Rethinking The 'Qualified Client' Standard

The Securities and Exchange Commission (SEC) has proposed treating “accredited investors” under Regulation D as “qualified clients” under Rule 205-3 of the Investment Advisers Act of 1940, substantially expanding eligibility for performance fee arrangements. That expansion could become even broader if the SEC adopts additional credential- and examination-based pathways to accredited investor status.¹

Accredited Investors Would Become “Qualified Clients”

Under the SEC’s April 28, 2026, inflation-adjustment order, effective June 29, 2026, a client generally qualifies to be a “qualified client” if the client has at least $1.4 million under management with the adviser immediately after entering into the advisory contract, or if the adviser reasonably believes the client has a net worth of more than $2.7 million immediately before entering into the contract. The net-worth calculation excludes the client’s primary residence and applies special rules to related indebtedness.² Other