INVESTMENT ADVISER LAW BLOG

The Investment Advisers Act generally prohibits charging performance-based compensation unless an adviser’s client or investor is a “qualified client.” The current qualifying standards require that the client either (a) has at least $1.1 million under management with the adviser (AUM test) or (b) has a net worth of at least $2.2 million (net worth test). 

Every five years, the Dodd-Frank Act requires the SEC to adjust those qualifying thresholds. The SEC recently announced those adjustments. The new standards, effective on June 29, 2026, are $1.4 million under the AUM test and $2.7 million under the net worth test.

If you charge performance-based compensation to your clients or investors, your documents should be revised to reflect the updated standards.

SEC Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205–3 Under the Investment Advisers Act of 1940