SEC Proposal Could Reframe How Regulatory Burden Is Evaluated for Most RIAs

SEC³ Compliance
January 21, 2026

The SEC has proposed significant amendments to the definition of a “small entity” as it applies to investment advisers under the Regulatory Flexibility Act (RFA). See SEC Press Release Here. The proposal would dramatically expand the population of advisers considered “small” for regulatory-analysis purposes by increasing the regulatory assets under management (RAUM) threshold from $25 million to $1 billion, with future automatic inflation adjustments every 10 years.

Importantly, these changes do not alter registration status, substantive compliance obligations, or examination authority, but they will materially affect how the SEC evaluates the regulatory burden of future rulemakings on advisers.

What the SEC Is Proposing
The proposal would update the definition of “small entity” under the Regulatory Flexibility Act. That statute requires federal agencies to consider whether their rules impose disproportionate economic burdens on smaller firms and, where appropriate, to explore less burdensome regulatory alternatives.
For investment advisers, the SEC is proposing to raise the “small entity” threshold from $25 million in regulatory assets under management to $1 billion. If adopted, the SEC estimates that roughly three-quarters of advisers, including many SEC-registered advisers, would fall within the revised definition.
The SEC has stated that this change is intended to reflect the substantial growth in advisory firm assets over time and to better align regulatory analysis with the current size and structure of the industry.

Why This Matters to RIAs
For RIAs, the significance of the proposal lies in how the future rules may be evaluated, not in any immediate relief. If an adviser qualifies as a small entity, the SEC must, when proposing or reviewing rules, assess whether those rules create a significant economic impact for that adviser and consider alternatives such as different compliance timelines and reporting approaches, scaled requirements, and targeted exemptions from specific provisions. Any such adjustments would be implemented through future rulemaking on a rule-by-rule basis.

Related Review of Existing Rules
Alongside the proposal, the SEC published a list of existing rules it believes may have imposed meaningful compliance costs on small entities and invited public comment on whether those rules should be retained, modified, or streamlined.
For RIAs, the inclusion of items such as Form ADV amendments and other disclosure-driven requirements is notable. The SEC has signaled a willingness to revisit whether certain rules are appropriately calibrated for smaller firms, particularly where compliance costs may outweigh regulatory benefits. This review process could ultimately inform targeted amendments, but any changes would occur only after additional rulemaking.

What This Does Not Change
It is important for RIAs to understand what the proposal does not do:
It does not suspend or relax existing rules, alter fiduciary duties, reduce examination or enforcement authority, or permit advisers to scale back compliance programs unilaterally. All current regulatory expectations remain fully in place unless and until formally amended.

Why Judgment and Documentation Still Matter
If the proposal is adopted, it may introduce greater regulatory flexibility over time. However, flexibility increases the importance of clear judgment, consistency, and documentation.  Examiners will continue to focus on whether an adviser’s compliance program is reasonably designed in light of its business, risks, and size, and whether decisions are supported by contemporaneous records. The proposal does not suggest a move away from these core expectations.

Practical Considerations for RIAs
At this stage, RIAs may wish to: evaluate whether they would fall within the proposed small entity definition and identify areas where compliance requirements feel disproportionately complex relative to firm size or strategy.  Additionally, they may want to consider whether participation in the SEC’s comment process is appropriate for their firm.  They should also ensure that compliance decisions and program design choices are well-documented.  However, no program changes should be made based solely on the proposal.

How SEC3 Is Supporting Clients
SEC3 is monitoring this proposal and the related rule review closely. We are available to assist clients with assessing potential small entity status for planning purposes, evaluating how existing compliance frameworks align with firm size and risk profile, supporting thoughtful engagement with the SEC comment process if applicable, and maintaining exam readiness during any regulatory transition.

Need assistance with your compliance program? SEC’s team of experienced compliance professionals can help. For more information, please email us at info@sec3compliance.com, call (212) 706-4029 x 214, or visit our website at www.sec3compliance.com.

SEC3 provides links to other publicly available legal and compliance websites for your convenience. These links have been selected because we believe they provide valuable information and guidance. The information in this e-newsletter is for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind

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