Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
What is Performance-Based Fees & Qualified Clients?
Fees based on a share of capital gains or appreciation are generally prohibited, except for qualified clients. For contracts entered into on or after June 29, 2026, a qualified client has at least $1.4 million under management with the adviser immediately after entering the contract, or a net worth above $2.7 million excluding the primary residence. (The previous thresholds were $1.1 million and $2.2 million.) A fee calculated as a percentage of assets under management is not a performance fee.
Performance-Based Fees & Qualified Clients: a worked example
A client with $1.2 million invested and $1.8 million net worth cannot be charged a performance fee on a new 2026 contract.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.
Principal Transactions by Advisers
Selling to or buying from a client for the adviser's own account needs consent each time.