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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 270, 275, and 279

[Release Nos. IA-6935; IC-35864; File No. S7-2026-01]

RIN 3235-AN39

Amendments to the “Small Business” and “Small Organization” Definitions for Investment

Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

SUMMARY: The Securities and Exchange Commission (the “Commission” or the “SEC”) is

proposing to amend the rules under the Investment Company Act of 1940 (the “Investment

Company Act”) and under the Investment Advisers Act of 1940 (the “Advisers Act”) that define

the terms “small business” and “small organization” for purposes of the Regulatory Flexibility

Act (the “RFA”) to increase the asset-based thresholds used in those definitions. The

Commission also is proposing a mechanism for periodic future inflation adjustments of the assetbased thresholds used in these definitions. The Commission further is proposing amendments to

Form ADV and the rule providing continuing hardship exemptions from filing electronically for

investment advisers in connection with the proposed amendments.

DATES: Comments should be received on or before March 13, 2026.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments:

•

Use the Commission’s comment form (https://www.sec.gov/comments/s7-202601/small-entity-definition-amendments-investment-advisers-investment-companies); or

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•

Send an email to rule-comments@sec.gov. Please include File Number S7-2026-01 on

the subject line.

Paper Comments:

•

Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-2026-01. This file number should be

included on the subject line if email is used. To help the Commission process and review your

comments more efficiently, please use only one method of submission. The Commission will

post all comments on the Commission’s website (https://www.sec.gov/comments/s7-202601/small-entity-definition-amendments-investment-advisers-investment-companies). Do not

include personal identifiable information in submissions; you should submit only information

that you wish to make available publicly. We may redact in part or withhold entirely from

publication submitted material that is obscene or subject to copyright protection.

Studies, memoranda, or other substantive items may be added by the Commission or staff

to the comment file during this rulemaking. A notification of the inclusion in the comment file of

any such materials will be made available on the Commission’s website. To ensure direct

electronic receipt of such notifications, sign up through the “Stay Connected” option at

www.sec.gov to receive notifications by email.

A summary of the proposal of not more than 100 words is posted on the Commission’s

website (https://www.sec.gov/rules-regulations/2026/01/s7-2026-01).

FOR FURTHER INFORMATION CONTACT: Andrew Deglin, Senior Counsel, Amanda

Hollander Wagner, Senior Special Counsel, or Brian McLaughlin Johnson, Assistant Director,

Investment Company Regulation Office, at (202) 551-6792, Alexander Haer, Attorney-Adviser,

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Neema Nassiri, Senior Counsel, Sirimal R. Mukerjee, Senior Special Counsel, or Robert

Holowka, Acting Assistant Director, Investment Adviser Regulation Office, at (202) 551-6787,

Division of Investment Management, Securities and Exchange Commission, 100 F Street NE,

Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is proposing for public comment

amendments to 17 CFR 275.0-7 (“rule 0-7”) and 17 CFR 275.203-3(b) (“rule 203-3(b)”) under

the Advisers Act, 17 CFR 270.0-10 under the Investment Company Act (“rule 0-10” and,

together with rule 0-7, the “Small Entity Rules”), and Form ADV (17 CFR 279.1) under the

Advisers Act.

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TABLE OF CONTENTS

Introduction .............................................................................................................. 5

A. Background ............................................................................................................. 5

1. The Regulatory Flexibility Act of 1980 ............................................................ 9

2. Investment Company Size Standards.............................................................. 11

3. Investment Adviser Size Standards ................................................................ 14

B. Overview of the Proposal...................................................................................... 18

II. Discussion................................................................................................................ 20

A. Proposed Amendments to Rule 0-10 of the Investment Company Act ................ 20

1. Raising the Net Asset Threshold..................................................................... 20

2. Group Definition Amendments....................................................................... 27

B. Proposed Amendments to Rule 0-7 of the Advisers Act ...................................... 36

1. The RAUM Threshold .................................................................................... 36

2. The Total Assets Threshold ............................................................................ 47

3. The Control Relationship Threshold............................................................... 51

4. Form ADV Amendments ................................................................................ 55

C. Periodic Future Adjustments................................................................................. 59

III. Economic Analysis ................................................................................................. 65

IV. Paperwork Reduction Act ..................................................................................... 71

A. Introduction ........................................................................................................... 71

B. Proposed Amendments to Form ADV .................................................................. 71

C. Proposed Amendments to Rule 0-7 of the Advisers Act and Rule 0-10 of the

Investment Company Act ..................................................................................... 73

D. Total Estimated Burden ........................................................................................ 74

E. Request for Comments .......................................................................................... 74

V. Regulatory Flexibility Act Certification .............................................................. 76

VI. Consideration Of Impact On The Economy........................................................ 78

VII. Other Matters ......................................................................................................... 78

Statutory Authority ........................................................................................................ 78

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INTRODUCTION

Background

The Commission has a longstanding commitment to understanding and addressing the

concerns of small entities and has established the Office of Small Business Policy, the Office of

the Advocate for Small Business Capital Formation (the “Small Business Advocate Office”), and

the Small Business Capital Formation Advisory Committee to be responsive to such concerns. 1

In the context of rulemaking, the Commission tailors its regulations to the relevant characteristics

of regulated entities and weighs the impact of its rules on small entities, including through

performing analyses under the RFA. A purpose of the RFA is to promote the effectiveness and

efficiency of regulations, including through consideration of alternative regulatory approaches,

with the goal of minimizing the significant economic impact on small entities consistent with the

The Office of Small Business Policy in the Division of Corporation Finance, which was originally

established by the Commission in 1979, assists companies seeking to raise capital through exempt or

smaller registered offerings and answers interpretive questions on federal securities laws that may affect

small businesses. See Office of Small Business Policy Division of Corporation Finance, available at

https://www.sec.gov/resources-small-businesses/office-small-business-policy-division-corporation-finance.

Pursuant to the SEC Small Business Advocate Act of 2016, the Commission in 2019 created its Small

Business Advocate Office to advocate within the Commission and externally for practical solutions to

challenges faced by small businesses and their investors. See 15 U.S.C. 78d and 78qq; see also Office of

the Advocate for Small Business Capital Formation, available at https://www.sec.gov/about/divisionsoffices/office-advocate-small-business-capital-formation. The Commission’s Small Business Advocate

Office provides an annual report to Congress that serves as a resource on the dynamics of small business

capital raising and includes data-driven policy recommendations based on the office’s feedback from and

engagement with small businesses and their investors. Office of the Advocate for Small Business Capital

Formation, available at https://www.sec.gov/about/divisions-offices/office-advocate-small-businesscapital-formation. Pursuant to the SEC Small Business Advocate Act of 2016, the Commission also

established the Small Business Capital Formation Advisory Committee (which succeeded the Advisory

Committee on Small and Emerging Companies, whose term expired in 2017) to provide a formal

mechanism for the Commission to receive advice and recommendations from market participants on

Commission rules, regulations, and policy matters relating to small businesses. See Small Business Capital

Formation Advisory Committee, available at https://www.sec.gov/about/advisory-committees/smallbusiness-capital-formation-advisory-committee.

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stated objectives of applicable statutes. 2 The Commission is required to determine if a

rulemaking is likely to have a “significant economic impact on a substantial number of small

entities” under the RFA. 3 Unless the Commission certifies that the rulemaking will not have such

an impact, the Commission is required to conduct a regulatory flexibility analysis both during the

proposal and final stages of adopting a rule. 4

The Small Business Act gives the Administrator of the U.S. Small Business

Administration (the “SBA”) authority to establish small business size standards for all Federal

agencies, in the absence of other specific statutory authority. 5 An agency may nevertheless

prescribe its own small business size standard pursuant to section 601(3) of the RFA if, as

described in 13 CFR 121.903(c), the agency consults with the SBA Office of Advocacy and the

size standard will be used for the sole purpose of performing a regulatory flexibility analysis. 6

Allowing agencies to establish their own definitions for the terms “small business,” “small

organization,” and “small governmental jurisdiction” for purposes of the RFA analyses gives

agencies flexibility in applying the provisions of the RFA. 7

Pub. L. 96–354, §2, Sept. 19, 1980, 94 Stat. 1164; 5 U.S.C. 601–612.

See 5 U.S.C. 602. The RFA does not define “significant economic impact” or “substantial number of small

entities.”

5 U.S.C. 605.

15 U.S.C. 632(a)(2). 15 U.S.C. 632(a)(1) sets forth the default standard for a “small business concern” as

“one which is independently owned and operated and which is not dominant in its field of operation.”

13 CFR 121.903(c). See also Small Business Size Regulations; Size Standards for Programs of Other

Agencies, 67 FR 13714 (Mar. 26, 2002).

5 U.S.C. 601. Under the RFA, the term “small entity” has the same meaning as the terms “small business,”

“small organization,” and “small governmental jurisdiction” as defined under the RFA, unless the agency

has established a definition of such term. In the latter case, the definition of the term is instead what was

established by the agency.

