SEC Proposes Changing Which Advisors Are 'Small Entities'

Core Viewpoint - The SEC's proposed rule changes aim to redefine which investment advisors qualify as "small entities" by raising the asset threshold from $25 million to $1 billion, potentially impacting regulatory compliance and economic analysis for these firms [2][3]. Group 1: Proposed Rule Changes - The SEC proposed amendments to clarify the definition of small entities under the Regulatory Flexibility Act, increasing the asset threshold for investment advisors from $25 million to $1 billion [2]. - The rule requires federal agencies to analyze and minimize the economic impact of regulations on smaller companies [2]. Group 2: Industry Reactions - SEC Chair Paul Atkins stated that the proposals align with the SEC's goal to modernize regulatory requirements and better promote the effectiveness of regulations for small entities [3]. - MarketCounsel CEO Brian Hamburger noted that the changes should lead to more tailored regulations, with realistic compliance times and reduced documentation requirements, although the number of rules may not decrease immediately [4]. - The Investment Adviser Association has advocated for increasing the AUM threshold for small entity investment advisors for a considerable time [5]. Group 3: Current Regulatory Context - Under current rules, an investment company is considered a "small entity" if its net assets are under $50 million, while an investment advisor is deemed "small" if their assets under management do not exceed $25 million [4]. - Many advisors cannot register with the SEC unless they manage at least $100 million in assets, rendering the $25 million threshold for small entities largely ineffective [6].