IAA Supports SEC Rule Proposal for Small Businesses

March 13, 2026

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Today, the IAA filed a comment letter strongly supporting the SEC’s proposal to modernize the definition of “small entity” for investment advisers under the Regulatory Flexibility Act (RFA). This proposal represents a significant win for the IAA’s long-standing advocacy on behalf of smaller investment advisers.

A fundamental purpose of the RFA is to promote the effectiveness and efficiency of government regulations with the goal of minimizing the significant economic impact on small entities. The RFA thus requires the SEC to conduct an analysis assessing the economic impact of each proposed rule on small entities and consider alternatives that would minimize burdens on those entities.

 

A Major Win for IAA Advocacy

For years, the IAA has urged the Commission to update the outdated definition of a “small adviser,” which currently captures only about 3% of SEC-registered advisers. Because the RFA requires the SEC to analyze how its regulations affect small entities, this outdated definition has limited the Commission’s ability to meaningfully evaluate the impact of its rules on the firms actually subject to them.

In 2023, the IAA filed a rulemaking petition urging the Commission to modernize this definition. The SEC’s proposal takes up our petition and closely aligns with its core objective, representing an important step toward ensuring that regulatory analyses more accurately reflect the realities of today’s adviser industry.

 

What Are the Key Elements of the SEC Proposal?

To be considered a “small entity” for RFA purposes today, an adviser must (1) have regulatory assets under management (RAUM) of less than $25 million; (2) have less than $5 million in total balance sheet assets; and (3) not be in a control relationship with another adviser that falls above either of these thresholds. The proposal would increase the RAUM threshold from $25 million to $1 billion and introduce periodic inflation adjustments. According to the SEC, this revised threshold would capture approximately 75% of advisers, dramatically expanding the population of firms considered in the Commission’s RFA analyses. The proposal would make conforming amendments to the control relationship test and retain the $5 million balance sheet threshold.

 

What Are the IAA’s Recommendations to the SEC?

In our comment letter, the IAA strongly supports the proposed $1 billion RAUM threshold and related conforming amendments. We explain that a modernized definition will enable the SEC to better assess the full range of regulatory impacts on smaller advisers, including compliance, operational, technology, legal, and other business costs. The updated definition will help ensure that future rulemakings are informed by more realistic, data-driven analysis.

The letter also recommends eliminating the separate balance sheet asset threshold because it does not meaningfully reflect adviser size and adds unnecessary complexity. If the SEC retains that element, we recommend updating the threshold for inflation immediately upon adoption.

While the IAA continues to believe that employee count would be a more direct measure of firm size as discussed in our rulemaking petition, the SEC’s proposed approach nevertheless achieves the core objective of our petition by capturing a meaningful portion of the adviser population. A definition that includes approximately 75% of advisers is far more consistent with the structure of the industry and will allow the Commission to conduct more meaningful regulatory flexibility analyses.

The IAA’s comment letter also supports the proposal’s conforming amendments to Form ADV and inflation adjustment mechanism and encourages the Commission to avoid imposing new reporting requirements on advisers as part of this rulemaking. We also support the SEC’s efforts to modernize the small entity definition for investment companies.

 

What’s Next?

The IAA continues to support thoughtful, effective regulation that protects investors while ensuring that smaller advisers are not disproportionately burdened by one-size-fits-all regulatory analysis and requirements.

While the RFA does not compel any specific outcomes for any particular rule, this proposal lays the groundwork for more accurate cost-benefit and small business impact analysis in future rulemakings. By proposing to modernize the small entity definition, the SEC has taken a significant step toward more tailored and effective regulation that recognizes the real-world differences among advisers of all sizes.

As discussed in our comment letter, the IAA will continue to advocate for SEC rulemakings that are appropriately tailored and right sized to reflect the scale and resources of smaller advisers.

 

The IAA Has Your Back

We will continue to keep our members informed and to be a powerful advocate on your behalf in Washington, D.C. Members with questions or comments should contact the IAA Legal Team. IAA adviser firm members are also encouraged to join our committees, working groups, and forums, where members discuss the issues covered in this alert and other important issues.