On March 27, 2026, the SEC issued a notice of intent to increase the thresholds that define “qualified clients”.
- Why is the SEC adjusting the thresholds?
- Rule 205-3 of the Advisers Act specifies thresholds that must be met in order for an investment advisory client to be considered a qualified client.
- The Dodd-Frank Act requires that the Commission adjust these thresholds for the effects of inflation every five years.
- What are the current thresholds and what adjustment is the SEC proposing?
- Current qualified client thresholds are:
- $1.1 million in assets under management; or
- $2.2 million net worth
- The proposed adjustments are:
- $1.4 million in assets under management; or
- $2.7 million net worth
| Adjustment point |
AUM test
(immediately after entering contract) |
Net worth test
(reasonable belief before entering contract) |
| 1985 (rule adopted) |
$500,000 |
$1,000,000 |
| 1998 inflation adjustment |
$750,000 |
$1,500,000 |
| 2011 order |
$1,000,000 |
$2,000,000 |
| 2016 order |
$1,000,000 |
$2,100,000 |
| 2021 order (eff. 08.16.21) |
$1,100,000 |
$2,200,000 |
| 2026 “notice of intent” |
$1,400,000 |
$2,700,000 |
- How does this shift impact investment advisers?
- The increase in the thresholds that define a qualified client will impact investment advisers in multiple ways:
- When will the new qualified client thresholds go into effect?
- The release indicates that the Commission expects to issue an order regarding threshold increases “on or about May 1, 2026”. If issued, the order’s effective date is expected to be 60 days after the order date.
- When will the threshold increases impact my Form ADV filings?
- Once the definition of qualified client has been adjusted, investment advisers will be required to apply the new definition with their next annual update.
- Investment advisers with a December fiscal year end have already filed, or are on the cusp of filing, their 2025 annual updating amendment, which must be filed by March 31. These firms should plan to apply the adjusted thresholds in preparation for their 2026 annual update.
- Investment advisers who have a fiscal year end other than December will need to pay attention to the order’s effective date to ensure they accurately report their High Net Worth client count.
- The increase will impact Form ADV reporting by investment advisers who serve high net worth clients. Specifically, Item 5.D. of Form ADV requires advisers to classify the number of clients that are High Net Worth Individuals. The definition of High Net Worth Individual in the Form ADV Glossary of Terms refers the adviser to the definition of “qualified client” under Rule 205-3. (This is one of two prongs in the definition, and is most commonly applied when an adviser has retail clients; the second prong refers to the definition of “qualified purchaser” under section 2(a)(51)(A) of the Investment Company Act.)
- The increase will impact investment advisers who charge performance-based fees. Investment advisers generally may only charge performance-based fees to clients who meet the definition of qualified client under Rule 205‑3. These advisers should plan for the modified thresholds before taking on new clients once the adjustments take effect. It should be noted that contractual relationships entered into prior to the effective date of the increase will generally not be impacted; however, adding a new party or a new investor becoming a party to an agreement may trigger application of adjusted thresholds.
If you have questions about client classification or need assistance with compliance and filings, contact us, we’d love to help!