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<p></p><div><p>On April 28, 2026, the SEC issued a final order adjusting the thresholds of the "qualified client" definition under Rule 205-3 of the Investment Advisers Act of 1940. The adjustment took effect <strong>June 29, 2026</strong>. See the SEC's fact sheet here: <a href="https://www.sec.gov/files/rules/final/2021/ia-5904-fact-sheet.pdf">Fact Sheet for Performance-Based Investment Advisory Fees Final Rule</a></p><h2>Qualified Client Thresholds</h2><p>Although there are many ways a person can fall within the definition of a qualified client, the most common is based on their AUM or net worth. As indicated below, the SEC is raising the thresholds at which a person's AUM or net worth makes them a qualified client.&nbsp;</p><div class="___trb73b0 f14t3ns0 fs5wusb f1oy3dpc fm6nont f48hbct"><div class="___i31lg00 f10pi13n f14t3ns0 f1nbblvp fat0sn4 f1ov4xf1 fekwl8i f1lmfglv f1oz7aqm f1abmfm4 f1w619qj f16h0jq8"><figure class="table"><table class="___1hm93bs f1ddd56o f16vktn6 f1enuhaj fdclmfp f1ev3kgc ftgm304 f1uinfot fibjyge fvueend f9yszdx f1fu4s3n f3l3pb3 f1s2k7dp f8fmt76 fjvbh62 fysh76l fic4ptz f1yenhzu f1yn6nvh f14tj6oe f1jq587y f1el8yx3 f1pymoxg f1ofu761 fe6itr f7coize f1794535 f70r78m f4zgifc fk1v6el f16pyhcb fo436u6 fzy4j18 fc43013 f1hmrcvb fc4t9fq fgp09rh fjnyn6r"><thead><tr><th>Test</th><th>Prior Threshold</th><th>New Threshold</th></tr></thead><tbody><tr><td>Assets Under Management with the adviser</td><td>$1.1 million</td><td><strong>$1.4 million</strong></td></tr><tr><td>Net Worth (including spousal assets; excluding primary residence and related debt)</td><td>$2.2 million</td><td><strong>$2.7 million</strong></td></tr></tbody></table></figure></div></div><h2>Implications</h2><p>SEC-registered investment advisers cannot charge performance-based fees (e.g., carried interest) to a client or investor unless that person is a qualified client. Additionally, many state registration exemptions available to private fund advisers require that all investors fall under the definition of a qualified client, or impose significant burdens if the fund accepts non-qualified clients.&nbsp;</p><p>As a result, private funds will need to ensure they use the new definition of qualified client from June 29, 2026, onwards for purposes of determining who may invest in the fund and who may be charged a carried interest.&nbsp;</p><h2>Action Items</h2><ol><li><strong>Update PPMs, subscription documents,</strong> <strong>and investor questionnaires </strong>for 3(c)(1) funds to reflect the new thresholds.</li><li><strong>Assess timing of pending closings and LP transfers</strong> as closings before June 29 can still rely on the current thresholds.</li><li><strong>Refresh compliance policies and procedures</strong> referencing the qualified client standard.</li></ol><p>Michael Best has attorneys who can assist firms in navigating complex compliance and private fund matters. Please reach out if you have any questions.&nbsp;</p></div><div class="passle-featured-image passle-featured-image-position-bottom"><img src="https://images.passle.net/fit-in/400x400/filters:crop(222,0,2108,1189)/Passle/5f6edd8e8cb62a0bec3e5fd2/SearchServiceImages/2026-06-18-22-26-02-794-6a34707a0849d97ef383ae7d.jpg" alt="Featured Image" /></div>

SEC Raises “Qualified Client” Thresholds

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