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As described in more detail below, the Commission in 1982 adopted rule 0-7 for

investment advisers and rule 0-10 for investment companies to define “small business” and

“small organization” for purposes of Commission rulemakings under the Advisers Act and

Investment Company Act, respectively. 8 These definitions were last amended in 1998 9 and, in

connection with outreach to small entities, the Commission has subsequently received requests to

update the definitions. 10

See Final Definitions of “Small Business” and “Small Organization” for Purposes of the Regulatory

Flexibility Act, Investment Company Act Release No. 12194 (Jan. 28, 1982) [47 FR 5215 (Feb. 4, 1982)]

(“1982 Adopting Release”). Unless otherwise specified, the term “investment companies” or “funds” in

this release refers collectively to registered investment companies and business development companies but

not entities excluded from the definition of investment company under the Investment Company Act such

as private funds.

See Definitions of “Small Business” or “Small Organization” Under the Investment Company Act of 1940,

Investment Advisers Act of 1940, the Securities Exchange Act of 1934, and the Securities Act of 1933,

Investment Company Act Release No. 23272 (June 24, 1998) [63 FR 35508 (June 30, 1998)] (“1998

Adopting Release”).

See, e.g., Report on the 43rd Annual Small Business Forum (Sept. 20, 2024) (describing how participants in

the Commission’s 2024 Small Business Forum recommended that the Commission revise the definition of

“small entity” under the RFA in order to better assess regulatory costs), available at

https://www.sec.gov/files/2024-oasb-annual-forum-report.pdf; Investment Adviser Association; Petition for

Rulemaking to Amend the Definition of “Small Entity” in Rule 0-7 under the Investment Advisers Act of

1940 for Purposes of the Regulatory Flexibility Act (Sept. 14, 2023) (“IAA Petition”) (requesting that the

Commission amend rule 0-7 to use the number of employees of an investment adviser as the appropriate

size standard for purposes of determining the impact of regulations on small investment advisers), available

at https://www.sec.gov/files/rules/petitions/2023/petn4-811.pdf; SEC Asset Management Advisory

Committee, Final Report and Recommendations for Small Advisers and Funds (Nov. 3, 2021) (“AMAC

Report”) (recommending that the Commission modernize the definitions of “small entities” for RFA

considerations), available at https://www.sec.gov/files/final-recommendations-amac-sec-small-advisersand-funds-110321.pdf; and U.S. Department of the Treasury, A Financial System That Creates Economic

Opportunities: Capital Markets (Oct. 6, 2017) (stating that thresholds for small entity definitions under the

Investment Company Act and the Advisers Act have not been changed in many years), available at

https://home.treasury.gov/system/files/136/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf.

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Under rule 0-7, an investment adviser is deemed a small entity if it: (i) has regulatory

assets under management (“RAUM”) of less than $25 million (the “RAUM Threshold”); 11 (ii)

did not have total assets of $5 million or more on the last day of the most recent fiscal year (the

“Total Assets Threshold”); and (iii) does not control, is not controlled by, and is not under

common control with (a “control relationship”) another investment adviser that has assets under

management of $25 million or more, or any person (other than a natural person) that had total

assets of $5 million or more on the last day of the most recent fiscal year (the “Control

Relationship Threshold”). Under rule 0-10, an investment company is deemed a small entity if it,

together with other investment companies in the same group of related investment companies,

has net assets of $50 million or less as of the end of its most recent fiscal year. 12 A group of

related investment companies is defined, with respect to management companies, as: two or

more management companies (including series thereof) that: (1) hold themselves out to investors

as related companies for purposes of investment and investor services; and (2) either (i) have a

Rule 0-7(a)(1) does not directly refer to the term “regulatory assets under management” for purposes of the

RAUM Threshold but instead references “assets under management, as defined under Section 203A(a)(3)

of the [Advisers] Act and reported on [the investment adviser’s] annual updating amendment to Form

ADV[.]” Section 203A(a)(3) of the Advisers Act defines “assets under management” to mean “the

securities portfolios with respect to which an investment adviser provides continuous and regular

supervisory or management services,” and rule 203A-3 under the Advisers Act further provides that such

amount should be determined “as reported on the investment adviser’s Form ADV.” 17 CFR 275.203A-3.

In turn, Form ADV requires investment advisers to calculate and report “the securities portfolios for which

[they] provide continuous and regular supervisory or management services” as their “regulatory assets

under management.” Instruction 5.b. of Form ADV Part 1A; see also Rules Implementing Amendments to

the Investment Advisers Act of 1940, Investment Advisers Act Release No. 3221 (June 22, 2011) [76 FR

42950 (July 19, 2011)] (using the term “regulatory assets under management” to implement a uniform

method to calculate and report assets under management for Form ADV and other regulatory purposes).

We use the term “regulatory assets under management” throughout this release because investment advisers

are familiar in practice with the term in connection with their Form ADV reporting and other Advisers Act

compliance obligations.

See 17 CFR 210.6-04 (Regulation S-X section generally applicable to balance sheets filed by registered

investment companies and business development companies, including requirements for disclosure of net

assets).

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common investment adviser or have investment advisers that are affiliated persons of each other;

or (ii) have a common administrator. 13

The Regulatory Flexibility Act of 1980

The RFA requires that the Commission conducts an initial regulatory flexibility analysis

(an “IRFA”) in connection with a proposed rule and a final regulatory flexibility analysis (a

“FRFA”) in connection with a final rule, subject to certain exceptions. 14 Each IRFA is required

to include, among other items, a description of the reasons why action by the agency is being

considered and a description of and, where feasible, an estimate of the number of small entities

to which the proposed rule would apply 15 as well as a description of any significant alternatives

to the proposed rule that accomplish the stated objectives of applicable statutes and that

minimize any significant economic impact of the proposed rule on small entities. 16 The IRFA, or

a summary of the IRFA, must be published in the Federal Register at the time of the publication

of the proposed rule. 17 This gives the public the opportunity to review the IRFA and provide

comments on the agency’s analysis.

Rule 0-10(a). In the case of unit investment trusts (“UITs”), a group of related investment companies is

defined as two or more UITs (including series thereof) that have a common sponsor.

5 U.S.C. 603–604. See also 5 U.S.C. 601(2) (RFA does not apply to a rule that is not considered a “rule”

under the RFA) and 5 U.S.C. 605(b) (IRFA and FRFA are not required if an agency certifies the rule will

not have a significant economic impact on a substantial number of small entities).

See 5 U.S.C. 603 (setting forth the requirements for the IRFA).

See id. (requiring the description to discuss significant alternatives such as “(1) the establishment of

differing compliance or reporting requirements or timetables that take into account the resources available

to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting

requirements under the rule for such small entities; (3) the use of performance rather than design standards;

and (4) an exemption from coverage of the rule, or any part thereof, for such small entities”).

Id.

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The FRFA complements the IRFA and requires the agency to include, among other

items: a statement of the need for, and objectives of, the rule; a statement of the significant issues

raised by the public comments in response to the IRFA, a statement of the assessment of the

agency of such issues, and a statement of any changes made in the proposed rule as a result of

such comments; the response of the agency to any comments filed by the Chief Counsel for

Advocacy of the SBA; and a description of the steps the agency has taken to minimize the

significant economic impact on small entities. 18 The effect of the IRFA and FRFA elements

collectively is that agencies take small entity considerations and relevant alternatives into

account when proposing rules, and then go through a particular process in weighing public input

on the IRFA and small entity considerations when adopting these rules.

The Commission is subject to other substantive requirements under the RFA, in addition

to the IRFA and FRFA. The Commission must establish plans for periodically reviewing rules

that have or will have a significant economic impact on a substantial number of small entities 19

and must publish regulatory flexibility agendas semiannually in the Federal Register that

describe rules it is considering that may have a significant economic impact on a substantial

number of small entities. 20 The Chief Counsel for Advocacy of the SBA must monitor

compliance with the requirements created by the RFA and must provide a report annually to

Congress and the President on its findings.21 Small entities also have legal recourse when

5 U.S.C. 604 (setting forth the requirements for the FRFA).

5 U.S.C. 610. The plans should provide for the review of such rules within 10 years of the publication of

such rules as the final rules. However, completion of the review may be extended by up to 5 years if the

head of the agency determines that completion is not feasible by the established date. Id.

5 U.S.C. 602.

5 U.S.C. 612.

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adversely affected by final agency rules subject to the RFA—in 1996, Congress passed the Small

Business Regulatory Enforcement Fairness Act (“SBREFA”), which provides small entities an

avenue for judicial review of an agency’s compliance with certain of the requirements created by

the RFA, including the FRFA. 22

Investment Company Size Standards

Initial Size Standards

Shortly after Congress enacted the RFA, the Commission proposed and adopted rules to

define which of the entities it regulates would qualify as “small entities” for purposes of the

RFA. 23 While the SBA generally expressed its size standards in terms of number of employees

or average annual receipts, the Commission determined that neither approach was appropriate for

investment companies. 24 First, investment companies are typically externally managed and have

few, if any, employees. Additionally, investment companies primarily generate revenue through

capital appreciation and other investment returns, not receipts from the sale of goods or services.

