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

 
 
1 
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 asset-
based 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/s7-2026-
01/small-entity-definition-amendments-investment-advisers-investment-companies); or  

 
 
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• Send an email to [email protected]. 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/s7-2026-
01/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 
 
I. 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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I. INTRODUCTION  
A. 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 
 
1
  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/divisions-
offices/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-business-
capital-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/small-
business-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
 A n 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
  
 
2
  Pub. L. 96–354, §2, Sept. 19, 1980, 94 Stat. 1164; 5 U.S.C. 601–612. 
3
  See 5 U.S.C. 602. The RFA does not define “significant economic impact” or “substantial number of small 
entities.” 
4
  5 U.S.C. 605. 
5
  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.” 
6
  13 CFR 121.903(c). See also Small Business Size Regulations; Size Standards for Programs of Other 
Agencies, 67 FR 13714 (Mar. 26, 2002). 
7
  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
 
 
8
  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. 
9
  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”).  
10
  See, e.g., Report on the 43
rd
 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-advisers-
and-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. 

 
 
8 
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 
 
11
  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. 
12
  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). 

 
 
9 
common investment adviser or have investment advisers that are affiliated persons of each other; 
or (ii) have a common administrator.
13
 
1. 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.  
 
13
  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. 
14
  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). 
15
  See 5 U.S.C. 603 (setting forth the requirements for the IRFA). 
16
  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”). 
17
  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 
 
18
  5 U.S.C. 604 (setting forth the requirements for the FRFA). 
19
  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.  
20
  5 U.S.C. 602. 
21
  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
  
2. Investment Company Size Standards 
a. 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 
 
22
  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. 
23
  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. 
24
  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). 

 
 
12 
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.   
b. 
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 
 
25
  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). 
26
  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. 
27
  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.” 

 
 
13 
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)   e ither ( A) h ave 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 
 
28
  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.  
29
  1998 Adopting Release, supra footnote 9.  
30
  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. 
31
  Rule 0-10(a)(2).  

 
 
14 
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
  
3. Investment Adviser Size Standards  
a. 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 
 
32
  Rule 0-10(b).  
33
  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. 
34
  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).  

 
 
15 
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
  
 
35
  See 1981 Proposing Release, supra footnote 23, and 1982 Adopting Release, supra footnote 8. 
36
  1981 Proposing Release, supra footnote 23, at   section II.F.  
37
  1982 Adopting Release, supra footnote 8. 
38
  See 1997 Proposing Release, supra footnote 33, at n.57. 

 
 
16 
b. 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 (Dodd-
Frank 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. 
 
39
  See 1998 Adopting Release, supra footnote 9, at   section II.B. 
40
  See id. at   section II.B.  
41
  See 1998 Adopting Release, supra footnote 9, at   n.47 and accompanying text. 

 
 
17 
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
 
 
42
  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). 
43
  13 CFR 121.103(f). 
44
  See 5 U.S.C. 601(4). 
45
  1997 Proposing Release, supra footnote 33, at   section I.B. 
46
  See rule 0-7(a)(3). 
47
  See 1998 Adopting Release, supra footnote 9, at   section II.B. 

 
 
18 
B. 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”). 
 
48
  Unless stated otherwise, the use of “fund family” or “fund families” in this release has the same meaning as 
“family of investment companies.”  

 
 
19 
  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.  
 
49
  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). 

 
 
20 
II. DISCUSSION  
A. Proposed Amendments to Rule 0-10 of the Investment Company Act 
1. 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 
 
50
  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.  
51
  Id.  
52
  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.  
53
  1982 Adopting Release, supra footnote 8.  
54
  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”).  

 
 
21 
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 w ould 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 
 
55
  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.  
56
  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.  

 
 
22 
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 
families
1
 at or 
below threshold 
Net Asset Threshold  % of individual funds
2
 in 
fund families at or below 
threshold 
% of fund assets
3
 in 
fund families at or below 
threshold 
10
th
 $23.7 million 0.87% 0.0016% 
20
th
 $68.4 million 1.84% 0.01% 
 
57
  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. 
58
  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. 
59
  Based on data reported on Form N-CEN through Jan. 21, 2025.  

