SEC Increases Performance Fee Thresholds
Effective June 29, 2026, the SEC has raised the financial thresholds used to determine whether a client qualifies as a “qualified client” for performance-based advisory fees under Rule 205-3. The adjustment reflects the SEC’s periodic inflation-based review of the thresholds. (link)
The headline is that it gets a little harder for new clients to qualify going forward. But existing arrangements are generally untouched.
New Thresholds
Beginning June 29, 2026, the assets-under-management test increases from $1.1 million to $1.4 million, and the net-worth test increases from $2.2 million to $2.7 million. These thresholds apply when determining whether a new client may enter into a performance fee arrangement after the effective date.
Existing Arrangements Generally Grandfathered
The SEC’s order generally does not apply retroactively to existing contractual relationships entered into before the effective date. If a client entered into a performance fee arrangement with you before June 29, you typically do not need to revisit that relationship solely because the thresholds have increased.
But you should review your onboarding procedures, subscription documentation, and qualified client verification processes to make sure new clients (after June 29) are evaluated using the updated thresholds.
What to Update
If you use performance-based compensation, the following documents should be reviewed and updated:
- Subscription materials
- Investor questionnaires
- Client onboarding procedures
- Compliance manuals
- Internal guidance documents
Also confirm that personnel responsible for onboarding and account approvals know about the new requirements.
Takeaways
- Effective June 29, 2026, the qualified client AUM threshold increases to $1.4 million, and the net-worth threshold increases to $2.7 million.
- Existing performance fee arrangements generally remain grandfathered.
- New performance fee arrangements entered into after the effective date should be evaluated using the updated thresholds.
- Update onboarding and compliance documentation before implementing new agreements.