Even if the income from dividends and interest were considered receipts, investment companies

5 U.S.C. 611; see Pub. L. 104-121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C.,

15 U.S.C., and as a note to 5 U.S.C. 601). Small entities are entitled to judicial review of agency

compliance with the requirements of sections 601, 604, 605(b), 608(b), and 610 in accordance with Chapter

7 of Part I of Title 5 of the U.S. Code, and agency compliance with sections 607 and 609(a) is judicially

reviewable in connection with judicial review of section 604.

Proposed Definitions of “Small Business” and “Small Organization” for Purposes of the Regulatory

Flexibility Act, Investment Company Act Release No. 11694 (Mar. 20, 1981) [46 FR 19251 (Mar. 30,

1981)] (“1981 Proposing Release”); 1982 Adopting Release, supra footnote 8.

1981 Proposing Release, supra footnote 23, at section II.F; see also 1982 Adopting Release, supra footnote

8 (the definition of “small” was proposed “[i]n view of the apparent absence of appropriate standards” set

forth in the Small Business Act, RFA, or the regulations promulgated by the SBA).

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with different investment objectives would have varying receipts depending upon the investment

objective of the company and not necessarily because of a given investment company’s size. 25

For investment companies, the Commission instead developed the initial threshold by

analyzing a sample of investment companies’ adjusted expense ratios and identifying a net asset

threshold below which funds typically disclosed higher than average expense ratios. 26 The

Commission’s rationale was that those funds that already experienced high expenses as a

percentage of net assets would not be as well-positioned to bear regulatory costs. Based on the

analysis of expense ratios, the Commission ultimately adopted a threshold that deemed an

investment company a small entity if it had $50 million or less in net assets as of the end of its

most recent fiscal year. 27 At the time of adoption, approximately 62% of investment companies

met the definition of a “small entity” for the purposes of the RFA.

Amendments to Size Standards

As originally adopted, the definition of “small entity” focused only on individual

investment companies’ assets—that is, whether a given investment company was a small entity

depended exclusively on the net asset size of that investment company. In 1996, however, the

SBA adopted rules that, depending on certain facts and circumstances, treat multiple entities that

See also infra footnote 62 (discussing the AMAC Report, which recommends defining small funds based

on whether the fund’s adviser has fewer than 50 employees or annual revenue less than $25 million).

See 1981 Proposing Release, supra footnote 23 at section II.F. An expense ratio is the quotient of expenses

divided by average net assets. The adjusted expense ratio used for this analysis was computed by

subtracting any taxes, interest, securities loan fees, or dividends from securities sold short from the fund's

total expenses and dividing the remaining total by average net assets.

To arrive at this threshold, the Commission analyzed the adjusted expense ratios of a random sample of 500

investment companies. The Commission calculated the average (mean) adjusted expense ratio plus one

standard deviation and identified the population of funds whose adjusted expense ratio exceeded that

amount. The Commission then identified the range of sizes for funds in that higher expense group—

ranging from approximately $6 million to $47.2 million in net assets—and set the threshold at $50 million

to ensure that the largest fund within the high expense group would be deemed a “small entity.”

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have substantially identical business interests as a single entity. 28 Shortly thereafter, the

Commission amended rule 0-10 to provide that “small entity” means “an investment company

that, together with other investment companies in the same group of related investment

companies, has net assets of $50 million or less.” 29 Therefore, while the “small entity”

designation still applied to individual funds, whether any individual fund was deemed small

depended upon the aggregate net assets of all funds within its respective “group of related

investment companies.”

A group of related investment companies was defined to include two or more

management companies (including series thereof) that: (i) hold themselves out to investors as

related companies for purposes of investment and investor services; and (ii) either (A) have a

common investment adviser or have investment advisers that are affiliated persons of each other;

or (B) have a common administrator. 30 For unit investment trusts, “group of related investment

companies” was defined as two or more unit investment trusts (including series thereof) that

have a common sponsor. 31 Finally, the Commission created a special rule for insurance company

separate accounts, which requires that the assets of any separate account be cumulated with the

See Small Business Size Standards, 61 FR 3280-01 (Jan. 31, 1996); see also 13 CFR 121.103 (“How does

SBA determine affiliation?”). The SBA size standards consider if entities are affiliated by such factors as

control, management, ownership, and contractual relationships in determining whether an entity is

“independently owned and operated,” and thus, “small.” 15 U.S.C. 632(a)(1). These relationships allow the

“small” affiliates to rely on a larger entity that centralizes administrative and compliance systems for all

affiliates, significantly reducing regulatory burdens for each individual affiliate.

1998 Adopting Release, supra footnote 9.

Rule 0-10(a)(1). The investment company itself, not the group, continued to be the entity considered

“small” for the purposes of the RFA.

Rule 0-10(a)(2).

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assets of the general account and all other separate accounts of the insurance company to

determine whether the separate account is a small entity. 32

The shift to aggregating assets across groups of related investment companies reflected

the Commission’s understanding that funds within a complex typically use the same

administrative, management, and compliance systems to oversee all the funds within the

complex, so fees imposed on the fund by the adviser or administrator typically reflect economies

of scale that the adviser or administrator achieves from managing other funds. 33 Because the

Commission did not also change the net asset threshold, the requirement to aggregate the net

assets of all funds within a group of related investment companies had the effect of substantially

reducing the percentage of funds deemed “small entities” under rule 0-10. Shortly after this

amendment, the Commission estimated that about 9% of investment companies were “small” for

the purposes of the RFA. 34

Investment Adviser Size Standards

Initial Size Standards

The Commission initially adopted definitions for “small business” and “small

organization” pursuant to the RFA for investment advisers at the same time as it did for

Rule 0-10(b).

Definitions of “Small Business” or “Small Organization” Under the Investment Company Act of 1940, the

Investment Advisers Act of 1940, the Securities Exchange Act of 1934, and the Securities Act of 1933,

Investment Company Act Release No. 22478 (Jan. 22, 1997) [62 FR 4106 (Jan. 28, 1997)] (“1997

Proposing Release”), at section II.A.

Deregistration of Certain Registered Investment Companies, Investment Company Act Release No. 23588

(Dec. 4, 1998) [63 FR 69236 (Dec. 16, 1998)] (“Of approximately 3900 active registered investment

companies (including BDCs), 339 funds are small entities.”); see also 1998 Adopting Release, supra

footnote 9, at text following n.35 (estimating that about 400 investment companies would be treated as

small businesses under the amendments).

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investment companies. 35 As noted above, the Commission did not adopt what it saw as the most

relevant of the SBA size standards for “small entities,” which are generally based on an entity’s

number of employees or average annual receipts. It did not do so because: (i) the Commission

did not have sufficient information regarding investment advisers to apply these standards, (ii)

the advisory industry is not generally labor intensive, and (iii) it was unlikely that any investment

advisers would be larger than the most-relevant standards that were then being used or

considered by the SBA. 36

The Commission initially chose to define investment advisers as small entities using two

alternative thresholds. The first threshold required that an investment adviser manage assets with

a total value of $50 million or less (measured in assets under management instead of net assets as

for investment companies) because of what the Commission at that time saw as the similarities

between the investment company and investment advisory businesses with respect to the

management of a portfolio of assets. The second threshold defined investment advisers as small

entities if the adviser solely, or in addition to managing assets of $50 million or less, rendered

other advisory services, and the assets relating to its advisory business did not exceed $50,000 in

value as of the most recent fiscal year end. As a result of this second threshold, approximately

55% of investment advisers were deemed small. 37 The Commission originally selected this

threshold because it reflected approximately the median value of advisers’ business assets at the

time. 38

See 1981 Proposing Release, supra footnote 23, and 1982 Adopting Release, supra footnote 8.

1981 Proposing Release, supra footnote 23, at section II.F.

1982 Adopting Release, supra footnote 8.

See 1997 Proposing Release, supra footnote 33, at n.57.

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1998 Amendments

The Commission revised rule 0-7 in 1998 so that an investment adviser would be

considered a small entity if: (i) neither the investment adviser, nor any investment adviser it has a

control relationship with, has $25 million or more of RAUM, and (ii) neither the investment

adviser, nor any person (other than a natural person) in a control relationship with the investment

adviser, has $5 million or more of total assets. 39 The threshold was adjusted down from $50

million to $25 million in order to align the definition of “small entity” with the assets under

management (“AUM”) threshold that had been enacted under the National Securities Markets

Improvement Act of 1996 (“NSMIA”), which allocated regulatory responsibility for investment

advisers with less than $25 million in AUM to the states and generally prohibited their

registration with the Commission. 40 The Commission, referencing Congressional reports, stated

that NSMIA permitted states to assume a primary role with respect to investment advisers that

were smaller local businesses, while the Commission would be focused on larger investment

advisers most likely to be engaged in interstate commerce, and amended the definitions of “small

business” and “small organization” accordingly. 41 Although the Dodd-Frank Act in 2010 (DoddFrank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. 111-203, 124 Stat.

