SEC raises small-adviser threshold to $1 billion

The SEC adopted amendments Wednesday that raise the assets under management threshold at which a registered investment adviser counts as a "small entity" to $1 billion, from $25 million. The change reclassifies approximately 75% of RIAs as small, up from less than 3% under the criteria last revised in 1998, according to SEC Commissioner Mark Uyeda.

The investment company threshold rises to $10 billion from $50 million, so business development companies and other funds below that size count as small for the same purpose. The amendments also eliminate a $5 million total-assets test for advisers. They change how fund assets are aggregated and require the thresholds to be adjusted for inflation every 10 years. The SEC proposed the amendments in January.

Advisers who work with retirement plans now face an SEC that weighs a different population when it writes rules: firms with $800 million in client assets count as small, versus firms under $25 million before. Uyeda said the amendments will allow 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." The 10-year inflation reset means a firm can cross the line without any change in its own business.

SEC Chairman Paul Atkins said the update, not done in nearly 30 years, is an important step to eliminate unnecessary regulatory burdens and modernize its rulebook. The Investment Company Institute said the changes recognize today's markets and the regulatory burdens shouldered by smaller market participants. The amendments will be published in the Federal Register at a later date.