 
 
23 
Percentile of fund 
families
1
 at or 
below threshold 
Net Asset Threshold  % of individual funds
2
 in 
fund families at or below 
threshold 
% of fund assets
3
 in 
fund families at or below 
threshold 
30
th
  $150.1 million  2.92% 0.03% 
40
th
  $319.6 million  4.28% 0.08% 
50
th
  $757.7 million  6.03% 0.18% 
60
th
  $1.69 billion  9.16% 0.43% 
70
th
  $3.54 billion  13.99% 0.95% 
80
th
  $10.04 billion  22.91% 2.13% 
90
th
  $43.47 billion  37.87% 6.99% 
100
th
 $9,450.72 billion 100.00% 100.00% 
 
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 80
th
 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 80
th
 percentile threshold accounted for only 2.13% of fund 
assets). Similarly, as of December 2024, fund families above the 80
th
 percentile accounted for 
 
60
  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.  

 
 
24 
approximately 77% of individual funds (as the fund families at or below the 80
th
 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 80
th
 percentile threshold of $10.04 billion, which we 
have rounded for convenience in the proposed rule. The proposed $10 billion threshold would 
 
61
  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. 

 
 
25 
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. 
 
62
  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.  
63
  13 CFR 121.201, at   subsector 525.  

 
 
26 
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 s tandard 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 
 
64
  See supra section I.A.2.a. 

 
 
27 
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.   
2. 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 
 
65
  See infra footnote 126. 

 
 
28 
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 
 
66
  See supra footnotes 30-32 and accompanying text; see also 1998 Adopting Release, supra footnote 9.  
67
  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. 
68
  Proposed rule 0-10(a)-(b). 

 
 
29 
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 0-
10 alongside the existing definition of “family of investment companies” from Form N-CEN:  
 
69
  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). 

 
 
30 
Table 2 
“Group of Related Investment 
Companies” 
“Family of 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: 
(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 
(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. 
“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  
(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. 
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 

 
 
31 
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 f orm) 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 
 
70
  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. 
71
  N-SAR Release, supra footnote 69 (adopting Form N-SAR).   

 
 
32 
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.” E xamples 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, a  nd 
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 
 
72
  Rule 0-10(a)(2).  

 
 
33 
“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 
 
73
  See Instruction to Item B.5 of Form N-CEN. 
74
  Rule 0-10(b). 

 
 
34 
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
  
 
 
75
  See N-SAR Release, supra footnote 69. 
76
  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)]. 
77
  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.  

 
 
35 
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? 

 
 
36 
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?   
B. Proposed Amendments to Rule 0-7 of the Advisers Act  
1. 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 
 
78
  Proposed rule 0-7(a)(1) under the Advisers Act.  

 
 
37 
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
   
 
79
  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. 80b-
3a(a)(1)(A)” because the RAUM Threshold, as proposed, would exceed and thus not align with the 
minimum threshold for adviser registration.  
80
  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.  
81
  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. 

 
 
38 
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: 
 
 
82
  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.).  

 
 
39 
Table 3 
Distribution of Investment Advisers and RAUM
83
 
Percentile of 
Advisers 
Individual RAUM 
of Adviser at 
Percentile
84
 
Total Number of 
All Advisers at or 
below Percentile 
Total RAUM of All Advisers at or 
below Percentile 
(Millions) (Millions) (Percent) 
10
th
 $33 2,172 $21,482  0.0% 
20
th
 $96 4,331 $151,003  0.1% 
25
th
 $125 5,414 $271,591 0.2% 
50
th
 $324 10,827 $1,399,259 0.9% 
55
th
 $399 11,910 $1,788,139 1.2% 
60
th
 $500 12,993 $2,271,386  1.5% 
65
th
 $632 14,075 $2,879,161  1.9% 
70
th
 $834 15,158 $3,665,541  2.4% 
75
th
 $1,130 16,240 $4,711,141  3.1% 
80
th
 $1,654 17,323 $6,182,565  4.0% 
85
th
 $2,612 18,406 $8,342,641  5.5% 
90
th
 $4,944 19,488 $12,370,725  8.1% 
95
th
  $14,040 20,571 $21,290,612  13.9% 
100
th
 $10,246,596 21,654 $152,878,412  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 
 
83
  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. 
84
  This refers to the RAUM of the investment adviser at the distribution percentile cutoff.  