1376 (2010) (the “Dodd-Frank Act”)) effectively raised the minimum registration threshold for

investment advisers to $100 million, the RAUM Threshold was not increased at that time and, as

a result, the number of small entities significantly decreased.

See 1998 Adopting Release, supra footnote 9, at section II.B.

See id. at section II.B.

See 1998 Adopting Release, supra footnote 9, at n.47 and accompanying text.

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The “control relationship” prong was designed to take into account SBA size standards in

determining whether to consider an investment adviser as “small.” 42 As stated above, the SBA

size standards indicate that multiple entities that have substantially identical business or

economic interests may be treated as a single entity, 43 and under the RFA, a small organization

should be “independently owned and operated.” 44 In line with these considerations, the

Commission stated that an investment adviser in a control relationship with a different large

financial services firm typically benefits from the financial and technical resources that the larger

firm may bring to bear, and the larger firm may handle the administrative and compliance needs

of the affiliated investment adviser using resources that would not be included in the calculation

as to whether an investment adviser is a “small business” or “small organization” under rule 0-7

if only the investment adviser’s financial resources were considered. 45 The “control relationship”

prong thus prevents an investment adviser from being considered “small” if it is in a control

relationship with (i) another investment adviser that has $25 million or more RAUM or (ii) any

person (other than a natural person) with total assets of $5 million or more on the last day of the

most recent fiscal year. 46 The 1998 amendments also replaced the “business assets” test with a

more simplified formulation, instead measuring “total assets,” changing the threshold to $5

million, and extending the test to all investment advisers. 47

See id. at section I; see also supra footnotes 6 and 28 (discussing elements of the SBA size standards set

forth in 13 CFR 121).

13 CFR 121.103(f).

See 5 U.S.C. 601(4).

1997 Proposing Release, supra footnote 33, at section I.B.

See rule 0-7(a)(3).

See 1998 Adopting Release, supra footnote 9, at section II.B.

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Overview of the Proposal

We are proposing to amend the definitions of a “small entity” under the RFA for

investment companies and investment advisers by raising the asset thresholds for both

definitions. The proposal would:

•

Amend rule 0-10 to: (i) increase the net asset threshold for investment companies from

$50 million to $10 billion; and (ii) refer, for purposes of aggregating the net assets of

related funds, to a “family of investment companies” as that term is used in Item B.5 of

Form N-CEN rather than to a “group of related investment companies” as used in the

current rule; 48

•

Amend rule 0-7 to increase the RAUM Threshold below which an investment adviser is

considered to be a “small entity” from $25 million to $1 billion and to conform the assets

under management threshold in the Control Relationship Threshold with the revisions

made to the RAUM Threshold;

•

Request comment on whether to amend the Total Assets Threshold, as well as the total

assets threshold contained in the Control Relationship Threshold, in rule 0-7;

•

Amend Form ADV to revise the instructions and Item 12 of Part 1A of Form ADV,

including through making conforming changes; and

•

Amend rule 0-10 and rule 0-7 to allow the Commission to make subsequent inflation

adjustments to the asset thresholds by order every 10 years in accordance with the

inflation adjustment mechanism set forth in section II.C below (the “Inflation Adjustment

Mechanism”).

Unless stated otherwise, the use of “fund family” or “fund families” in this release has the same meaning as

“family of investment companies.”

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The proposal is designed to help the Commission more appropriately promote the

effectiveness and efficiency of its regulations, with the goal of minimizing the significant

economic impact on small entities, consistent with the RFA. The proposal would help better

tailor the Commission’s analyses of the specific regulatory challenges faced by small entities by

expanding the scope of the analyses that the Commission conducts under the RFA to include

investment advisers and investment companies that should more appropriately be deemed small

entities. These analyses would, in turn, better inform the Commission of the regulatory impacts

faced by small entities so that it may consider adapting its rulemaking accordingly.

The Small Entity Rules currently define small entities by reference to assets under

management and net assets for investment advisers and investment companies, respectively.

There has been substantial growth in assets under management and net assets over the decades

since these thresholds were set. To this end, and as discussed in more detail below, the proposal

is designed to capture the types and numbers of investment advisers and investment companies

that the Commission now considers to be “small” in light of this growth. 49 Amending the

definitions would help ensure the Commission’s regulatory flexibility analyses capture a more

meaningful population of “small entities” given asset growth over the past decades and, in turn,

provide a clearer opportunity for public comment on the Commission’s regulatory analyses with

respect to this population.

See infra sections II.A and II.B (discussing the Commission’s reasoning for increasing the asset-based

thresholds for investment companies and investment advisers, respectively).

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II.

DISCUSSION

Proposed Amendments to Rule 0-10 of the Investment Company Act

Raising the Net Asset Threshold

The proposal would amend paragraph (a) of rule 0-10 to increase the net asset threshold

from $50 million to $10 billion and, as discussed in more detail in section II.C below, establish a

mechanism to inflation-adjust this figure every ten years. The proposed increase accounts for the

overall growth in the investment company industry since the $50 million threshold was

originally set in 1982. In 1982, investment companies held $296.7 billion in net assets among

857 funds. 50 By the adoption of the 1998 amendments this had grown to $5.7 trillion among

7,829 funds, 51 with holdings of $41.6 trillion among 13,630 funds by 2024. 52 This growth in

assets is attributable at least in part to overall economic growth leading to rising investment

prices and the effects of inflation, as well as increased investor demand due to factors such as

expansion of defined contribution retirement plans and easier access to investment services. One

effect of this growth is that in 1982, 62.4% of investment companies were deemed “small

entities,” 53 by 1998 that had dropped to 8.7%, 54 and by 2024, the share of investment companies

Investment Company Institute, 2025 Investment Company Fact Book (2025), at Data Tables, available at

https://www.icifactbook.org/25-fb-data-tables.html (sum of Tables 1, 9, 12). These figures do not include

BDCs, as data regarding them is not readily available from this time.

Id.

The 2024 estimates are based on data reported in response to Items B.6, C.19, and F.11 on Form N-CEN as

of Dec. 31, 2024.

1982 Adopting Release, supra footnote 8.

Deregistration of Certain Registered Investment Companies, Investment Company Act Release No. 23588

(Dec. 4, 1998) [63 FR 69236 (Dec. 16, 1998)] (339 out of approximately 3,900 funds are “small entities”).

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deemed “small entities” had fallen to 0.6%. 55 Raising the net asset threshold in rule 0-10 to

reflect growth in the investment company industry over the past decades would improve the

utility of RFA analyses by more closely reflecting the population of funds that does not have the

same competitive advantages as larger fund groups (for instance, due to economies of scale when

these larger groups perform certain compliance and other operational functions in-house). It also

would more closely reflect the population of funds that does not have the same negotiating

power as larger fund groups when retaining service providers to perform compliance and

operational functions.

As discussed above, the Commission established the existing $50 million threshold in

1982 based on an analysis of adjusted expense ratios for a random sample of 500 investment

companies. The Commission’s approach at the time reflected a belief that funds that bear a

higher level of expenses as a proportion of their net assets would be less able to bear regulatory

costs relative to their peers with lower expense ratios. Taking into account the substantial

changes in the fund industry since that time—including a high degree of concentration of assets

in the largest fund complexes, 56 a greater differentiation of fund strategies (with different

expense ratios that may reflect factors other than the fund’s size), and the trend toward

85 small entities / 13,630 total registered investment companies and BDCs = 0.6%. The number of small

entities is based on Commission staff estimates of approximately 32 small open-end funds (including 4

exchange-traded funds), 38 small closed-end funds, 2 small UITs, and 13 small business development

(together, 32 + 38 + 2 + 13 equals 85 small entities). This estimate is derived from an analysis of data

obtained from Morningstar Direct and data reported to the Commission (e.g., on Forms N-PORT, N-CSR,

10-Q, and 10-K) for the fourth quarter of 2024. See also supra footnote 52.

In 1985 the top 10 fund complexes held 54% of total mutual fund and ETF assets, but by 2024 the top 10

complexes held 71% of these total assets. Investment Company Fact Book (2002), available at

https://www.ici.org/system/files/attachments/2002_factbook.pdf; Investment Company Fact Book (2025),

available at https://www.ici.org/system/files/2025-05/2025-factbook.pdf.

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decreasing expense ratios across open-end funds generally 57—the approach taken in 1982 may

no longer be appropriate to set a small entity threshold. 58

In determining how to calibrate the new proposed threshold, the Commission considered

the distribution of assets across individual funds and fund families with the goal of ensuring that

the proportion of funds that may face greater challenges in complying with Commission

regulations due to their size be included in the small entity definition. Specifically, the

Commission analyzed data reported on Form N-CEN to sort families of investment companies

into percentiles according to their cumulative average total net assets. The Commission further

analyzed this data to determine the percentage of individual funds and the percentage of average

total net assets represented by each percentile. Table 1 below sets out the percentage of fund

families, the percentage of individual funds, and the percentage of cumulative average total net

assets that would be deemed small entities if the Commission were to set the threshold at the top

end of each percentile.

