--- title: What Is A Qualified Client | Definition | How To Qualify description: A qualified client is an investor that is exempt from the provision of the Investment Advisers Act of 1940. image: https://www.realized1031.com/hubfs/social-suggested-images/Realized_Glossary_Graphic-4.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Qualified Client A qualified client is an investor that is exempt from the provision of the Investment Advisers Act of 1940. This act prohibits private investment funds from charging performance-based fees. A "qualified client" meets at least one of the following parameters: - An individual with at least $1 million in assets under management with the advisor immediately after entering into an investment advisory contract with the advisor. - An individual with a [net worth](https://www.fool.com/investing/how-to-calculate-my-net-worth.aspx) of $2.1 million or more, either individually or jointly with a spouse, immediately before entering into an advisory contract, not including the value of their primary residence. This is significantly more than the minimum required for accredited investors.  - An individual who matches the definition of a [qualified purchaser](https://www.realized1031.com/glossary/qualified-purchaser) at the time an advisory contract is enacted — including ownership of at least $5 million in investments. - An individual with the position of executive officer, director, trustee, general partner, a person serving in a similar role, or the advisor. - An employee of the advisor who is involved in the investment activities, and has been so for at least one year.  Any investment fund that charges a performance-based fee is restricted to qualified clients. [Accredited investors](https://www.realized1031.com/glossary/accredited-investor) do not meet the qualifications for participating in a fund that charges a performance fee. A common performance fee structure is 2 and 20. This means a 2% management fee is charged on assets under management (AUM) and a 20% fee on fund appreciation. In this case, the 20% fee is called a performance fee. To legally charge the 20% fee, all clients investing in the fund must be qualified clients.  **Qualified Client Example** An investor with a $2.5 million net worth decides to invest $250,000 into a hedge fund. The fund charges 2 and 20 for its fees, with the latter being a 20% performance fee. The investor meets the minimum $2.1 net worth criteria for a qualified client, allowing the hedge fund manager to charge the investor a performance fee. 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("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. 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A \"qualified client\" meets at least one of the following parameters: An individual with at least $1 million in assets under management with the advisor immediately after entering into an investment advisory contract with the advisor. An individual with a net worth of $2.1 million or more, either individually or jointly with a spouse, immediately before entering into an advisory contract, not including the value of their primary residence. This is significantly more than the minimum required for accredited investors. An individual who matches the definition of a qualified purchaser at the time an advisory contract is enacted — including ownership of at least $5 million in investments. An individual with the position of executive officer, director, trustee, general partner, a person serving in a similar role, or the advisor. An employee of the advisor who is involved in the investment activities, and has been so for at least one year. Any investment fund that charges a performance-based fee is restricted to qualified clients. Accredited investors do not meet the qualifications for participating in a fund that charges a performance fee. A common performance fee structure is 2 and 20. This means a 2% management fee is charged on assets under management (AUM) and a 20% fee on fund appreciation. In this case, the 20% fee is called a performance fee. To legally charge the 20% fee, all clients investing in the fund must be qualified clients. Qualified Client Example An investor with a $2.5 million net worth decides to invest $250,000 into a hedge fund. The fund charges 2 and 20 for its fees, with the latter being a 20% performance fee. 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