The U.S. Securities and Exchange Commission (“SEC”) has approved an order adjusting the dollar-amount thresholds used for purposes of the definition of a “qualified client.”  These updated thresholds will become effective on June 29, 2026.  

Under current thresholds, “qualified clients” include clients who satisfy either:

• The “Assets Under Management Test,” under which the client must, immediately after entering into the investment advisory contract, have at least $1,100,000 in assets under management with the adviser; or 
• The “Net Worth Test,” under which the adviser must reasonably believe, immediately prior to entering into the advisory contract, that the client has a net worth of at least $2,200,000, subject to certain exclusions.  

Effective June 29, 2026, the applicable thresholds will increase as follows:

• Assets-Under-Management Test: from $1,100,000 to $1,400,000; and  
• Net Worth Test: from $2,200,000 to $2,700,000, subject to the same exclusions.  

These changes reflect the SEC’s legal obligation to adjust the “qualified client” dollar-amount tests for inflation every five years.  

Implications for RIAs

Who may be affected? These changes are most relevant to: 

• Private fund managers relying on Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), to charge performance-based compensation, incentive fees, or carried interest. 
• SEC-registered investment advisers who rely on Rule 205-3 of the Advisers Act to charge performance-based fees to advisory clients. 
• Advisers and fund managers onboarding new clients or investors starting on June 29, 2026. 
• Advisers in reporting on Form ADV Part 1 at Item 5, which requires delineation between clients that are “high net worth” and those that are not. The definition of “high net worth” incorporates the “qualified client” definition. 
• Advisers that use subscription agreements, advisory agreements, investor questionnaires, CRM fields, or compliance testing workflows that specifically reference or rely upon the current qualified client definition thresholds. 
• Representatives of SEC-registered advisers who are not registered with a state securities authority in reliance on exceptions from the definition of “investment adviser representative” based on their client base being comprised of the requisite number and percentage of qualified clients. 

What are the next steps? As necessary:

• Review and update Form ADV disclosures, advisory agreements, private fund offering documents, and marketing materials that reference performance fee eligibility. 
• Review and update internal policies and procedures, account opening questionnaires, wealth verification procedures, compliance testing thresholds, and CRM/portfolio management system flags to reflect new thresholds. 
• Coordinate with legal/compliance counsel before making fee changes or reclassifications. 
• Address state investment adviser representative registration or exemption issues resulting from client reclassification. 

SEC Resources

For more information from the SEC, please visit the following links: 

• SEC Order Approving Adjustment for Inflation: https://www.sec.gov/files/rules/ia/2026/ia-6961.pdf
• Federal Register Notice: https://www.federalregister.gov/d/2026-08480  

How Can We Help? 

For RIAs who may be affected by this adjustment, now is a good time to make sure your firm’s documents, disclosures, and onboarding processes align before the June 29, 2026 effective date. 

RIA Lawyers can help with: 

• Analyzing current client and investor relationships for Rule 205-3 issues; 
• Updating advisory agreements, private fund offering documents, subscription materials, and Form ADV disclosures; 
• Revising policies and procedures, onboarding questionnaires, and compliance testing protocols; and 
• Pursuing licensing for representatives who will no longer qualify for an exemption or potentially restructure client relationships. 

Please contact your primary attorney at RIA Lawyers or email [email protected] if you have questions about the revised thresholds or would like help preparing your firm for the change.