Qualified Client
Definition
A qualified client is an investor who meets SEC thresholds under the Investment Advisers Act rules that allow an investment adviser to charge performance fees or incentive allocations. The standard is distinct from accredited investor and qualified purchaser status.
Why it matters
Many alternative funds charge incentive fees, carried interest, or performance allocations. Whether those fees can be charged to a particular investor may depend on qualified client status. For investors, this status affects eligibility and fee economics; for sponsors, it affects fund design, side-by-side vehicles, and subscription representations.
Common misconceptions
- •Qualified client is not the same as accredited investor.
- •Qualified client status is mainly about performance-fee eligibility, not general private offering access.
- •A fund can require multiple statuses at once, such as accredited investor, qualified client, and qualified purchaser.
Technical details
Where it appears
Look in subscription agreements, investor questionnaires, advisory agreements, PPM fee sections, and performance allocation provisions.
The representation may ask about assets under management with the adviser, net worth, or other qualifying tests rather than only income or accreditation.
Fee implications
Performance fees can include incentive allocations, carried interest, fulcrum-style performance fees, and other compensation tied to investment gains.
Funds that accept non-qualified clients may need different fee classes, different vehicles, or no performance compensation for those investors.
Diligence questions
Does the vehicle charge a performance fee, incentive allocation, carried interest, or promote?
What investor status is required for each share class or feeder?
Are performance fees calculated net of management fees, expenses, losses, clawbacks, or high-water marks?