The Securities and Exchange Commission is rethinking what it means to be “small.”
In a recent proposal, the SEC announced it is considering raising the assets-under-management threshold for “small entities” from $25 million to $1 billion—a significant shift that could ultimately reshape how the SEC regulates thousands of investment advisory firms.
CM Law Partner Jonathan Scott, a former SEC enforcement attorney, shared his perspective on the proposal in an interview with Sean Allocca of The Daily Upside, explaining why the move, while eye-catching, makes sense now.
“It is a big jump, but when you realize that the threshold number has not been revisited in well more than a quarter-century, it is less surprising,” Scott said, noting that the last major adjustment occurred in 1998—when $500 million had roughly the purchasing power of $1 billion today.
According to data from the Investment Adviser Association, nearly 70% of registered investment advisers manage less than $1 billion, and the average advisory firm operates much like a small business, with only eight employees and two offices. Scott emphasized that the proposal could allow the SEC to tailor its rules more appropriately based on firm size and scale, while shifting some oversight to the state level.
The change would not eliminate regulatory obligations, but it would require the SEC to do more to justify compliance burdens on smaller advisory firms—burdens that some industry observers say have driven consolidation across the sector.
As Scott explained, the proposal also reflects a broader effort by the current SEC to modernize its regulatory framework and create a more “industry-friendly” structure.
The proposal remains open for comment, and its final form—and impact—remains to be seen. But one thing is clear: in today’s regulatory landscape, $1 billion isn’t what it used to be.
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