Key Points

• On Sept. 30, 2026, the SEC proposed folding all accredited investors into Rule 205-3's "qualified client" definition and dropping the $2.7 million net worth and $1.4 million AUM tests.
• A companion SEC request for comment would let CPAs, CFAs, CFPs, Series 79/86/87 holders, and people who pass a new FINRA exam qualify as accredited investors. Together, the two proposals could open performance fees (carried interest) to about 17.1 million more households.
• Fund managers should reassess investment minimums, investor verification, LP eligibility, and state-law exposure. Comments are due 60 days after the proposals are published in the Federal Register.

The Securities and Exchange Commission on Tuesday proposed folding every "accredited investor" into Rule 205-3's "qualified client" definition and deleting the rule's separate $2.7 million net worth and $1.4 million assets-under-management tests, along with the five-year inflation adjustment that went with them.

On the same day, the SEC sought comment on designating CPAs, CFAs, CFPs, Series 79/86/87 holders — and anyone who passes a new FINRA exam — as accredited investors. Most coverage treats these as parallel stories. For fund managers, they are one story: if both are finalized, a $100 exam could become a ticket to paying carried interest.

The Numbers

The SEC's own economic analysis estimates roughly 24.3 million U.S. households are accredited investors, but only about 7.2 million clear today's $2.7 million qualified-client bar — leaving approximately 17.1 million households newly eligible to be charged a performance fee.

That figure is built on wealth and income data and does not count credential holders. The credential notices add roughly 650,000 active CPAs, more than 110,000 U.S. CFPs, about 57,000 Series 79 and 5,900 Series 86/87 holders, and a share of the 194,000 CFA charterholders worldwide — before anyone sits for the exam. The SEC cannot say how many already qualify on wealth or income.

Who Changes Sides

Today, qualified-client status is essentially a wealth test. Under the proposals, an early-career CPA, a newly chartered analyst at a small firm, or a $200,000-a-year earner with modest savings could sign a subscription agreement for a 2-and-20 fund. The SEC itself says early-career and lower-income credential holders would be most affected.

The statute partly supports this: Section 205(e) lets the SEC weigh "financial sophistication" and "knowledge," not just net worth. But knowing what a hurdle rate is differs from being able to absorb a total loss — and the exam tests only the former.

The release itself cites a 2026 study finding that the least affluent individual private equity investors trailed the most affluent by nine percentage points on a risk-adjusted basis and, after fees, did no better than public markets. FINRA has also proposed shortening retake waiting periods to as little as 15 days, which it expects would apply to the new exam. Expect commenters such as NASAA, which prefers an exam coupled with practical experience, to press that gap.

What This Means for Fundraising

Five dynamics deserve attention:

1. Minimums, not slots, are the real gate.
   The 100-owner cap rarely binds: the SEC’s data show the median 3(c)(1) fund has just 21 beneficial owners, and nearly a third accept $10,000 or less. What has kept smaller investors out is the qualified-client screen — about 73% of 3(c)(1) funds currently require it. Remove it, and minimums become the main lever; the SEC itself expects many managers to keep them high. The bigger winners may be large, registered fund sponsors — whose scale advantages the SEC’s companion interval-fund and share-class proposal expects to grow — along with feeder platforms and 506(c) offerings built for volume.
2. Verification becomes credential-checking.
   Under 506(c), confirming status could mean checking BrokerCheck, CPA and CFP Board registries, or FINRA exam records with ten-year validity windows rather than tax returns — potentially cheaper onboarding, but a new diligence step.
3. Some investors fall out.
   Entities that qualify today on the $2.7 million net worth or $1.4 million AUM tests may not meet the accredited investor $5 million entity thresholds. The SEC expects few, but managers should check their LP lists. Existing contracts would generally be grandfathered; new investors would be tested under the new rule.
4. The states may not follow.
   Many state private fund adviser exemptions and performance-fee rules key off the qualified client definition, so managers with state-registered or exempt affiliates could face a split regime.
5. Liquidity is the retail stress point.
   Interval funds grew from $38 billion to $101 billion between 2020 and 2025, and in early 2026 several non-traded BDCs and interval funds received more repurchase requests than they offered to fill. Selling performance-fee strategies to a wider base raises the cost of getting liquidity wrong.

The Case in Favor Is Real

The release argues that modern performance-fee arrangements commonly include features designed to curb the excessive risk-taking behind the 1940 prohibition, and that the current gap encourages managers to keep their best strategies away from smaller investors.

Next Steps

Comments are due 60 days after Federal Register publication. The SEC asks directly whether accredited investors are sophisticated enough to bear performance fees and whether to impose contractual requirements on those arrangements.

Managers should consider weighing in on whether exam-based accredited investors should face investment caps before being charged carry, whether investment minimums or caps should accompany a far larger eligible pool, and whether the SEC should analyze the performance-fee and fund-structure proposals together rather than treating their interaction as minimal. 

For additional information on this and related issues, contact Matthew Bobrow at mbrobrow@foxrothschild.com or 212.878.7927 or another member of our Financial Services Industry Practice.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the authors and not necessarily this law firm or its clients.