SEC Reconsiders What Qualifies as a 'Small' Advisory Firm

In a proposal issued January 7, 2026, the SEC would raise the asset thresholds used to define "small entities" under the Regulatory Flexibility Act: from $25 million to $1 billion in assets under management for registered investment advisers, and from $50 million to $10 billion in net assets for investment companies. Commissioner Hester Peirce has said the current definition is "so out of date," and that an update would give regulators a more realistic view of the firms it covers. The proposal has not been adopted; it remains under SEC review.

What this means for RIAs:

• A far broader range of firms, including many mid-sized RIAs, could newly qualify as "small entities" for regulatory impact analysis if the proposal is adopted.
• Small entity status does not exempt firms from existing rules. It shapes how the SEC weighs the burden of future rule proposals on firms below the new threshold.
• The proposal also introduces inflation adjustments every ten years and revised rules for aggregating assets across related entities.
• Industry groups, including the Investment Adviser Association, have supported the update, while some firms have requested longer implementation timelines.

Firms should track this rulemaking rather than assume any change to current obligations. A shift in how the SEC defines "small" can shape the direction of future compliance requirements well before any specific rule changes.

ICS continues to monitor SEC rulemaking developments that affect how compliance obligations are calibrated to firm size.

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ICS advises financial institutions navigating regulatory changes of this type. If your firm needs to assess the impact of this development on your compliance program, contact us to discuss.