 
 
40 
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 
 
85
  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. 
86
  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). 
87
  See supra footnote 61. 

 
 
41 
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
 T he 
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, 
 
88
  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. 
89
  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). 
90
  1998 Adopting Release, supra footnote 9, at n.50; 1997 Proposing Release, supra footnote 33, at n.58; 
1981 Proposing Release, supra footnote 23. 
91
  See supra footnote 82. 

 
 
42 
as well as advisers’ existing reporting and compliance obligations.
92
 I nvestment 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 R AUM-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 
 
92
  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. 
93
  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. 
94
  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-Investment-
Advisors.pdf.  

 
 
43 
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 
 
95
  See 1982 Adopting Release, supra footnote 89; 1981 Proposing Release, supra footnote 23.  
96
  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). 
97
  See also infra section II.C. 

 
 
44 
scale directly with its assets under management, the proposal is generally consistent with the 
approach of the SBA size standards to measure the amount of business carried out by an entity.
98
 
We request comment on all aspects of the proposed amendments to the RAUM 
Threshold, including the following items: 
13. If we maintain a RAUM-based size standard, should we use a threshold amount other 
than the proposed amount of $1 billion? Would a lesser or greater amount be more 
appropriate? For example, based on Form ADV reporting data (as shown in Table 3 
above), using a $100 million threshold would cover approximately 20% of advisers, a 
$200 million threshold would cover approximately 35% of advisers, a $300 million 
threshold would cover approximately 50% of advisers, a $1.5 billion threshold would 
cover approximately 80% of advisers, a $2.5 billion threshold would cover 
approximately 85% of advisers, and a $5 billion threshold would cover approximately 
90% of advisers.  Alternatively, should the RAUM Threshold not be amended? 
14. Should we use criteria instead of RAUM for our adviser size standards? For example, 
are there qualitative criteria that should be used (e.g., types of clients)? Would any 
recommended alternative criterion enable the Commission to meaningfully 
differentiate small advisers from non-small advisers, and could it be used in size 
standards derived from information that is readily available to the Commission with 
respect to all advisers (i.e., both registered investment advisers and exempt reporting 
advisers)? To the extent that necessary information related to the recommended 
criterion is not readily available to the Commission, please address whether the costs 
 
98
  See supra footnote 28 and section I.A.3.a. 

 
 
45 
to advisers in reporting such information would be appropriate to enable the use of a 
small entity size standard based on that information.  
15. Consistent with the IAA Petition and AMAC Report’s recommendation, should the 
Commission develop a form of employee-based size standard and, if so, how many 
employees should establish its threshold?
99
 Should we, as suggested in the IAA 
Petition, use a standard of 100 or fewer employees or, as recommended in the AMAC 
Report, use a standard of fewer than 50 employees—or should we use another higher 
or lower number of employees? If the Commission were to determine its own 
numerical threshold for an employee-based size standard, what factors should it 
consider when determining that number? Would an employee-based size standard 
enable the Commission to more meaningfully differentiate small advisers from non-
small advisers for purposes of the RFA? In order to enable any   employee-based size 
standard for all advisers, should exempt reporting advisers also be required to provide 
employee information on Form ADV? Who should qualify as an employee for this 
purpose? For example, if a person were an employee of an affiliate, but worked for 
the adviser full or part-time and was paid by the affiliate, should that person be 
considered an employee of the adviser? Additionally, how should the use of service 
providers and outsourcing by advisers impact a potential employee-based size 
standard (and any related reporting)? To the extent that an employee-based size 
standard would be relevant in combination with a RAUM-based standard (or a 
 
