IAA Asks SEC to Amend Definition of “Small Advisor”

The Investment Adviser Association (IAA) is pushing the Securities and Exchange Commission (SEC) to revise its definition of a “small advisor” in order to assess the impact of the regulator’s actions on smaller firms.

The IAA, an industry and lobbying group, cited congressional obligations under the 1980 Regulatory Flexibility Act requiring federal agencies (including the SEC) to perform evaluations of how their policies may affect small firms.

The SEC currently applies that definition to any firm with $25 million or less in assets under management — but, with some exceptions, advisors aren’t even allowed to register with the commission if they don’t have $100 million or more, according to IAA President and CEO Karen Barr in a petition of rulemaking sent to the SEC last week.

Firms should be considered small if they have 100 or fewer employees, according to the IAA. The criteria now used by regulators to award the “small” designation allow federal regulators to ignore how the proposed restrictions are likely to affect the great majority of investment advisors.

According to the IAA, most advisory firms are small businesses, with 92% having fewer than 100 employees. Even if they handle hundreds of millions or more than $1 billion in assets, businesses may lack the resources to develop SEC-compliant policies and processes, as well as test and monitor compliance.

Staff size “is a more evergreen measure than an asset-based test, which is subject to inflation and is more generally susceptible to fluctuation,” Barr wrote to the commission.

Earlier this month, the IAA, along with other financial industry lobbyists, also took aim at the SEC’s proposed custody rule as well as regulations on the use of artificial intelligence by investment advisor firms and broker-dealers.