IAA Applauds SEC Proposal Reflecting IAA Advocacy to Modernize “Small Adviser” Definition
March 13, 2026
Contact: IAA VP of Communications & Marketing Janay Rickwalder
Washington, D.C. – The Investment Adviser Association (IAA) today submitted a comment letter strongly supporting the Securities and Exchange Commission’s proposal to modernize the definition of “small entity” for investment advisers under the Regulatory Flexibility Act (RFA). The RFA 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. The IAA comment letter applauds the proposal as an important step toward ensuring that the Commission’s regulatory analyses more accurately reflect the structure and realities of today’s investment adviser industry, which is overwhelmingly made up of small firms.
The proposal reflects recommendations the IAA has advanced for years, including in a 2023 rulemaking petition urging the SEC to update the outdated small adviser definition. Under the current framework, the SEC only considers about 3% of SEC-registered advisers as “small entities” in its analysis, limiting the Commission’s ability to meaningfully evaluate how new regulations affect smaller firms.
“The SEC’s proposal is a significant win for smaller investment advisers and for sound regulatory policy,” said Gail Bernstein, General Counsel and Head of Public Policy at the IAA. “For years, we have urged the Commission to modernize the definition of a small adviser so that its rulemaking analyses better reflect the firms actually affected by SEC regulations. We are pleased to see the Commission take this important step.”
The SEC proposal would increase the regulatory assets under management (RAUM) threshold used to define a small adviser from $25 million to $1 billion and introduce periodic inflation adjustments. According to the Commission, the revised threshold would capture approximately 75% of advisers, providing a far more realistic basis for assessing regulatory impacts on smaller firms.
In its comment letter, the IAA strongly supports the proposed $1 billion threshold, noting that a modernized definition will help the SEC more accurately assess the full range of regulatory impacts on smaller advisers, including compliance, operational, technology, legal, and other business costs. The IAA has previously called for the SEC to look to an adviser’s employee count as a better measure of the adviser’s available compliance resources than RAUM alone. According to Bernstein, “the IAA continues to believe that the number of an adviser’s employees is an important metric for the SEC to consider in its rulemakings. At the same time, the SEC’s proposal meaningfully advances the central objective underlying our earlier recommendation, i.e., aligning the definition of ‘small’ with industry standards in a clear, administrable, and effective way.”
The RFA does not compel any specific outcomes for any particular rule. In its comment letter, the IAA emphasizes that updating the definition will not reduce investor protections or eliminate regulatory requirements but instead strengthen the rulemaking process by ensuring the Commission’s analyses reflect economic reality.
“The Regulatory Flexibility Act is not about weakening investor protections or giving small firms special treatment,” Bernstein added. “It’s about ensuring regulators carefully analyze how their rules affect smaller entities and consider ways to minimize unnecessary burdens so those firms can compete on a level playing field.”
The IAA recommended one modification to the proposal: eliminating the separate balance sheet threshold that acts as an overlay to the RAUM threshold for purposes of counting small advisers. The IAA notes that balance sheet assets are not a reliable indicator of adviser size and may not correlate with a firm’s operational complexity or regulatory resources. If the SEC retains that element of the definition, the IAA urges the Commission to immediately update the $5 million threshold for inflation.
“Getting the definition of a small adviser right is essential to ensuring thoughtful, data driven regulation,” Bernstein added. “A modern definition will give the SEC a stronger analytical foundation for understanding how its rules affect smaller firms and for tailoring regulations appropriately.”
The IAA’s comment letter also supports the proposal’s conforming amendments and inflation adjustment mechanism and encourages the Commission to avoid imposing new reporting requirements on advisers as part of this rulemaking. The IAA also supports the SEC’s efforts to modernize the small entity definition for investment companies.
About the Investment Adviser Association
The Investment Adviser Association is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For more than 85 years, the IAA has advocated for advisers before Congress and regulators, promoted best practices, and provided education and resources to support advisers serving clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the majority of our industry. Together, the IAA’s member firms manage more than $57 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org.
