What is a qualified client?

The Advisers Act generally bars an adviser from taking a share of a client’s capital gains, and Rule 205-3 makes an exception for qualified clients. The SEC adjusts the dollar tests for inflation every five years; its order of April 28, 2026 raised them from $1.1 million and $2.2 million. Contracts entered into before June 29, 2026 are generally not affected. In October 2026 the SEC proposed, but has not adopted, counting every accredited investor as a qualified client.

Say an investor puts $1.5 million with an adviser in July 2026. That is above the $1.4 million test, so the adviser may charge it a performance fee. Simple example. Terms vary by fund.

Carried interest is a performance fee, so investors in funds that rely on 3(c)(1) generally must be qualified clients; contracts with 3(c)(7) funds are exempt from the ban.