SEC Adopts Inflation-Based Adjustment To 'Qualified Client' Thresholds For Performance Fees

On April 28, 2026, the Securities and Exchange Commission (SEC) issued a final order adjusting for inflation the dollar amount thresholds used to determine whether an investor qualifies as a “qualified client” in order to charge a performance fee in reliance on Rule 205-3 under the Investment Advisers Act of 1940 (the Final Order).

The new thresholds take effect on June 29, 2026, and carry immediate practical implications for registered investment advisers, private fund sponsors and their investors. 

Why It Matters

Section 205(a)(1) of the Advisers Act generally prohibits an investment adviser from charging fees based on a share of capital gains on, or capital appreciation of, a client’s account (commonly referred to as “performance fees” or “incentive fees”). Rule 205-3 under the Advisers Act provides a critical exemption. It allows an adviser to charge performance fees or incentive fees only if the client is a “qualified client,” which turns on either a minimum amount of assets