99
  For discussion related to employee-based size standards, see supra footnotes 88-96 and accompanying text. 

 
 
46 
revenue-based or other alternative size standard), how should it be meaningfully 
combined (e.g., as an additional standard or as a standard in the alternative)?  
16. Do commenters agree that the Commission should continue to have its own size 
standards for investment advisers rather than use the default size standards provided 
by the SBA? Would using a $47 million “annual receipts” size standard enable the 
Commission to meaningfully differentiate small advisers from non-small advisers for 
RFA purposes, and would advisers be capable of reporting this information to the 
Commission pursuant to potential amendments to Form ADV? Alternatively, should 
the Commission consider another form of a revenue-based size standard (or another 
amount)? For example, should the Commission utilize the AMAC’s recommendation 
of annual revenue of less than $25 million? To the extent that a revenue-based size 
standard would be relevant in combination with another size standard, what is that 
size standard and how would it be meaningfully combined? 
17. Should the RAUM Threshold be tied to adviser registration thresholds, as discussed 
above? For instance, should the RAUM Threshold be tied to the $100 million 
registration threshold for mid-sized advisers introduced by the Dodd-Frank Act in 
2010, and if so, should the RAUM Threshold be further adjusted since 2010?
100
 If the 
$100 million RAUM registration threshold from the Dodd-Frank Act were used and 
adjusted for inflation since its enactment in 2010, it would result in a RAUM 
Threshold of approximately $150 million and approximately 30% of advisers falling 
within the threshold. 
 
100
  See supra footnote 79.  

 
 
47 
18. Alternatively, should the RAUM Threshold (or other aspects of the small entity 
definition for investment advisers) be tied to the particular registration status of an 
investment adviser, such that, for instance, rulemakings that create distinct 
obligations between registered investment advisers, exempt reporting advisers and/or 
unregistered advisers would use distinct criteria to identify advisers that are small 
entities within the distinct classes of registration status? 
19. Should the Commission consider using the same figure for investment advisers’ 
RAUM Threshold as for investment companies’ net asset threshold (or vice versa) as 
was the case when initially adopted in 1982?
101
 Why or why not? 
2. The Total Assets Threshold 
We are requesting comment on whether to amend the Total Assets Threshold. Currently 
this threshold excludes from the definition of small entity any adviser that has total assets of $5 
million or more on the last day of its most recent fiscal year.
102
 The Commission set this $5 
million asset threshold in 1998 to in part to align with the $5 million total assets test used in the 
“small entity” definition in 17 CFR 240.0-10 (“Exchange Act rule 0-10”).
103
 The Commission 
 
101
  See supra section II.A.1. 
102
  Rule 0-7(a)(2) under the Advisers Act. “Total assets” is defined in rule 0-7(b)(2) to mean total assets as 
shown on the balance sheet of the investment adviser (or of a “person” in a control relationship with the 
adviser in accordance with paragraph (a)(3) of rule 0-7). It includes business assets, such as leases and 
equipment, as well as other types of assets, such as cash and accounts receivable. See 1998 Adopting 
Release, supra footnote 9, at n.42. 
103
  Rule 0-10(a) under the Exchange Act; see 1998 Adopting Release, supra footnote 9, at n.51. Before the 
1998 amendments, paragraph (a)(2) of rule 0-7 included a “business assets” test instead of a total assets 
test; and the threshold used for this test was approximately the median value for advisers’ business assets at 
the time. See 1997 Proposing Release, supra footnote 33, at n.57 (“The Commission originally selected [the 
business asset threshold] because it was approximately the median value of advisers’ business assets. . . . 
The median may have changed in recent years, but that figure remains significant inasmuch as more than 
half of all advisers apparently do not have assets exceeding it.”); 1982 Adopting Release, supra footnote 8.  