Table 1 - Distribution of Assets Across Funds and Fund Families 59

Percentile of fund

families1 at or

below threshold

Net Asset Threshold

% of individual funds2 in % of fund assets3 in

fund families at or below fund families at or below

threshold

10th

$23.7 million

0.87%

0.0016%

$68.4 million

1.84%

0.01%

The average expense ratio for U.S. open-end funds is less than half of what it was two decades ago due to a

combination of inflows into low-cost funds (with some index mutual funds and ETFs having fees that are

close to zero), outflows from higher-cost funds, fee cuts, and relative underperformance by more-expensive

funds. See Morningstar, “Fund Fees Are Still Declining, But Not as Quickly as They Once Were,” May 28,

2025, available at https://www.morningstar.com/business/insights/blog/funds/us-fund-fee-study.

In light of these dynamics, that a fund’s expense ratio is relatively high would not necessarily reflect that

the fund is relatively small, but may be more attributable to the fund’s strategy, perceived skill of the fund’s

investment adviser or management, or other factors unrelated to the fund’s size.

Based on data reported on Form N-CEN through Jan. 21, 2025.

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Percentile of fund

families1 at or

below threshold

Net Asset Threshold

% of individual funds2 in % of fund assets3 in

fund families at or below fund families at or below

threshold

30th

$150.1 million

2.92%

0.03%

40th

$319.6 million

4.28%

0.08%

50th

$757.7 million

6.03%

0.18%

60th

$1.69 billion

9.16%

0.43%

70th

$3.54 billion

13.99%

0.95%

$10.04 billion

22.91%

2.13%

$43.47 billion

37.87%

6.99%

$9,450.72 billion

100.00%

100

Notes:

1. For purposes of these data, a fund family includes each fund that indicated on Form N-CEN that it is part of a

family of investment companies. For a fund that did not indicate on Form N-CEN that it was part of a family of

investment companies, it is included in this column as a separate fund family consisting solely of that fund.

2. “Fund” as used here refers to a registered investment company or business development company, including a

separate series thereof.

3. As this table is based on Form N-CEN data, it does not include asset data for entities that do not report on Form

N-CEN. The table does not include the data of investment companies exempt from registration, such as employees’

securities companies. It also does not include the assets of business development companies, which do not file Form

N-CEN. Rule 0-10 applies to all investment companies; the vast majority of investment company assets are reflected

in investment companies that report on Form N-CEN.

Taken as a whole, registered investment companies have a total of approximately $41.6

trillion in net assets as of December 2024. As evidenced by Table 1, the assets of the investment

company industry are heavily concentrated at the largest fund families. 60 For example, the

Commission estimates that, as of December 2024, fund families above the 80th percentile in

terms of aggregate average total net assets accounted for 97.9% of total net assets held by funds

(as fund families at or below the 80th percentile threshold accounted for only 2.13% of fund

assets). Similarly, as of December 2024, fund families above the 80th percentile accounted for

The SBA considers economic characteristics composing the structure of an industry such as degree of

competition, average firm size, start-up costs and entry barriers, and distribution of firms by size in

establishing size standards. See 13 CFR 121.102. We have focused our analysis on the distribution of firms

by size as that is the metric for which we have the best available data.

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approximately 77% of individual funds (as the fund families at or below the 80th percentile

threshold included 22.91% of individual funds). This reflects the fact that that the largest fund

families not only manage the large majority of assets in the industry, but these large fund

families also account for a majority of the individual funds.

While the Commission seeks to ensure that funds and fund groups that may face greater

challenges with regulatory compliance due to their size be deemed small entities, we are also

mindful that setting the threshold too high has the potential to be counterproductive and to

undermine the purpose of the Commission’s RFA analyses. A higher threshold would result in a

larger pool of small entities and therefore would increase the number of small entities needed to

be affected by a rule for the rule to “have a significant economic impact on a substantial number

of small entities,” which could lead to fewer RFA analyses being performed. 61 Accordingly, the

Commission’s proposed threshold is meant to identify a level below which a meaningful

proportion of funds would be deemed small entities, but above which the size of, and

concentration of assets in, fund families increases to such an extent that treating individual funds

within those families as small entities would be counterproductive.

Based on analysis of the distribution of data in Table 1, we are proposing a “small entity”

definition that corresponds closely to the 80th percentile threshold of $10.04 billion, which we

have rounded for convenience in the proposed rule. The proposed $10 billion threshold would

See 5 U.S.C. 605(b); see also, e.g., 1982 Adopting Release, supra footnote 8, at n.41 and accompanying

text (stating, in the context of the AUM threshold for investment advisers, “the bigger the class, the greater

the number of entities within it that must be adversely affected by a particular rulemaking before it can be

said that the rulemaking affects a ‘substantial’ number of the class”). Setting the threshold too high might

also inadvertently lead to the Commission overlooking issues that concern the smallest entities when the

Commission attempts to tailor its rules, and instead focusing primarily on issues of more general concern to

the industry. Such an outcome might have the potential to perpetuate larger funds’ advantages in the

market, to the detriment of the smaller funds that the RFA was designed to protect. See also discussion at

infra footnote 87 and accompanying text.

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capture approximately 80% of fund families resulting in approximately 22.9% of individual

funds holding approximately 2.13% of aggregate average total net assets being deemed small

entities. While the proposed threshold would deem some relatively large individual funds

“small” for purposes of the RFA, such an outcome is consistent with the economies of scale

rationale for aggregating funds within a family. A single large fund with no other related

investment companies would bear similar regulatory costs to several smaller, related funds that

collectively represent a similar level of net assets.

We considered other approaches for defining investment companies that are small

entities, including basing this definition on an entity’s gross receipts. 62 The SBA Table of Size

Standards lists “Open End Investment Funds” with a given size standard of $40 million in gross

receipts. 63 For the Commission there is a better suited standard to identify a “small entity” for the

investment company industry. This is primarily because the Commission does not have or collect

data for gross receipts of registered investment companies. Additionally, as discussed above,

funds primarily generate revenue through capital appreciation and other investment returns rather

than receipts from the sale of goods or services. Moreover, a fund’s investment returns may be

attributable primarily to its particular investment strategy, meaning that two funds of identical

size but pursuing different investment strategies may produce vastly different returns.

One petitioner suggested that the Commission define “small entity” for funds to capture any fund with a

principal adviser to the fund that has fewer than 50 employees or annual revenue less than $25 million. See

AMAC Report, supra footnote 10; see also infra footnote 89. As discussed below, we are not proposing an

employee-based size standard for investment advisers, and the Commission does not collect revenue data

from investment advisers. We are therefore not proposing to define small investment advisers according to

these metrics. See infra section II.B.1. As we are not proposing this standard to define investment advisers

that are small entities, it would not be appropriate to define funds that are small entities according to the

size of their adviser under this standard.

13 CFR 121.201, at subsector 525.

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Accordingly, we do not believe that the gross receipts standard provides an appropriate means

for the Commission to identify small investment companies for purposes of the RFA. 64

We request comment on all aspects of the proposed revisions to the net asset threshold,

including the following items:

1. Is the proposed $10 billion threshold useful for identifying investment companies that

are “small entities”? Should the Commission adopt a higher or lower threshold? If so,

why?

2. Are there alternative metrics other than net assets that would be effective to evaluate

if an investment company is a “small entity”? If so, what are they and why would

they be more effective than net assets? Please clarify what data that are already

reported to the Commission could be used in applying those metrics. If they do not

involve data that currently are reported to the Commission, should the Commission

require them to be reported, what would be the costs of such reporting, and how are

such costs justified?

3. Should the Commission use the SBA’s standard for Open-End Investment Funds,

which uses a threshold of $40 million in gross receipts? Should the threshold be based

on another measure of revenue? If so, how should the Commission measure “gross

receipts” (or other revenue measure) of an investment company or a family of

investment companies for purposes of the threshold?

4. Are there alternative ways that the net asset threshold should be derived than the

distribution-based analysis discussed above? For example, is the Commission’s

See supra section I.A.2.a.

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expense ratio approach from 1982 a more appropriate way of setting the small entity

threshold? If so, why?

5. Should the Commission consider a fund a “small entity” if its principal adviser is a

“small entity” under rule 0-7? What about a sub-adviser that is a “small entity”? If so,

why?

6. Should the Commission adjust the existing net asset threshold for inflation rather than

setting a new threshold based on an analysis of the distribution of funds and fund

assets since the threshold was set in 1982, as discussed above? If so, should the

Commission measure the inflation adjustment from the time of the threshold’s

original adoption in 1982 or from the most recent amendments to the rule in 1998? If

the Commission adjusted the existing threshold for inflation, is there a price index,

such as the Personal Consumption Expenditures Chain-Type Price Index, the

Consumer Price Index for All Urban Consumers, the Producer Price Index, or the

GDP Price Deflator, that would be best suited for this adjustment? 65 Would using a

securities market index such as the S&P 500 or the NYSE Composite Index, which is

not based on inflation, be a better way to adjust the threshold that was set in 1982?

