These two terms get used interchangeably by people who should know better. They come from different statutes and answer different questions.
Accredited investor — Securities Act, Rule 501(a). Answers: may this offering be sold to you without registration?
Qualified client — Investment Advisers Act, Rule 205-3. Answers: may a registered investment adviser charge you a performance fee?
You can be one without the other. Most accredited investors are not qualified clients.
Side by Side
| Accredited Investor | Qualified Client | |
|---|---|---|
| Statute | Securities Act of 1933, Rule 501(a) | Investment Advisers Act of 1940, Rule 205-3 |
| Governs | Access to unregistered offerings | Whether performance fees may be charged |
| Income test | $200K individual / $300K joint, two most recent years | None |
| Net worth test | Over $1M, excluding primary residence | Over $2.7M, excluding primary residence |
| Assets test | — | $1.4M under management with the adviser |
| Credential route | Series 7, 65, 82; knowledgeable employees | Knowledgeable employees of the adviser; qualified purchasers |
| Inflation-adjusted? | No — never indexed | Yes — every five years by statute |
| Last changed | August 2020 (credentials added) | June 29, 2026 |
| Applies to | The investor, at time of investment | The contract, at time of entry |
Why the Qualified Client Test Exists
Section 205(a)(1) of the Advisers Act generally bans registered advisers from charging compensation based on capital gains or appreciation. The concern is straightforward: a performance fee gives the adviser upside in gains but no symmetric downside in losses, which can incentivize risk the client didn’t ask for.
Rule 205-3 is the exemption. If the client is sophisticated and well-capitalized enough to bear that structure, the ban lifts. The thresholds define “enough.”
The 2026 Adjustment
Dodd-Frank requires the SEC to adjust these figures for inflation every five years. The most recent order, Release No. IA-6961, issued April 28, 2026, effective June 29, 2026, raised:
- Assets under management: $1.1M $1.4M
- Net worth: $2.2M $2.7M
Three implementation details that matter more than the numbers:
It’s not retroactive. Contracts and subscriptions entered into before June 29, 2026 stay under the old thresholds. Existing clients and investors can maintain positions and make additional contributions without meeting the new figures.
In a 3(c)(1) fund, each investor is a client. If a private fund relying on the 3(c)(1) exemption charges a performance allocation, every individual investor must clear the qualified client bar. Not the fund — each investor.
Many states import the standard. State-level adviser registration exemptions frequently incorporate Rule 205-3 by reference, so the change propagates beyond SEC-registered advisers.
Where This Bites in Practice
You’re accredited. You find a single-deal SPV with a 20% carry, managed by an SEC-registered adviser. Your net worth is $1.4 million excluding your house, and you’re putting in $100,000.
You’re accredited — you can invest. You’re not a qualified client — net worth under $2.7 million, and $100,000 is well under the $1.4 million AUM test. The adviser cannot charge you a performance allocation on a new subscription after June 29, 2026.
What happens next varies. Some sponsors restructure the economics for non-qualified-client investors. Some limit the vehicle to qualified clients. Some are not SEC-registered advisers at all, in which case Rule 205-3 doesn’t apply to them — which is worth understanding rather than assuming.
The question to ask a sponsor: “Is the manager a registered investment adviser, and if so, how are you treating qualified client status for this vehicle?” The answer tells you both how the fee works and how carefully the sponsor handles compliance.
The Third Standard
Above both sits qualified purchaser — $5 million in investments for individuals — which governs which funds you can enter at all rather than what you can be charged. Qualified Purchaser Guide
FAQ
Can I be a qualified client but not accredited?
Practically, no. Anyone meeting the $2.7 million net worth test also clears the $1 million accredited threshold.
Does the qualified client test apply to all fund managers?
No. Rule 205-3 applies to investment advisers registered with the SEC. Exempt reporting advisers and unregistered managers aren’t subject to it federally, though state rules may reach them.
What counts toward the $1.4 million AUM test?
Assets under the adviser’s management, calculated as uncalled capital commitments plus the value of existing investments managed by that adviser, measured immediately after the contract is entered.
Am I grandfathered under the old thresholds?
If your relationship or subscription predates June 29, 2026, generally yes — including for additional contributions to that position.
Does a qualified purchaser automatically qualify as a qualified client?
Yes. Rule 205-3 includes qualified purchaser status as an independent route.