Regulatory & Compliance | 09.20.23

SEC Asked To Redefine 'Small Advisors'

by: Patrick Donachie

The Investment Adviser Association has asked the U.S. Securities and Exchange Commission (SEC) to rethink how it classifies small businesses. President and CEO Karen Barr sent a rulemaking petition to the SEC, urging it to revamp its view of a "smaller advisor" as being one with assets under management (AUM) at or below $25 million, despite the fact firms are only required to registered with the commission once they hit $100 million. More than 90% of firms in the advisory industry employ 100 or fewer workers, but with the SEC’s definition based on AUM, any review on regulatory impact on smaller businesses would be “virtually meaningless,” as most small businesses under the SEC’s definition wouldn’t be subject to its rules, the association argued. IAA proposed an agency shift from AUM to employee headcount when determining firm size, specifically redefining a “small advisor” as a firm with 100 or fewer employees. The “Small Entity Update Act” passed in the U.S. House of Representatives in May would require the SEC to revise the definition of a small business every five years.

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