$1B Is the New Small Time, SEC Says in Proposal

A billion dollars just isn’t what it used to be.

The Securities and Exchange Commission announced a proposal last week that would raise the minimum size of a “small entity” to $1 billion in assets under management, up from the current $25 million level, and significantly alter how rules impact small advisory practices. While $1 billion in assets may sound like yacht money, industry groups said the firms managing those funds are generally the size of small businesses in other industries. The average advisor in 2024 had just eight employees, two offices, and $393 million in assets, according to data from the Investment Adviser Association. While it’s not a get-out-of-regulation-free card, it will help the agency set rules that are tailored for a firm’s size and scale, and could push more of the oversight to the state level. 

“The SEC is seeking to reshape their playing field with fewer registrants,” said Elina Yuabov, a capital markets attorney with Yuabov Law Group, adding that the agency is already focused on upcoming priorities, like alternative investments, cryptocurrency and AI washing. “Whether this ultimately improves retail investor protection, or just redistributes regulatory complexity, remains to be seen.”

Billion-Dollar Party

There were almost 16,000 registered investment advisors in 2024, and almost 70% of them managed less than $1 billion, according to IAA data. The SEC’s proposal would allow it to create rules on a broader set of registrants and not burden smaller firms with the same regulatory oversight as large ones, said Jonathan Scott, a former SEC enforcement attorney. “It is a big jump, but when you realize that the threshold number has not been revisited in well more than a quarter-century, it is less surprising,” he said, referring to an amendment passed in 1998 when roughly $500 million had the purchasing power of $1 billion today. It also allows the current commission to help create a more “industry-friendly” layout, he added.

The IAA data also found:

• More than nine in 10 advisors employed 100 or fewer employees in 2024.

• Advisors with less than $1 billion in assets accounted for almost all of the new SEC registrations.

“The existing threshold has been outdated for a while now, and captures many more advisories than Congress likely intended,” said Braden Perry, a litigation attorney with Kennyhertz Perry and former CFTC trial attorney, adding that the current rules are forcing smaller firms to consolidate because of compliance costs. 

The Enforcement. Yuabov said small advisors would still, of course, be subject to the Advisors Act and examination authority and she expects the agency to provide risk alerts, or other communication, in the near future to allow the industry time to respond to the proposal. “Hopefully only at that point, we’d see this really roll out,” she said.