Please supply explanations and reasoning.

Group Definition Amendments

We are proposing amendments to rule 0-10 to replace the term “group of related

investment companies” with “family of investment companies,” as that term is used in Item B.5

of Form N-CEN. This change would enable the Commission to rely on information that is

See infra footnote 126.

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already reported on Form N-CEN to identify small entities for purposes of RFA analyses and to

more efficiently consider whether future adjustments to the net asset threshold are warranted.

When the Commission amended rule 0-10 to aggregate net assets across groups of related

investment companies, it defined the concept of a “group of related investment companies” in

rule 0-10. 66 The Commission did not at that time adopt any corresponding disclosure

requirements for a fund to specify whether it was part of a group of related investment

companies. To date, the Commission still does not collect data that specifically identifies groups

of related investment companies and their constituent funds. Instead, identifying groups of

related investment companies requires a manual process (for example, assessing whether funds

hold themselves out as related companies) to determine the number of small entities for purposes

of conducting RFA analyses. 67

We propose to replace the term “group of related investment companies” in rule 0-10

with “family of investment companies” as that term is used in Item B.5 of Form N-CEN. 68 That

item requires investment companies to report whether they are part of a “family of investment

companies” and, if so, to disclose the full name of the family of investment companies. The

Commission has collected this information from funds since 1985 and is experienced with

See supra footnotes 30-32 and accompanying text; see also 1998 Adopting Release, supra footnote 9.

The absence of specific data tailored to this purpose would also complicate setting a new net asset threshold

based on the existing “group” definition. Using the “family of investment companies” definition from Form

N-CEN has facilitated the approach to considering the new threshold for rule 0-10 in this proposal by

incorporating data that funds report themselves.

Proposed rule 0-10(a)-(b).

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analyzing this and other data collected on Form N-CEN. 69

The definition of “family of investment companies” serves a substantially similar purpose

to the definition of “group of related investment companies” in seeking to group together funds

that hold themselves out to investors as related (the “holding out prong”) and that share an

investment adviser or key service provider (an administrator for a “group of related investment

companies” or underwriter for a “family of investment companies”). For comparison, the table

below provides the existing definition of “group of related investment companies” from rule 010 alongside the existing definition of “family of investment companies” from Form N-CEN:

See Semi-Annual Report Form for Registered Investment Companies; Temporary Suspension of Quarterly

Reporting Obligations of Certain Registered Investment Companies Pending Receipt of Comments on

Proposed Final Action, Investment Company Act Release No. 14299 (Jan. 4, 1985) [50 FR 1442 (Jan. 11,

1985)] (“N-SAR Release”) (this disclosure was originally part of Form N-SAR before that form was

replaced by Form N-CEN).

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Table 2

“Group of Related Investment

Companies”

(a) . . .

(1) In the case of a management company, group of

related investment companies means two or more

management companies (including series thereof)

that:

“Family of Investment Companies”

“Family of investment companies” means, except for

insurance company separate accounts, any two or more

registered investment companies that:

(i) share the same investment adviser or principal

underwriter; and

(i) Hold themselves out to investors as related

companies for purposes of investment and

investor services; and

(ii) Either:

(A) Have a common investment adviser or

have investment advisers that

are affiliated persons of each other; or

(B) Have a common administrator

(ii) hold themselves out to investors as related

companies for purposes of investment and investor

services.

Insurance company separate accounts that may not hold

themselves out to investors as related companies (products)

for purposes of investment and investor services should

consider themselves part of the same family if the

operational or accounting or control systems under which

these entities function are substantially similar.

(2) In the case of a unit investment trust, the

term group of related investment companies shall

mean two or more unit investment trusts (including

series thereof) that have a common sponsor.

(b) Special rule for insurance company separate

accounts. In determining whether an insurance

company separate account is a small

business or small entity pursuant to paragraph (a) of

this section, the assets of the separate account shall

be cumulated with the assets of the general account

and all other separate accounts of the insurance

company.

For management companies, both definitions require as one element that the investment

companies hold themselves out to investors as related to one another for purposes of investment

and/or investor services. Both definitions also focus on a shared investment adviser or other key

service provider. While the specific differences between the two definitions are likely to result in

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somewhat different outcomes in terms of which funds are or are not “small entities,” 70 the

Commission nevertheless believes that the “family of investment companies” definition from

Form N-CEN is an appropriate means of aggregating related funds for purposes of the small

entity threshold. Indeed, the Commission has used the “family of investment companies” concept

to group related funds in Form N-CEN (or a predecessor form) since 1985. 71 Moreover, utilizing

the “family of investment companies” concept in the small entities context promotes consistency

in our rules and avoids the need for the Commission to require new reporting from investment

companies for the sole purpose of adjusting the small entity threshold and performing RFA

analyses.

While we believe that the existing “family of investment companies” concept is sufficient

and appropriate for this use, there are specific differences from the “group of related investment

companies” concept that may produce different outcomes at the margins. For example, the

“family of investment companies” definition groups funds that have a common principal

underwriter, whereas the “group of related investment companies” definition groups funds that

have a common administrator. The “family of investment companies” definition groups funds

that have a common investment adviser, whereas the “group of related investment companies”

definition groups funds that have either a common investment adviser or investment advisers

Due to the absence of a reporting requirement relating to a fund’s “group of related investment companies,”

as discussed supra at footnote 67 and accompanying text, performing a direct comparison of which funds

would be small entities under a $10 billion threshold using the “group of related investment companies”

definition versus which funds would be small entities using the “family of investment companies”

definition, would require a significant amount of manual analysis. While the Commission has conducted

this analysis in the past to calculate the number of small entities at the $50 million threshold, at the

proposed $10 billion threshold the number of funds to manually analyze increases from a few hundred to

several thousand, making performing the analysis impractical.

N-SAR Release, supra footnote 69 (adopting Form N-SAR).

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that are affiliated persons of each other. These differences might lead to certain funds that are

currently considered part of the same “group” not being part of the same “family” and vice versa,

meaning that such funds would no longer be aggregated for purposes of the small entity

threshold or would be newly aggregated for purposes of the small entity threshold, respectively.

Any such differences, however, may be mitigated by other elements of the definition. For

example, two funds whose advisers are merely affiliates of one another—and therefore do not

meet the common adviser prong under the “family” definition—might share the same principal

underwriter and would therefore continue to be aggregated for purposes of the small entity

threshold, provided they also meet the holding out prong of the definition.

Moreover, notwithstanding the differences between the two terms, funds that are part of

the same “family of investment companies” are likely to experience similar economies of scale

as those funds that are part of the same “group of related investment companies.” Examples of

potential cost savings due to economies of scale might include complex-wide policies and

procedures and recordkeeping systems, a shared chief compliance officer or board members, and

one legal and compliance function that services the whole complex.

We recognize the proposed changes to the definition would alter the treatment of UITs

(including insurance company separate accounts). In current rule 0-10, UITs receive differential

treatment from management investment companies. They are not subject to the holding out

prong and are considered part of a group of related investment companies only if they share a

common sponsor. 72 Under the proposed changes, UITs would become subject to the holding out

prong because all investment companies generally follow the same test under the definition of

Rule 0-10(a)(2).

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“family of investment companies” in Form N-CEN. 73 Such a change is not expected to have a

substantial effect on whether UITs are considered small entities because, based on staff

experience, we understand that most UITs that have the same sponsor also have the same

principal underwriter and hold themselves out as related.

There are particular considerations for insurance company separate accounts that are

registered as UITs. In current rule 0-10, an insurance company’s separate account is aggregated

with the general account and all other separate accounts to determine whether the individual

separate account is a small entity. 74 Under the proposed changes, however, the general account

would no longer be considered in determining whether the family of investment companies is

above or below the threshold. This approach is consistent with how the threshold applies to other

types of investment companies because non-investment companies are generally excluded when

assessing whether a family is above or below the threshold. For example, under both current rule

0-10 and under the proposed changes, a group of related investment companies or a family of

investment companies, respectively, would not include any private funds (which are excluded

from the Investment Company Act’s definition of “investment company”).

In addition to differences in approach involving aggregation among the general account

and separate accounts, the proposed approach may affect the extent to which separate accounts

are aggregated to determine whether individual separate accounts are small entities. Under the

current approach, the assets of the separate account are cumulated with the assets of all other

separate accounts of the insurance company. As discussed when the family of investment

companies definition was adopted (and as would be the case if we were to adopt the proposed

See Instruction to Item B.5 of Form N-CEN.

Rule 0-10(b).

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family of investment companies approach in the investment company small entity definition),

insurance company separate accounts that may not hold themselves out to investors as related

companies would have their assets aggregated with each other only if the operational or

accounting or control systems under which those entities function are substantially similar. 75 We

do not expect this change would result in significant differences in the extent to which insurance

company separate account assets are aggregated because, in the staff’s experience, insurance

company separate accounts tend to function under substantially similar operational or accounting

or control systems.

