SEC proposes major increase to the RIA AUM threshold
- The SEC has proposed raising the small entity AUM threshold from $25 million to $1 billion, significantly expanding how many RIAs fall under the small entity definition.
- The change could ease administrative workloads for smaller firms and align future rulemaking more closely with firm size and operational capacity.
- RIAs should assess how the new definition may affect their firm and begin preparing for potential shifts in regulatory expectations.
The Securities and Exchange Commission (SEC) has recently proposed a major update to its definition of a small entity — a classification that influences how the SEC analyzes economic impact, sets compliance expectations and structures future rulemaking. For registered investment advisors (RIAs), this shift signals a potential recalibration of how regulations are scaled to firm size and operational capacity.
Here’s our overview of key elements of the proposed AUM threshold increase and what advisory firms can do now to prepare for changes:
What is the SEC’s proposed change to the small entity AUM threshold?
The SEC has proposed raising the asset threshold used to classify “small entity” investment advisers from $25 million to $1 billion in assets under management (AUM). This substantial increase would significantly expand the number of advisers that fall under the small entity definition and, in turn, influence how future regulatory requirements apply to them.
The agency notes that these thresholds have not been revised since 1998. Under the current framework:
- An investment company is considered small if it has less than $50 million in net assets.
- An investment adviser is considered small if it manages $25 million or less in AUM.
The update to a $1 billion threshold is intended to better align the definition with the Regulatory Flexibility Act, which aims to reduce compliance burdens for smaller entities. If adopted, the SEC estimates that roughly 75% of SEC‑registered advisers could benefit from reduced documentation expectations and more practical compliance timelines.
Why is the SEC proposing to change the small entity definition?
The SEC is proposing changes to the small entity definition because the current $25 million AUM threshold no longer reflects the modern advisory industry’s size or operational realities. The agency recognizes that today’s firms operate with far different cost structures, competitive pressures and resource constraints than they did nearly three decades ago, when the definition was established.
Key reasons for the proposed change include:
- Modernizing outdated standards: The thresholds were originally introduced in 1982 and have remained unchanged since 1998, despite significant industry growth and structural changes.
- Right‑sizing regulation: The SEC seeks to move away from uniform requirements that may disproportionately burden mid‑sized firms with limited compliance resources.
- Aligning with legislative intent: The updates better reflect the purpose of the Regulatory Flexibility Act, which is to minimize unnecessary regulatory impact on small entities.
How will this impact RIA compliance and operations?
The proposed change will not immediately alter compliance obligations for RIAs, but it will influence how future SEC rulemakings are structured.
According to the SEC, this update is intended to improve the effectiveness and efficiency of its regulatory framework while reducing unnecessary burdens for firms that operate with fewer resources.
By broadening the definition of “small entity,” the SEC intends to scale regulatory requirements more appropriately to a firm’s size, resources and operational complexity.
For firms under $1 billion in AUM, they could potentially see benefits including:
- Streamlined documentation: Future SEC rules may require less extensive reporting, easing administrative workloads for smaller advisers.
- Longer implementation periods: Firms would likely receive more achievable timelines for adopting new regulatory changes, helping them allocate resources more effectively.
- More targeted economic analysis: SEC cost assessments would better account for the financial realities of firms managing between $500 million and $1 billion in assets, helping ensure that compliance expectations are proportionate.
Does this change who must register with the SEC?
The proposed update does not change which advisers must register with the SEC. RIA registration requirements still follow the existing $100 million threshold that determines whether a firm registers at the federal or state level. However, this threshold may be evaluated in the future.
Commissioner Mark Uyeda has encouraged the SEC to revisit the $100 million federal–state dividing line established under the Dodd-Frank Act, noting that Congress granted regulators the flexibility to adjust it as needed. Any review of this standard could further shape how regulatory oversight is allocated between federal and state authorities.
What should advisors do next?
For RIA leaders and compliance teams, this proposal is a signal to begin preparing well before any rule changes take effect. While the updated “small entity” definition is not yet finalized, taking a proactive approach will help firms understand how potential future regulations could scale to their size and capabilities.
RIAs can stay prepared by:
- Evaluating your firm’s classification: Review where your current AUM places you under the proposed $1 billion threshold and consider how reclassification could influence your regulatory profile in upcoming SEC rulemakings.
- Anticipating shifts in compliance requirements: The potential for more tailored documentation expectations, implementation timelines or economic impact assessments might apply to your firm once the new thresholds are incorporated into future rules.
- Monitoring SEC communications and comment opportunities: Follow updates as the proposal moves through the rulemaking process.
- Educating internal stakeholders: Brief relevant teams so they understand how the evolving definition may shape long‑term planning, budgeting and resource allocation.
Taking these steps now can position your firm to transition smoothly when the SEC finalizes the amendments and begins aligning rules with the updated definition.
How Wipfli can help
Preparing for evolving SEC expectations starts with the right guidance. Explore how Wipfli’s wealth management team can help your firm adapt to regulatory updates and stay ahead of industry expectations.
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