SEC Considers Raising Minimum AUM Threshold for Investment Adviser Registration: Implications for the Asset Management Industry

The U.S. Securities and Exchange Commission (SEC) is evaluating a potential increase to the minimum assets under management (AUM) threshold required for investment advisers to register at the federal level. This move, if implemented, could completely alter the regulatory landscape for thousands of advisory firms across the United States and ripple through the broader asset management industry.

Background and Rationale on the AUM Threshold

The current threshold of $100 million (absent an exemption) for SEC registration was established in 2011 through the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since then, the investment advisory industry has experienced tremendous growth, not just in assets under management but in the number and complexity of firms. In his remarks at the Annual Conference on Federal and State Securities Cooperation, Acting SEC Chairman Mark T. Uyeda stated that he had directed SEC staff to evaluate whether this threshold—unchanged since 2012—remains appropriate given the current market and the SEC’s regulatory priorities. The details of the speech suggest that the proposal process may have already begun.

Potential Threshold Adjustments

While no official figures have been proposed, industry experts anticipate that the SEC could consider raising the AUM threshold to between $150 million and $250 million. Any increase would be subject to a notice-and-comment period, as required by the Administrative Procedure Act, providing stakeholders an opportunity to express their support or concerns.

Implications for Investment Advisers

1. Regulatory Burden and Compliance Costs
   For advisers managing under the new threshold, deregistration from the SEC and re-registration with one or more states could create considerable administrative burden. Each state has its own regulatory framework, which may include varying filing requirements, fee structures, and examination cycles. In addition, smaller firms that operate across several states may face complex and redundant compliance obligations, potentially increasing their costs rather than reducing them.
2. Competitive Differences
   Firms forced to deregister may also experience reputational impacts. SEC registration often serves as a signal of legitimacy and institutional credibility, especially for clients with national or international exposure. A move to state-level oversight could make it more difficult for some advisers to attract larger clients. Alternatively, larger firms may benefit as smaller firms spend more time navigating state regulations, possibly redirecting resources from client service and investment strategy.
3. Operational Disruption
   The administrative process of transitioning from federal to state regulation can be disruptive. It involves considerable documentation, changes to compliance manuals, cybersecurity reviews, and modifications to advertising materials. Firms may need to engage legal or compliance professionals to ensure a smooth transition, further increasing costs.

Broader Industry Impacts

1. Shift in Regulatory Resources
   From a regulatory standpoint, increasing the threshold would allow the SEC to concentrate its enforcement and examination resources on larger firms with greater systemic risk. This could lead to more targeted examinations and enhanced oversight of complex investment products and strategies. Meanwhile, state regulators may see an influx of new registrants, potentially straining their capacities. States with limited staff or infrastructure may struggle to provide timely oversight, leading to inconsistencies in regulatory quality and investor protection across jurisdictions.  However, many state regulators have enhanced their enforcement and supervisory frameworks, making them more capable of handling a larger share of the advisory market.
2. Industry Consolidation
   An unintended consequence could be an acceleration in industry consolidation. Smaller firms, facing higher compliance costs and operational complexity, may seek to merge with larger advisers that retain SEC registration. While this may enhance scale and efficiency, it could also reduce the diversity and specialization that small, independent advisers often provide.

Looking Ahead

The SEC’s exploration of raising the AUM threshold for investment adviser registration is still in the early stages, but it represents a potential significant regulatory change. While the intent is to advance oversight and improve resource allocation, the potential effects across the advisory construct could be substantial.

Stakeholders—including advisory firms, compliance professionals, and legal counsel—should proactively evaluate their AUM levels, registration status, and operational readiness for a possible transition. Additionally, they may wish to participate in the rulemaking process through comment letters and industry forums to ensure their perspectives are represented.

Ultimately, the hope is that any change to the threshold would strike a balance between regulatory efficiency and investor protection, ensuring that firms of all sizes can operate within a clear and fair oversight framework.

For further updates on this topic, accounting and finance professionals are encouraged to follow SEC communications and industry advocacy group publications or contact your CBIZ CPA professional.