SEC Proposes Updating the Definition of “Small Entity” for RIAs

On January 7, 2026, the SEC released a proposal seeking to amend its rules that define which investment advisers, investment companies, and business development companies are considered “Small Entities” for purposes of the Regulatory Flexibility Act (RFA).

When the SEC engages in rulemaking expected to have a significant economic impact on a substantial number of small entities, the RFA requires the agency to evaluate that impact and consider regulatory alternatives to minimize unnecessary compliance burdens while still achieving the rule’s objectives.

Under the current definition, last amended in 1998, an RIA is considered a small entity if it has assets under management of less than $25 million. After more than two decades of industry growth, and the threshold for RIA registration with the SEC increasing to $100 million in AUM after Dodd-Frank, the existing definition has become outdated. As a result, only about 3% of SEC-registered firms are counted as “small entities” today.

The proposal would raise the small-entity threshold to $1 billion in AUM, meaning around 75% of RIAs currently registered with the SEC would be considered in future rulemaking. While this change would not alter a firm’s existing compliance obligations, it could meaningfully influence future rulemaking by requiring the SEC to account for the economic impact on a much wider base of RIAs. Ideally, this leads to more calibrated rulemaking and reduces disproportionate compliance burdens on smaller RIAs.

While this proposal does NOT change the current $100 million in AUM threshold for purposes of qualifying for SEC registration, SEC Commissioner Mark Uyeda signaled early last year that the SEC would be evaluating whether the threshold for State vs. SEC registration is still optimal and that they should change the threshold if needed to allow the SEC to focus on larger more complex firms while the states concentrate their resources on smaller firms.