 
 
48 
aligned the values in these “small entity” definitions under the Advisers Act and Exchange Act 
in view of financial industry affiliations between advisers and other large financial services firms 
to which the Exchange Act definition would apply.
104
  
The Total Assets Threshold enables the Commission to differentiate more meaningfully 
between small advisers and non-small advisers that may not have significant RAUM but do have 
significant assets related to a non-advisory line or component of their business.
105
 The Total 
Assets Threshold also works in concert with the Control Relationship Threshold in capturing 
common types of advisory industry affiliations. The Commission, however, receives limited 
information regarding advisers’ total assets that would allow it to analyze with specificity the 
impact of potential changes to the Total Assets Threshold over the distribution of investment 
advisers. The Commission only receives information in Item 1.O. of Part 1A of Form ADV 
regarding investment advisers with $1 billion or more in total assets
106
 as well as information in 
Item 12 from registered investment advisers with less than $25 million in RAUM regarding 
whether they have less than $5 million in total assets.
107
 Accordingly, we are not proposing to 
 
104
  See 1998 Adopting Release, supra footnote 9, at n.51; see also 1997 Proposing Release, supra footnote 33 
(“An adviser in a control relationship with a large broker-dealer or other large financial services firm 
typically benefits from the financial and technical resources of the large firm. The large firm may handle 
much of the administrative and compliance needs of its affiliated adviser using resources not reflected in 
the adviser’s client assets or business assets.”). In addition, the 1998 amendments relatedly added 
paragraph (a)(3) to rule 0-7, which, as discussed below, applies the Total Assets Threshold in paragraph 
(a)(2) to any “person” in a control relationship with the investment adviser. 
105
  The IAA Petition states that using an asset-based standard, including standards based on total firm balance 
sheet assets, does not accurately reflect regulatory burdens imposed on smaller advisers. See IAA Petition, 
supra footnote 10. As with the RAUM Threshold discussed above, asset-based metrics like the Total Assets 
Threshold are an effective and appropriate method to differentiate small members of the investment 
advisory industry from other members. See supra footnotes 90-93 and accompanying text. 
106
  According to Form ADV data, about 680 investment advisers (over 3% of all advisers) report having $1 
billion or more in total assets. 
107
  See infra section II.B.4. As discussed below, we are proposing to amend Item 12 of Part 1A of Form ADV 
to conform to any amendments made to rule 0-7. 

 
 
49 
modify the Total Assets Threshold at this time, but are requesting comment on possible changes 
to the threshold.
 
   
Although we are broadly seeking comment on whether and, if so, how to update the Total 
Assets Threshold, we are proposing to include an   Inflation Adjustment Mechanism to inflation-
adjust the Total Assets Threshold every ten years, rounded to the nearest multiple of $500,000, 
or 10% of the current Total Assets Threshold. We expect that in any final rule this mechanism 
would be calculated against and scale with the Total Assets Threshold ultimately used by the 
Commission. If an updated Total Assets Threshold were ultimately adopted, we would adjust the 
dollar amount to be rounded to the nearest multiple of 10% of such updated Total Assets 
Threshold (e.g., if the final Total Assets Threshold is updated to $10 million, then future 
inflation adjustments would be rounded to the nearest multiple of $1 million). 
We request comment on all aspects of the proposed Total Assets Threshold, including the 
following items: 
20. Should the Total Assets Threshold remain $5 million? If the threshold should be 
increased, to what should it be increased, and why? If the threshold should be 
decreased, to what should it be decreased,  and why? Should we look to a median or 
other value for investment advisers based on information provided to the Commission 
as a result of public comment? 
21. Should the Total Assets Threshold continue to be aligned with the total asset 
threshold in Exchange Act rule 0-10(a)? If so, should we expressly tie the Total 
Assets Threshold to the total assets threshold in Exchange Act rule 0-10(a) by cross-
referencing that rule in rule 0-7 under the Advisers Act? Are there other total asset 

 
 
