SEC Raises 'Small Entity' Threshold for RIAs to $1 Billion from $25 Million. Why It Matters. -- Barrons.com

By Kenneth Corbin

When the Securities and Exchange Commission sets out to write new rules governing registered investment advisors, it will pay closer attention to the potential impact on a far larger swath of firms. The commission on Wednesday approved a measure to increase the asset threshold for a firm to qualify as a "small entity," a designation that requires special consideration in rule-making proceedings.

When the changes take effect in three months, the SEC will consider RIAs with up to $1 billion in client assets under management to be small entities, a substantial increase from the current mark of $25 million.

The SEC is also increasing the threshold of assets for investment companies and business development companies to qualify as small entities. That threshold is moving from $50 million to $10 billion. Chairman Paul Atkins says that those changes were long overdue.

"Updating the SEC's definition of small entities for investment companies and investment advisors -- which has not been done in nearly 30 years -- is an important step to eliminate unnecessary regulatory burdens and modernize our rulebook," he says. Atkins argues that the updated thresholds "more accurately capture" which types of RIAs, asset managers, and business development companies are properly seen as small in today's market.

The new thresholds will be subject to adjustments for inflation every 10 years.

Rule modernization. The requirement for regulators to take special consideration of how new rules would impact small entities dates to the 1980 Regulatory Flexibility Act. The SEC last updated the asset threshold for advisors in 1998. Importantly, the designation doesn't exempt small entities from new regulations, but only directs the authors of those rules to conduct and publish an analysis of the potential impact on those practices.

Raising the threshold to $1 billion will deem 75% of RIAs small firms. However, in a sign of how concentrated client assets are in the largest shops, the SEC says that the new threshold will only cover RIAs that together manage less than 3% of total advisory assets under management.

The SEC noted in its initial proposal that the largest 5% of RIAs manage more than 85% of total advisory assets.

Industry applauds. The Investment Adviser Association, a trade group representing RIAs, has long lobbied for an increase in the threshold for small advisors.

"We applaud the SEC for recognizing that smaller advisers face distinct regulatory challenges and for taking meaningful action to ensure that the SEC takes these challenges into consideration in its rule-making," says Karen Barr, the IAA's president and CEO. "This is a tremendous win for smaller advisers and the clients they serve."

The Investment Company Institute, which represents asset managers, also hailed the move.

Under the new amendments, the SEC is eliminating a separate test for whether an RIA meets the small-entity definition. Under the existing rule, a firm with $5 million or more in total assets on its balance sheet such as business assets, cash, and accounts receivable wouldn't qualify as a small entity, regardless of its client AUM. The SEC says that test isn't a reliable indicator of whether an RIA should be deemed a small entity.

"Balance sheet assets, such as leases and equipment, do not reflect the scope of an advisory business as well as regulatory assets under management," the SEC says.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 05, 2026 13:26 ET (18:26 GMT)