SEC Raises Small-Entity Asset Thresholds for Funds and Advisers

The U.S. Securities and Exchange Commission announced on November 4, 2026 that it had adopted amendments sharply raising the asset thresholds used to identify small investment companies and advisers. The fund net-asset threshold rises from $50 million to $10 billion, while the adviser threshold based on regulatory assets under management increases from $25 million to $1 billion.

The reset covers registered investment companies, business development companies and investment advisers. The rule uses “funds” to mean the first two groups and excludes private funds from that usage. The definitions determine which entities the SEC considers when assessing whether a rulemaking is likely to have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act. The adviser threshold is distinct from the SEC-registration threshold, which the Commission is not amending.

The two small-entity rules were adopted in 1982 and last amended in 1998. Chairman Paul S. Atkins called the update “an important step to eliminate unnecessary regulatory burdens and modernize our rulebook.”

Asset Concentration Drove the New Thresholds

Commission data in the final rule show how rarely the old fund test identified a small entity: 62.4% of investment companies qualified when the rules were adopted, but only 0.6% did so in 2024. The SEC calibrated the new threshold to the distribution of fund families and their assets.

Using December 2025 Form N-CEN data, the SEC estimated that the 80th-percentile fund-family threshold was $10.59 billion in net assets. Families at or below that percentile represented 22.6% of individual funds but only 2.1% of fund assets. The Commission retained the adopted threshold rather than reset it for one-year market movements. That distribution explains how the rule can expand the population considered small while capturing only a small fraction of industry assets.

For advisers, the SEC estimated that the new cutoff for regulatory assets under management, or RAUM, would cover approximately 75% of advisers but under 3% of total industry RAUM. The January proposal’s underlying analysis covered SEC-registered and exempt reporting advisers using Form ADV reporting as of December 31, 2024, and did not apply the separate control-relationship test. RAUM refers to the securities portfolios for which an adviser provides continuous and regular supervisory or management services.

Family Assets and Control Relationships Still Matter

A fund’s status is not determined by looking only at its own net assets. The designation applies to individual funds, but eligibility depends on the aggregated net assets of related funds. The final rule replaces the “group of related investment companies” approach with the “family of investment companies” term already used in Form N-CEN. That lets the SEC use information funds already report instead of creating a separate reporting requirement solely to identify small entities.

Advisers remain subject to a control-relationship test. An adviser cannot qualify as small if it controls, is controlled by, or is under common control with another adviser whose assets under management equal or exceed the RAUM threshold. The final rule clarifies that the same Form ADV-based calculation method applies to that test.

The amendments also eliminate the adviser’s separate $5 million total-assets test. The Commission concluded that RAUM and control relationships are more reliable indicators of advisory-business scale, while balance-sheet assets such as leases and equipment do not reflect that scope as well. The final package largely follows the January proposal, but eliminating the total-assets test and clarifying the control calculation were changes made at adoption after the SEC received approximately 20 comments.

Future Rulemakings Will Determine the Practical Effect

The asset thresholds can be adjusted for inflation by SEC order every 10 years beginning on the rules’ effective dates. The amendments become effective 90 days after publication of the adopting release in the Federal Register; the posted SEC fact sheet does not give that publication date.

Some commenters warned that the higher thresholds could classify too many firms as small and diminish investor protections. The Commission responded that the amendments primarily change the process for considering costs, benefits and alternatives in future rulemakings and have no immediate impact on investor protection. Future rules must address effects on the expanded small-entity population, including investor-protection effects.

The immediate change is therefore broader regulatory analysis, not an automatic reduction in advisory or fund obligations. The practical question for later rulemakings is whether that analysis changes compliance requirements or regulatory alternatives for firms the old definitions excluded, while the SEC also addresses the effects on investors.