50 
thresholds under Commission regulations to which the Total Assets Threshold should 
be aligned? If so, what are they, and why? 
22. Should the Total Assets Threshold be adjusted based on inflation or some other 
market growth metric? If so, which metric or index and from when should the 
threshold be adjusted, and why? For example, the Inflation Adjustment Mechanism as 
proposed to apply to the Total Assets Threshold utilizes the Personal Consumption 
Expenditures Chain-Type Price Index and compares it to 1998 prices. Applying that 
standard to the Total Assets Threshold itself would result in a new threshold value of 
approximately $10 million. 
23. Should the Total Assets Threshold be adjusted to represent an increase proportionate 
to the proposed amendments to the RAUM Threshold by increasing the Total Assets 
Threshold by the same factor (x40, as proposed) that we are increasing the RAUM 
Threshold (e.g., $200 million)? Why or why not? 
24. Should the Total Assets Threshold be eliminated from rule 0-7? Given that there are 
some investment advisers that register with the Commission but report to have zero or 
virtually zero RAUM, as well as that there are large advisers that may have 
insignificant RAUM but have significant assets from a non-advisory component of 
their business, would removing the total assets test diminish the Commission’s 
capacity to differentiate these types of advisers and small advisers for RFA purposes? 
If the total assets test were removed, what other size standards (e.g., employee or 
client-based) could be used to differentiate these advisers, and why should they be 
used? What existing sources of data does the Commission have to support the use of 
such other standards? If the Commission does not have existing sources of data, 

 
 
51 
should the Commission require the reporting of such data, what would be the costs to 
registrants of such reporting, and how are the costs of such reporting justified? 
25.  In what ways should the Inflation Adjustment Mechanism be adjusted should the 
Commission adopt a different Total Assets Threshold from the current one? 
3. The Control Relationship Threshold 
Currently, the Control Relationship Threshold uses an assets under management standard 
to establish the disqualifying size of affiliated advisers that is the same standard ($25 million) 
used in the RAUM Threshold. The proposal would amend paragraph (a)(3) of rule 0-7 under the 
Advisers Act to increase this assets under management threshold from $25 million to $1 
billion.
108
 The proposal would also, as discussed in more detail in section II.C, include Inflation 
Adjustment Mechanisms for the assets under management and total assets aspects of the Control 
Relationship Threshold that are identical to those proposed for the RAUM and Total Assets 
Thresholds, respectively.
109
 
The proposed amendments are designed to conform this threshold to the proposed 
revisions to the RAUM Threshold and the inclusion of an Inflation Adjustment Mechanism in 
the Total Assets Threshold.
110
 The Commission previously stated that “Congress did not intend 
 
108
  Proposed rule 0-7(a)(3) under the Advisers Act. The proposal would also revise paragraph (a)(3) to remove 
“(or such higher amount as the Commission may deem appropriate)” in line with the proposed removal of 
related language in paragraph (a)(1). See supra footnote 79 (discussing the proposal’s revision to 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. 80b-3a(a)(1)(A)”). 
109
  Proposed rule 0-7(c) under the Advisers Act. 
110
  The proposed amendments to the Control Relationship Threshold would continue to consider an adviser’s 
affiliates on an individual basis, unlike the proposed amendments applicable to investment companies, 
which would instead continue to consider the net assets of multiple related investment companies as 
 
 

 
 
52 
to confer the benefit of any determination that an entity is small upon the affiliates of large 
businesses, because only those business and organizations that are ‘independently owned’ may 
qualify as small entities pursuant to the definitions contained in the RFA.”
111
 As such, the 
Commission noted its belief “that it is appropriate . . . to preclude entities with significant 
economic or financial resources [from their large business affiliates] from obtaining potential 
regulatory benefits under the RFA.”
112
 T he proposed amendments to the Control Relationship 
Threshold would align its assets under management threshold to the RAUM Threshold that, as 
discussed above, more appropriately captures advisers that should be deemed “small entities” for 
purposes of our analyses under the RFA. 
Based on Form ADV reporting, the Commission estimates that updating the Control 
Relationship Threshold to reflect the increase of the RAUM Threshold from $25 million to $1 
billion would result in approximately 1,225 investment advisers (or approximately 5.7% of all 
 
