just Raised the Qualified Client Threshold. Who Does It Affect?
$1.4M AUM or $2.7M net worth: the new SEC qualified client thresholds for 2026. Who qualifies, who does not, and what it means for performance fees.
On March 27, 2026, the Securities and Exchange Commission announced an increase to the “qualified client” thresholds under the Investment Advisers Act of 1940. The assets under management test rises from $1.1 million to $1.4 million. The net worth test rises from $2.2 million to $2.7 million. Both take effect in mid-2026, roughly 90 days after publication in the Federal Register.
This is the largest single-cycle increase since Congress mandated inflation adjustments in 2010. It directly affects which investors can pay performance-based fees to registered investment advisers and which advisory relationships need to be restructured.
What Is a Qualified Client?
The term “qualified client” comes from Rule 205-3 under the Investment Advisers Act. It defines the minimum financial threshold an investor must meet before an investment adviser can charge performance-based compensation, meaning fees tied to investment gains rather than a flat percentage of assets.
Congress created this threshold because performance fees create an incentive for advisors to take outsized risk. If an advisor earns 20% of profits, they benefit disproportionately from volatility. The qualified client standard ensures that only investors with sufficient wealth to absorb potential losses can enter those arrangements.
There are two ways to qualify. The assets under management test requires at least $1.4 million managed by the adviser (up from $1.1 million). The net worth test requires at least $2.7 million (up from $2.2 million), excluding the value of a primary residence.
Why Did the SEC Raise the Thresholds Now?
The Dodd-Frank Act of 2010 requires the SEC to adjust these thresholds for inflation every five years. The last adjustment took effect in 2022, when the AUM test moved from $1.0 million to $1.1 million and the net worth test moved from $2.1 million to $2.2 million. Before that, adjustments occurred in 2012 and 2016.
The 2026 increase is significantly larger than previous cycles. The AUM threshold jumped $300,000 in a single move, compared to $100,000 in 2022. The net worth threshold jumped $500,000, compared to $100,000 last cycle. Cumulative inflation between the 2021 and 2026 measurement periods drove the outsized adjustment. The SEC uses the Personal Consumption Expenditures Price Index, the same measure the Federal Reserve targets for monetary policy.
How Do the New Thresholds Compare to Previous Levels?
The qualified client standard has been adjusted five times since its original codification. Here is the full history:
| Effective Year | AUM Threshold | Net Worth Threshold | Change Driver |
|---|---|---|---|
| 1998 | $750,000 | $1,500,000 | Original rule |
| 2012 | $1,000,000 | $2,000,000 | Dodd-Frank mandate |
| 2016 | $1,000,000 | $2,100,000 | Inflation adjustment |
| 2022 | $1,100,000 | $2,200,000 | Inflation adjustment |
| 2026 | $1,400,000 | $2,700,000 | Inflation adjustment |
The 2026 adjustment nearly doubles the cumulative increase of the prior two cycles combined. For advisors who charge performance fees, this is not a rounding error. Clients who qualified in 2025 may not qualify in the second half of 2026.
What Is the Difference Between a Qualified Client, an Accredited Investor, and a Qualified Purchaser?
These three terms sound similar. They serve different regulatory purposes, carry different thresholds, and open access to different types of investments. Mixing them up is one of the most common mistakes in wealth management conversations.
| Qualified Client | Accredited Investor | Qualified Purchaser | |
|---|---|---|---|
| Governing law | Investment Advisers Act of 1940, Rule 205-3 | Securities Act of 1933, Regulation D | Investment Company Act of 1940, Section 2(a)(51) |
| Primary purpose | Allows advisors to charge performance fees | Allows access to private placements and Reg D offerings | Allows access to 3(c)(7) private funds |
| AUM/asset test | $1.4M managed by the adviser | N/A | $5M+ in investments (individuals) |
| Income test | N/A | $200K individual / $300K joint for 2 years | N/A |
| Net worth test | $2.7M (excl. primary residence) | $1M (excl. primary residence) | N/A |
| Who sets it | SEC, adjusted for inflation every 5 years | SEC, last updated 2020 | Congress (statutory) |
| Inflation adjusted | Yes, every 5 years | No, not currently indexed | No |
The accredited investor threshold has not been adjusted for inflation since its creation in 1982, despite repeated calls from investor advocates and the SEC’s own advisory committees to do so. In real purchasing power, $1 million in 1982 is roughly equivalent to $3.3 million today. The qualified client standard, by contrast, has a built-in adjustment mechanism.
The qualified purchaser threshold sits at the top of the hierarchy. At $5 million in investments, it governs access to private funds organized under Section 3(c)(7) of the Investment Company Act. These are typically institutional-grade vehicles that are exempt from SEC registration as investment companies.
Who Is Affected by the 2026 Change?
The increase affects two groups immediately.
Investors currently paying performance fees. Any client whose managed assets fall between $1.1 million and $1.4 million, or whose net worth falls between $2.2 million and $2.7 million, may no longer qualify after the effective date. The SEC’s order does not grandfather existing arrangements broadly, though agreements entered before the effective date may continue under certain conditions if they were valid at inception.
Advisors who charge performance-based fees. RIAs that use incentive fee structures, carried interest arrangements, or profit-sharing models need to re-qualify affected clients before the July effective date. This is a compliance project that needs to start now.
For investors who work with a fee-only advisor, the practical impact is minimal. Fee-only RIAs charge a flat percentage of assets under management or a fixed retainer. They do not charge performance fees, so the qualified client threshold does not govern the advisory relationship. Understanding the difference between fee structures and advisor types is worth the time for anyone evaluating their current arrangement.
What Should Investors Do?
If you currently pay performance-based fees and your portfolio is near the new thresholds, ask your advisor three questions. First, do I still meet the qualified client standard under the new rules? Second, if not, how will my fee structure change? Third, what are the alternatives?
The broader takeaway is structural. The SEC adjusts the qualified client threshold because inflation erodes the purchasing power of static dollar amounts. A $1.1 million portfolio in 2022 and a $1.4 million portfolio in 2026 represent roughly the same real wealth. The adjustment is not raising the bar. It is keeping the bar constant in inflation-adjusted terms.
For investors who are nowhere near these thresholds, the change is still worth understanding. The regulatory architecture that governs who can access certain fee arrangements, certain private investments, and certain fund structures is built on these definitions. Knowing where you stand, and where you might want to be, is part of building a long-term financial plan.
Ferrante Capital LLC is a registered investment adviser. Information presented is for educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal.
FC and its principals may hold positions in securities or asset classes discussed in this article. This analysis is for educational purposes only and does not constitute a recommendation to buy, sell, or hold any security.
Forward-looking statements reflect Ferrante Capital’s current analysis and involve assumptions and estimates. Actual results may differ materially. Past performance is not indicative of future results.
Please consult a qualified financial professional before making investment decisions.
