IAA Backs SEC Proposal to Raise “Small Advisor” Threshold to $1B

The Investment Adviser Association (IAA) has voiced strong support for the Securities and Exchange Commission’s proposal to significantly raise the threshold used to define small registered investment advisors, while pushing back on additional measures it says could complicate compliance. 

In January, the SEC proposed increasing the “small advisor” threshold from $25 million to $1 billion in regulatory assets under management (RAUM), a level that has not been updated since 1998, and indexing it to inflation every 10 years. The move is intended to modernize the regulatory framework and better reflect the growth of the advisory industry. 

In a March 13 letter, the IAA endorsed the proposed increase, urging the SEC to adopt the updated RAUM threshold as part of a broader effort to align regulations with today’s market realities. The association has long advocated for revisiting the definition, including prior calls to incorporate additional metrics such as firm size and staffing. 

However, the IAA opposed the SEC’s proposal to introduce a “total assets” overlay, which would include not only client assets but also the firm’s balance sheet items such as cash and receivables. The group argued that the additional metric lacks a clear policy rationale and would introduce unnecessary complexity without advancing the goals of the Regulatory Flexibility Act. 

The proposal comes as the SEC looks to update how it classifies and regulates small entities, a framework rooted in legislation aimed at minimizing regulatory burdens on smaller firms. If adopted, the changes could meaningfully reshape how advisory firms are categorized and supervised, particularly as industry assets continue to scale.