aggregated together. See supra section II.A.2. The proposed amendments would thus remain consistent 
with the Commission’s historically distinct approaches between identifying “small entity” investment 
advisers and “small entity” investment companies. Retaining this distinction as proposed would continue to 
be appropriate in light of the distinct operational and organizational structures of investment advisers and 
investment companies (for example, investment companies generally do not have any staff, unlike 
investment advisers, but instead rely on service providers for all of their operations, including regulatory 
compliance), as well as because of the distinct reporting information that the Commission receives with 
respect to investment advisers and investment companies.  
111
  1981 Proposing Release, supra footnote 23 (citing 5 U.S.C. 601(4) and 15 U.S.C. 632, which define as a 
small business or small organization an entity that “is independently owned and operated and is not 
dominant in its field”); see also 1997 Proposing Release, supra footnote 33. 
112
  See 1997 Proposing Release, supra footnote 33. A non-control affiliation with a large adviser or other 
person, or a control relationship with an adviser or other person that is itself a “small entity,” would not 
trigger exclusion under the Control Relationship Threshold. As noted above, per the Commission’s prior 
positions and staff observations, advisers that are in a control relationship with other large firms typically 
benefit from the financial and technical resources of the large firm in a manner that is not reflected in 
advisers’ own client or balance sheet assets. We continue to view this benefit as typically deriving from a 
control relationship rather than mere affiliation and, accordingly, believe that the RFA’s exclusion of 
businesses that benefit from large affiliates is appropriately applied to advisers that are in a control 
relationship with other large advisers (or other firms).  

 
 
53 
advisers) being excluded from treatment as a “small entity.” As such, the Commission estimates 
that, as a result of the proposed amendments to the assets under management thresholds in 
paragraphs (a)(1) and (a)(3), approximately 14,620 of the total 21,650 investment advisers, or 
approximately 70% of all advisers, would meet the revised RAUM and Control Relationship 
Thresholds. This would be an appropriate result despite the increase in excluded advisers. As 
noted above, one aspect of the statutory definition of small business or small organization under 
the RFA is that the entity is “independently owned and operated.”
113
 The continued application 
of a  c ontrol relationship threshold (including as amended) would exclude advisers that may not 
have significant RAUM or total assets themselves but are in a control relationship with a large 
adviser (or other firm) and thus are not “independently owned and operated,” appropriately 
focusing the Commission’s analyses on those advisers that are small for purposes of the RFA.
114
 
We are not at this time proposing revisions to the Total Assets Threshold. Accordingly, 
we are not proposing to amend the total assets threshold in the Control Relationship Threshold, 
but are requesting comment on whether to revise the threshold.  
We request comment on all aspects of the proposed amendments to the Control 
Relationship Threshold, including the following items: 
26.  Should the assets under management threshold in the Control Relationship Threshold 
be increased to $1 billion as proposed? Should the threshold be tied to the RAUM 
Threshold as proposed? Should the total assets threshold in the Control Relationship 
Threshold be changed? If so, what should it be changed to, and why? Should the 
threshold be tied to the Total Assets Threshold? Or should we use a different assets 
 
113
  5 U.S.C. 601(3), 601(4), and 15 U.S.C. 632(a). 
114
  See supra footnotes 109-110 and accompanying text. 

 
 
54 
under management threshold and total assets threshold for this purpose? Should the 
Control Relationship Threshold include alternative criteria other than assets under 
management and total assets, for example, if alternative criteria are used at adoption 
to replace or modify the current RAUM Threshold and/or Total Assets Threshold?
115
 
Should the Control Relationship Threshold be eliminated? 
27. As discussed above, the Commission is considering whether to amend the Total 
Assets Threshold but is not proposing specific revisions to it at this time. Should the 
Commission incorporate any future amendments to the Total Assets Threshold into 
the Control Relationship Threshold? If the Commission modifies or eliminates the 
Total Assets Threshold in paragraph (a)(2) with respect to investment advisers, 
should it also do so or instead maintain the total assets threshold with respect to 
persons that are control affiliates in paragraph (a)(3)? Why or why not? 
28. Does paragraph (a)(3)’s treatment of advisers affiliated with other advisers and 
persons that are not themselves “small entities” properly focus on control affiliations? 
Are there other relationships that more appropriately capture the types of affiliations 
the Control Relationship Threshold was designed to capture? If so, what are they, and 
why? Are there specific factors that would appropriately include as small entities 
those advisers that are substantially managed and resourced independently of any 
control affiliate?
116
 If so, what are they, and why? Are they different from the types 
 