The Commission has previously used the data reported in response to Item B.5 of Form

N-CEN, together with other data reported on Form N-CEN, to estimate the number of “groups of

related investment companies” that would or would not exceed a particular threshold, such as in

the case of staggered compliance dates. 76 By amending rule 0-10 to refer to the term already used

in Form N-CEN, the Commission could leverage existing data in this and future rulemakings and

avoid any added burden of requiring new or different reporting from investment companies

solely for purposes of assessing and setting a new small entity threshold. 77

See N-SAR Release, supra footnote 69.

Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information,

Investment Company Act Release No. 35193 (May 16, 2024) [89 FR 47688 (June 3, 2024)], at Table 3; see

also Investment Company Names, Investment Company Act Release No. 35000 (Sept. 20, 2023) [88 FR

70436 (Oct. 11, 2023)].

We also considered amending Form N-CEN to require investment companies to report whether they are

part of a group of related investment companies as that term is currently defined in rule 0-10. We

determined that such a change would not be justified by the added burden of: 1) increased reporting

obligations on Form N-CEN; and 2) requiring funds to assess and report their affiliations using two distinct

definitions within the same form.

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We request comment on all aspects of the change to how the Commission proposes to

aggregate funds under rule 0-10, including the following items:

7. Would the “family of investment companies” definition in Form N-CEN be an

appropriate way of grouping investment companies for purposes of the small entity

threshold? If not, why not?

8. Should the Commission make any changes to the definition of “family of investment

companies” in Form N-CEN itself? For example, should that definition group

together funds that meet the holding out prong of the definition but whose advisers

are only affiliates of one another, as is currently the case under the “group of related

investment companies” definition? Should the definition continue to require that

funds hold themselves out and share a service provider or would the definition be

more appropriate for identifying small entities without this holding out prong or if it

required funds to hold themselves out or share a service provider? Please supply

explanations and reasoning.

9. Should the Commission aggregate funds into groups or families in another manner? If

so, how? Should the Commission instead eliminate the concept of “groups” or

“families” altogether and look only to individual funds for purposes of assessing

whether the fund is a small entity? If so, why?

10. Would the proposed changes to the treatment of UITs be appropriate for the small

entity definition and if not, why not? How common is it for UITs that have the same

sponsor to also have the same principal underwriter and hold themselves out as

related?

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11. Would the proposed changes to the treatment of insurance company separate accounts

be appropriate for the small entity definition and if not, why not? For example, should

the Commission’s small entity assessment omit consideration of an insurance

company’s general account, as would be the case under the proposed changes? Is the

instruction relating to separate accounts in Form N-CEN sufficiently clear? Is it

correct that insurance company separate accounts generally tend to function under

substantially similar operational or accounting or control systems?

12. Should we maintain the current definition of a group of related investment companies

and create a new disclosure requirement for this item (for instance, in Form N-CEN)?

What would the advantages of such a disclosure be, as compared to using the data

already available from Form N-CEN? Or should we maintain the definition of a

group of related investment companies and use it in place of “family of investment

companies” in Form N-CEN?

Proposed Amendments to Rule 0-7 of the Advisers Act

The RAUM Threshold

The proposal would amend paragraph (a)(1) of rule 0-7 under the Advisers Act to raise

the RAUM Threshold to $1 billion from $25 million and, as discussed in more detail in section

II.C below, establish a mechanism to inflation-adjust this figure every ten years. 78 As discussed

above, the current RAUM Threshold was adopted in the 1998 amendments to align the “small

entity” definition applicable to advisers for RFA purposes with the $25 million AUM minimum

Proposed rule 0-7(a)(1) under the Advisers Act.

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threshold for adviser registration that had been enacted under NSMIA in 1996. 79 As a result,

nearly all SEC-registered investment advisers have been excluded from treatment as a “small

entity” in the Commission’s RFA analyses. Because the current RAUM Threshold was aligned

with the minimum threshold for adviser registration, RFA analyses in our rulemakings have not

considered the substantial majority of advisers that are subject to registration under the Advisers

Act and the full application of the Commission’s rules thereunder.

The growth of the investment management industry in assets under management has over

time also reduced the number of advisers that are deemed to be “small entities.” According to

Form ADV reporting, by 2025, only 451 of the total 15,909 SEC-registered investment advisers

(approximately 3% of registered investment advisers) were considered to be “small entities” for

purposes of the RFA, 80 down from approximately 75% immediately before and 20%

immediately after the 1998 amendments. 81

Consistent with this alignment, current paragraph (a)(1) also provides that the RAUM Threshold will

increase in tandem with any increase to the minimum threshold for adviser registration that the

Commission makes by rule. See 1998 Adopting Release, supra footnote 9, at n.48 (explaining the addition

of “or such higher amount as the Commission may by rule deem appropriate under Section 203A(a)(1)(A)

of the Act” to rule 0-7(a)(1)). Although the Dodd-Frank Act in 2010 effectively raised the minimum

registration threshold for advisers from NSMIA’s $25 million to $100 million, the RAUM Threshold was

not increased. The proposal would revise paragraph (a)(1) to remove “or such higher amount as the

Commission may by rule deem appropriate under Section 203A(a)(1)(A) of the Act (15 U.S.C. 80b3a(a)(1)(A)” because the RAUM Threshold, as proposed, would exceed and thus not align with the

minimum threshold for adviser registration.

Because exempt reporting advisers are not required to report on Form ADV whether they qualify as “small

entities,” the provided figures in this sentence are limited to registered investment advisers.

See 1997 Proposing Release, supra footnote 33, at n.59 and accompanying text (noting that up to 17,000 of

approximately 22,500 total registered investment advisers met the then-rule’s definition of “small entity”

and that the Commission would lose regulatory responsibility for an estimated 16,000 of these “small”

advisers as a result of NSMIA). Following the deregistration of advisers no longer eligible to register as a

result of NSMIA, the Commission estimated that approximately 1,500 of 7,600 registered investment

advisers (approximately 20%) would be treated as small entities. See 1998 Adopting Release, supra

footnote 9, at n.52 and accompanying text.

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The proposed amendments would increase the total number of investment advisers

deemed to be “small entities.” The Commission estimates that approximately 15,850 of the total

21,650 investment advisers, or approximately 75% of advisers, 82 have RAUM below the

proposed RAUM Threshold. Taken as a whole, advisers manage a total of about $152.9 trillion

in RAUM, with a mean of approximately $7 billion of RAUM per adviser. However, the

distribution of RAUM across all advisers is highly uneven, in part due to some advisers that

report having zero or virtually zero RAUM, and more significantly because of the concentration

of RAUM with the very largest advisers in the industry, as illustrated in Table 3 below. The

Commission estimates that over 85% of total RAUM is managed by the largest advisers in the

top 95th to 100th size percentile (i.e., by the top 5% of advisers in size). In light of this

concentration, using the proposed $1 billion RAUM Threshold would still represent under 3% of

total RAUM in the industry. In proposing the $1 billion RAUM Threshold, we considered the

following distribution information on investment advisers, including RAUM values:

These estimates from Form ADV reporting data include only SEC-registered investment advisers and

exempt reporting advisers. All of the Commission’s rules under the Advisers Act may be applicable to

investment advisers that are registered (or required to be registered), and some of its rules may also apply to

exempt reporting advisers (e.g., with respect to certain recordkeeping and reporting obligations, as well as

insider trading and pay-to-play protections). Post-NSMIA, the Commission has generally not subjected

state-registered advisers to its rules under the Advisers Act. See Rules Implementing Amendments to the

Investment Advisers Act of 1940, Investment Advisers Act Release No. 1633 (May 15, 1997) [62 FR

28112 (May 22, 1997)], at nn.153-156 and accompanying text; see also Prohibition of Fraud by Advisers to

Certain Pooled Investment Vehicles; Accredited Investors in Certain Private Investment Vehicles,

Investment Advisers Act Release No. 2576 (Dec. 27, 2006) [72 FR 400 (Jan. 4, 2007)], at nn.14-19 and

accompanying text. Additionally, because exempt reporting advisers are not required to provide RAUM

information in Item 5 of Form ADV Part 1A, the data used for exempt reporting advisers reflects reported

private fund gross asset values provided in Section 7.B. of Schedule D of Form ADV Part 1A. Private fund

gross asset values are calculated in the same manner as RAUM in Item 5 in accordance with Form ADV

instructions. See Instruction 6.e.(3) of Form ADV Part 1A (instructing filers to report as gross assets the

assets of private funds that would be included in calculating RAUM under Item 5.F.).

