The SEC has proposed changes to redefine “small entities” among investment advisors, potentially affecting regulations. The proposed amendments aim to increase the asset threshold for small advisors from $25 million to $1 billion, modernizing regulatory requirements. Many industry participants support the move, calling for more proportionate rules to reduce compliance burdens.

According to the rule proposal, only about 3% of SEC-registered investment advisors were considered small entities in 2025, compared to 75% before and 20% after 1998 amendments. The Investment Adviser Association emphasizes that the advisory industry is primarily made up of small businesses, with 92% of advisors employing 100 or fewer people.

The proposed changes aim to recognize the majority of investment advisors as small businesses facing different resource constraints. Industry experts welcome the move, acknowledging that smaller advisors have unique compliance needs. The threshold increase from $25 million to $1 billion reflects the importance of scale and complexity in regulatory assessment.

The SEC’s proposal could potentially qualify 75% of SEC-registered advisors as small entities, a move seen as “directionally sensible” by industry experts. The new threshold acknowledges that small firms manage significant assets relative to larger asset managers but have different compliance capabilities.

The $100 million threshold for SEC registration may not be set in stone, as Commissioner Mark Uyeda suggests periodic evaluations to re-examine the split between federal and state-registered advisors. The SEC is urged to focus on larger, more complex advisors, while states concentrate on smaller firms, in line with Congress’s intent.

Read more at Yahoo Finance: SEC Proposes Changing Which Advisors Are ‘Small Entities’