BLUF: The SEC proposed expanding when investment advisers can collect performance-based fees from regulated funds and accredited investors, with new disclosure conditions attached.

The Securities and Exchange Commission published a proposed rule on October 6, 2026, to amend the Investment Advisers Act of 1940 rule governing performance-based compensation. The rule currently exempts advisers from the statutory ban on compensation tied to capital gains or capital appreciation in a client account, and the Commission is proposing to widen that exemption. The proposal covers advisers to registered management investment companies and business development companies, referred to collectively as "regulated funds."

Why it matters: Investment advisers managing regulated funds would gain a new path to performance-based compensation that is currently restricted, subject to conditions the Commission has not yet finalized. Regulated funds would face new reporting obligations requiring separate disclosure of all performance-based compensation paid to their adviser. Advisers serving individual clients would also see eligibility expand, since the proposal would broaden the rule's "qualified client" definition to include accredited investors under Regulation D, not just those meeting higher net-worth or asset thresholds.

By the numbers:

• Document type: Proposed Rule
• Publication date: October 6, 2026
• Agency: Securities and Exchange Commission
• Comment period: closes December 7, 2026 (62 days)
• Release numbers: 33-11443, 34-106533, IA-7022, IC-36350; File No. S7-2026-28

The proposal would amend certain regulated fund registration and reporting forms to require funds to separately disclose all performance-based compensation paid to their investment adviser, adding a transparency layer alongside the expanded compensation eligibility. The Commission's proposal would also make conforming amendments to other Advisers Act rules that reference the "qualified client" definition, extending the accredited-investor change beyond the performance-fee rule itself.

This is a securities regulation proposal, not a federal contract award or acquisition action. It is relevant to investment advisers and fund managers operating in or adjacent to government-contracting capital markets, not to agencies' procurement activity.

Source: Federal Register