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Table 3

Distribution of Investment Advisers and RAUM 83

Percentile of

Advisers

10th

20th

25th

50th

55th

60th

65th

70th

75th

80th

85th

90th

95th

100th

Individual RAUM

of Adviser at

Percentile 84

(Millions)

Total Number of

All Advisers at or

below Percentile

$33

$96

$125

$324

$399

$500

$632

$834

$1,130

$1,654

$2,612

$4,944

$14,040

$10,246,596

2,172

4,331

5,414

10,827

11,910

12,993

14,075

15,158

16,240

17,323

18,406

19,488

20,571

21,654

Total RAUM of All Advisers at or

below Percentile

(Millions)

$21,482

$151,003

$271,591

$1,399,259

$1,788,139

$2,271,386

$2,879,161

$3,665,541

$4,711,141

$6,182,565

$8,342,641

$12,370,725

$21,290,612

$152,878,412

(Percent)

0.0%

0.1%

0.2%

0.9%

1.2%

1.5%

1.9%

2.4%

3.1%

4.0%

5.5%

8.1%

13.9%

100.0%

In light of this significant concentration of RAUM with the very largest advisers, and

although it would not result in the same proportion of advisers that were “small entities” as a

result of the 1998 amendments, a $1 billion RAUM Threshold would strike an appropriate

balance between the level of RAUM per “small” adviser and the proportion of total RAUM in

the industry that would be captured by the new threshold. In addition, this proposed revision

This table shows percentiles for the distribution of investment advisers (including only registered

investment advisers and exempt reporting advisers) by size based on their RAUM and the share of total

RAUM managed by all advisers at or below the included distribution percentiles. This data reflects Form

ADV reporting as of Dec. 31, 2024, and does not reflect the impact of either the total asset or control

relationship prongs in the “small entity” definition. It does not include advisers (other than exempt

reporting advisers) that are not registered or required to be registered with the Commission.

This refers to the RAUM of the investment adviser at the distribution percentile cutoff.

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would capture many advisers that are “not dominant in” their field, which is an element of the

statutory definitions of small business and small organization in the RFA, due to the fact that

such advisers individually manage much less RAUM relative to the largest advisers. 85 Although

using $1 billion as the RAUM Threshold would classify as small a large proportion of

investment advisers, this is a reasonable and appropriate result for purposes of our analyses

under the RFA, in part due to the relative amount of assets managed by these advisers compared

to the largest advisers, i.e., those dominant in their field. 86

We considered that the significant concentration of RAUM with the very largest advisers

could suggest that an even higher RAUM Threshold than $1 billion should be used. However, a

size standard threshold that is set too high could inadvertently cause the Commission’s attempts

to tailor its rules for small entities to focus on issues of more general concern to the industry,

instead of on issues that particularly impact smaller entities, which the RFA was designed to

protect. 87

The Commission has received feedback suggesting alternatives to an asset-based

approach to identifying small advisers. For example, the Commission received a petition to

initiate rulemaking that recommends the “small entity” definition be amended to depend on

5 U.S.C. 601(3), 601(4), and 15 U.S.C. 632(a). The Control Relationship Threshold addresses the other

element of these definitions; namely, that the entity “is independently owned and operated.” See id.; see

also infra section II.B.3.

See also 1981 Proposing Release, supra footnote 23 (stating that an earlier small adviser standard that

likewise encompassed a large proportion of investment advisers was reasonable and appropriate).

See supra footnote 61.

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whether an investment adviser has no more than a certain number of employees. 88 Additionally,

the SEC Asset Management Advisory Committee (the “AMAC”) recommended that the “small

entity” definition be amended to include advisers with fewer than a certain number of employees

or with less than a certain amount of “annual revenue.” 89 The parties making these suggestions

state that their alternatives better reflect the restricted resources and other constraints faced by

small advisers and, in the case of employee-based standards, are reported on Form ADV and not

affected by inflation and other fluctuations.

Although we considered these suggestions, we are proposing to maintain a RAUM-based

size standard. In developing size standards, the Commission has evaluated potential criteria both

for their “capacity to differentiate small members of an industry from other members and [their

ability to make] use of readily available information to derive [the] standards.” 90 The

Commission has been able to utilize RAUM to appropriately differentiate between small and

other advisers to identify a universe of entities that are not dominant in the field, a principal

element of small entity status under the RFA. Further, the Commission has ready access to

RAUM data for the types of advisers that are generally subject to our rules, not just those

registered with us. 91 Also, using RAUM to distinguish between advisers is an approach that is

broadly consistent with size standards generally under the Advisers Act and the rules thereunder,

IAA Petition, supra footnote 10 (suggesting that the Commission adopt a size standard of 100 employees or

fewer). The Commission received comments in support of the IAA Petition’s attempt to assess the

economic impact of regulations on small advisers more realistically and consider less onerous alternatives.

These comments are available at https://www.sec.gov/comments/4-811/4-811.htm.

AMAC Report, supra footnote 10 (suggesting that the Commission adopt a size standard of fewer than 50

employees or annual revenue of less than $25 million).

1998 Adopting Release, supra footnote 9, at n.50; 1997 Proposing Release, supra footnote 33, at n.58;

1981 Proposing Release, supra footnote 23.

See supra footnote 82.

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as well as advisers’ existing reporting and compliance obligations. 92 Investment advisers also

typically charge their clients fees as a percentage of their assets under management, such that

their business as a practical matter generally scales with their assets under management.

Furthermore, an increased RAUM-based size standard is an appropriate metric to reflect the

growth of the size of the asset management industry, which the proposal is partly designed to

address, because as the industry grows it would report more assets under management. 93

Accordingly, we are not proposing an employee-based or revenue-based size standard,

but we request comment on employee-based, revenue-based, and other alternative size standards

below (including whether the Commission should continue to use its own size standards for

investment advisers rather than use the default size standards provided by the SBA). 94 The

Commission has previously stated that an employee-based size standard was inappropriate for

investment advisers because the then-recommended standard could have captured virtually all

Congress has repeatedly differentiated the regulations to which an adviser is subject using assets under

management thresholds as size standards under the Advisers Act. See, e.g., section 203(m) (setting forth an

assets under management threshold for the private fund adviser exemption from registration) and section

203A(a)(2) (setting forth an assets under management threshold for mid-sized advisers) of the Advisers

Act.

See supra footnotes 79-81 and accompanying text. Appropriately increasing the RAUM-based size

standard will also cause fewer “advisers that may manage higher AUM but still face similar resource

constraints and other challenges that are characteristic of a small business” to be excluded from treatment

as a small entity. IAA Petition, supra footnote 10.

See supra section I.A.3.a. (discussing SBA size standards for investment advisers). The category of

industry in the SBA’s size standards under which an investment adviser would generally come appears to

be “Finance and Insurance—Portfolio Management and Investment Advice,” where the existing SBA size

standard is $47 million in “annual receipts” (which generally appears to be a measure of gross revenue or

income). Notably, although the SBA uses an employee-based size standard for certain categories of

industry, it does not do so with respect to this category. See 13 CFR 121.104, 121.201; see also Comment

Letter from the SBA Office of Advocacy to FinCEN (May 15, 2024) (stating that FinCEN should use the

SBA’s default size standards for investment advisers rather than the Commission’s size standards),

available at https://advocacy.sba.gov/wp-content/uploads/2024/05/Comment-Letter-FInCEN-InvestmentAdvisors.pdf.

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advisers and because the Commission did not at the time receive information regarding

employees from advisers. 95 Although the Commission now receives employee information from

registered investment advisers on Form ADV, the Commission does not receive this information

from exempt reporting advisers. In addition, an employee-based standard raises implementation

challenges in appropriately addressing the use of service providers and outsourcing by

investment advisers, which could distort the extent to which the number of an adviser’s own

employees reflects its actual resources and size. 96 With regard to concerns raised in the IAA

Petition about asset-based tests’ ability to respond to inflation, as discussed in more detail below,

we agree that inflation can be among the factors that impact the adequacy of dollar-based size

standards over time and are proposing to include a mechanism to regularly adjust the RAUM

Threshold for inflation. 97

With respect to a revenue-based size standard, as was recommended by AMAC and as

reflected in the SBA’s default size standards, the Commission does not collect information

regarding advisers’ revenues and, because the fees and thus revenues of an adviser generally

See 1982 Adopting Release, supra footnote 89; 1981 Proposing Release, supra footnote 23.

As the market for advisory services has become more specialized, competitive and technology-intensive

over time, investment advisers have increasingly engaged service providers and used outsourcing

(including, e.g., using independent contractors that may perform advisory functions on the adviser’s behalf)

to meet evolving market complexity and client demands in a cost-effective manner. See, e.g., The Race to

Scalability 2020: Current Insights from a Decade of Advisor Research on Investment Management Trends,

Flexshares (2020); Christopher Newman, Asset Managers Continue to Outsource Middle Office Functions,

EisnerAmper (Oct. 21, 2020); Smart Outsourcing Can Be a Game-Changer for RIAs, ThinkAdvisor (Mar.

18, 2021). Additionally, consolidations in the advisory industry may have increased the likelihood that

advisers that are part of a larger asset management group could use personnel who formally are employees

of affiliates but who may not be taken into account by a purely employee-based size standard. See infra

footnote 112 and accompanying text (discussing the types of benefits that derive from control relationship

affiliations between an adviser and a larger firm and acknowledging that the RFA was not designed to

confer benefits on entities with significant resources from their large business affiliates).