Open Investors: The SEC Proposes to Redefine “Qualified Client”
September 2026, For years, managers of Section 3(c)(1) funds have lived with an awkward mismatch: an investor could qualify as an accredited investor and buy into the fund, yet fall short of the higher “qualified client” thresholds (currently $1.4 million under management with the adviser or $2.7 million in net worth) that the Advisers Act requires before a manager may charge a performance fee or carried interest. The result has been turned-away investors, fee-only share classes, and carry carve-outs. On September 30, 2026, the SEC voted 3–0 to propose amendments to Rule 205-3 that would treat any investor the adviser reasonably believes is an accredited investor as a qualified client, eliminating the separate net worth and assets-under-management tests (entity investors would look to the $5 million accredited investor tests). In a companion set of notices, the SEC also asked for comment on new knowledge-based paths to accredited investor status: a FINRA-administered accredited investor exam and holders in good standing of the CPA license, CFA charter, CFP certification, and FINRA Series 79, 86, and 87 licenses. Taken together, these proposals could significantly widen the pool of investors from whom an emerging manager can earn carry, particularly for funds raising from younger professionals whose sophistication outpaces their balance sheets. Nothing has changed yet: the current thresholds still apply, and comments are due December 4, 2026 (credential pathways) and December 7, 2026 (Rule 205-3). Managers planning 2027 launches should make sure subscription documents capture accredited investor and qualified client representations separately, flag any fee-only classes or carry carve-outs that could be revisited if the rule is adopted, and consider whether to weigh in during the comment period. If you would like to discuss how the proposal could affect your fund’s fee structure, please contact Alternative Fund PLLC.
Open Investors: The SEC Proposes to Redefine “Qualified Client”
alternative Fund, PLLC, a boutique corporate, securities and business matter law firm to private fund managers Contact: Questions, please contact us: www.afundpllc.com +1 917.558.7794 office@afundpllc.com Attorney Advertising— Alternative Fund, PLLC provides this information as a service for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
