‘Small’ RIAs Got Larger Under SEC Amendments

The Securities and Exchange Commission announced Wednesday that it adopted amendments redefining which registered investment advisers, and business development companies qualify as “small entities” for purposes of the Regulatory Flexibility Act.

Updating criteria last revised in 1998, the amendments raise the assets under management threshold for RIAs to $1 billion from $25 million, and the AUM threshold for investment companies to to $10 billion, from $50 million.

The commission is eliminating a “total assets threshold” for advisers, which was previously set at $5 million, updating how funds’ assets are aggregated to define small entities and requiring inflation-based adjustments of the thresholds every 10 years.

The changes, which were first proposed in January, have reclassified approximately 75% of RIAs as “small,” from less than 3% before the change, according to SEC Commissioner Mark Uyeda.

In a statement, Uyeda said that the amendments will the SEC to “consider the effectiveness and efficiency of our regulations on smaller entities, which may be disproportionately affected when compared to significantly larger firms.”

SEC Chairman Paul Atkins said in a separate statement, “Updating the SEC’s definition of small entities for investment companies and investment advisers—which has not been done in nearly 30 years—is an important step to eliminate unnecessary regulatory burdens and modernize our rulebook.”

The Investment Company Institute released a statement Wednesday praising the changes, saying they “recognize the realities of today’s markets and the unique regulatory burdens shouldered by smaller market participants.”

In a previous interview with PLANADVISER, Peter Campagna, managing partner in Wise Rhino Group, said the regulatory changes could accelerate the trend of wirehouse advisers breaking away to become independent RIAs, which could then fuel more mergers and acquisitions.

The amendments will be published at a later point in the Federal Register.