How the SEC’s Latest Proposal Could Reshape Compliance for “Small” RIAs
In regulatory policy, definitions matter more than they first appear. A single threshold—quietly embedded in rulemaking language—can shape how an entire segment of the industry is supervised, examined, and asked to absorb compliance costs. The SEC’s latest proposal to broaden which registered investment advisers qualify as “small entities” is one of those seemingly technical changes that could carry meaningful real-world impact.
For decades, the SEC has relied on a definition rooted in the late 1990s, treating only advisers with less than $25 million in assets under management as small entities for purposes of the Regulatory Flexibility Act. In today’s advisory landscape, that figure captures only a sliver of the market. The new proposal would raise the threshold dramatically, to $1 billion in assets under management—an adjustment that reflects how much the industry has evolved in scale, complexity, and economics.
The numbers tell the story. Under the current definition, only a tiny fraction of SEC-registered advisers qualify as small entities. Under the proposed framework, the majority would. That shift would do more than update terminology. It would require the SEC, during future rulemaking, to more carefully evaluate how compliance obligations affect firms that operate with limited staffing, lean legal budgets, and operational realities far removed from those of the largest institutions.
For many advisers, that recognition feels overdue. Mid-sized firms managing several hundred million dollars often live in a regulatory middle ground—large enough to face institutional-style expectations, yet without the infrastructure or economies of scale that make those expectations easier to meet. Expanding the small-entity definition signals an awareness that compliance capacity is not determined by registration status alone, but by resources, personnel, and day-to-day operational bandwidth.
At the same time, the proposal invites thoughtful debate. Broadening the category could lead to more tailored economic analysis and fewer one-size-fits-all rules, outcomes many in the advisory community would welcome. Yet if the definition stretches too far, there is a risk that the smallest firms—those with truly minimal resources—could still struggle to have their distinct challenges recognized. In regulatory design, precision is as important as flexibility.
The SEC’s request for public comment reflects that balance. By exploring whether additional metrics such as employee count or revenue should inform the definition of “small,” the agency is signaling openness to a more nuanced framework—one that better mirrors how advisory businesses actually function in practice. That kind of dialogue between regulators, industry groups, and practitioners is often where the most durable policy improvements begin.
For compliance professionals, the broader lesson extends beyond any single threshold. Regulatory expectations continue to evolve toward proportionality—an effort to align rules with real economic impact rather than theoretical firm size. Firms that understand this shift early can position themselves not only to adapt, but to help shape the conversation through engagement and thoughtful feedback.
At GiGCXOs, we work closely with advisory firms across the size spectrum, and one theme appears consistently. Effective compliance is not about matching the infrastructure of the largest institutions. It is about building governance that fits the firm’s actual scale while still meeting regulatory intent. When regulation recognizes that distinction, both investor protection and industry innovation tend to benefit.
Proposals like this rarely generate immediate headlines, yet they often signal deeper change. Redefining what it means to be “small” may ultimately influence how rules are written, how exams are conducted, and how compliance resources are deployed across thousands of advisory firms.
Sometimes progress in regulation is not about adding new rules, but about seeing the industry more clearly.
