Private Market Glossary
What does qualified client mean?
A qualified client 1 is a person that meets certain financial thresholds set by the Securities and Exchange Commission (SEC) that allow investment advisors to charge these clients performance-based compensation (i.e., generally, a percentage of gains realized on investments made for the account of these clients). These thresholds are adjusted periodically by the SEC – the current threshold in effect for individuals since 2021, is a minimum of $1.1 million in assets under management with the investment advisor or at least a net worth of $2.2 million, excluding the client’s primary residence.
A better understanding of a qualified client
Qualified clients also include those who meet the SEC’s qualified purchaser threshold, which is generally higher for a qualified client. Plus, a qualified client can include knowledgeable employees (another term that is specifically defined by the SEC) of an investment advisor.
Qualified clients have access to more investment opportunities than investors with lower net worth or less assets.
What role does a qualified client play in the private market?
Qualified Clients are a separate category of investors that allows investment advisors to offer specific products tailored to more sophisticated (and higher net worth) clients that are not available to smaller investors.
Frequently asked questions about qualified clients
What is a qualified client?
A qualified client is a person that meets certain thresholds set by the SEC, which for individuals are currently at least $1.1. million in assets under management with the applicable investment advisor or a net worth of at least $2.2 million.
What is the difference between an accredited investor and a qualified client?
An accredited investor 2 is a lower standard of financial sophistication and net worth than a qualified client. Investment advisors can charge qualified clients performance-based fees, but they can’t charge the same fees to accredited investors.
What is a performance fee?
A performance fee is a fee charged to investors based on investment returns. For example, a historically popular fee structure for private equity funds or hedge funds is “2/20”, meaning the fund charges a 2% annual management fee and a 20% performance fee.
About the Author
Jake Safane specializes in financial reporting and is a former thought leadership editor for The Economist with articles appearing in Business Insider and The Washington Post among other media outlets. Mr. Safane has received compensation from Forge Global, Inc. for authoring this article. Read more from Jake.