115
  See supra sections II.B.1 and II.B.2. 
116
  See IAA Petition, supra footnote 10 (“We would expect the Commission, as part of the notice and 
comment process, to seek input on all elements of the proposed definition, including what specific factors 
would appropriately include as small entities those advisers that are substantially managed and resourced 
independently of any control affiliate.”). 

 
 
55 
of factors that may already be used to rebut the presumption of control arising from 
ownership? 
29. Should the Control Relationship Threshold be amended to consider an adviser’s 
control affiliates on an aggregate rather than individual basis, similar to the historical 
and proposed approach for investment companies, notwithstanding the operational 
and organizational differences between investment advisers and investment 
companies? If so, why, and how should this aggregation of control affiliates function? 
For example, should an adviser be considered a “small entity” if it, collectively with 
other investment advisers that are its control affiliates, has less than a certain amount 
of RAUM (e.g., $1 billion)? 
4. Form ADV Amendments 
The proposal would amend Form ADV to revise Instruction 17 of the General 
Instructions,
117
 Item 12 of Part 1A of Form ADV,
118
 and rule 203-3(b).
119
 The proposed 
amendments to Form ADV are designed to reflect the proposed revisions to the RAUM 
Threshold and the Control Relationship Threshold. Instruction 17, pursuant to rule 203-3(b), 
currently provides a continuing hardship exemption from electronic filing requirements if  a 
registered or registering investment adviser is a small business and can demonstrate that filing 
electronically would impose an undue hardship.
120
 In line with the amendments to the definition 
of small entity, the proposed amendments to Instruction 17 would permit a continuing hardship 
 
117
  See proposed Form ADV General Instructions, Instruction 17. 
118
  See proposed Form ADV, Part 1A, Item 12. 
119
  See 17 CFR 275.203-3(b) (setting forth the conditions for an investment adviser to apply for a continuing 
hardship exemption). 
120
  See current Form ADV General Instructions, Instruction 17. 

 
 
56 
exemption from electronic filing requirements for investment advisers which: (i) can 
demonstrate that filing electronically would impose an undue hardship, (ii) are required to 
answer Item 12 because they have less than $1 billion, instead of $25 million, in RAUM, and 
(iii) are able to respond “no” to each question in Item 12, which would continue to track the 
elements of the small entity definition and which determines whether registered or registering 
investment advisers meet the definition of “small business” or “small organization” under rule 0-
7.
121
 We are also proposing to remove the parenthetical “(because you have assets under 
management of less than $25 million)” from Instruction 17 because this language is implicit in 
Instruction 17’s requirement that an investment adviser be required to answer Item 12 and the 
threshold amount set forth in Instruction 17 would otherwise need to be updated periodically in 
conformity with rule 0-7   to remain valid. We are also proposing to revise the language of 
Instruction 17 and rule 203-3(b) to explicitly apply to an investment adviser who is either a 
“small business” or “small organization” in conformity with Item 12.  
The amendments to Item 12 would revise the RAUM threshold under which an 
investment adviser must complete Item 12 from $25 million to $1 billion, corresponding with the 
proposed amendments to the definitions of “small business” and “small organization” under rule 
0-  7.
122
 They would also revise the thresholds set forth in Items 12.B.(1) and C.(1)—which 
collect information on the elements of the small entity definition—to align with the proposed 
Total Assets Threshold and Control Relationship Threshold. Finally, we are proposing to revise 
Item 12 in order to: (i) provide more context regarding the significance of Item 12 in determining 
 
121
  A registered or registering investment adviser which can respond “no” to each question in Item 12 has not 
exceeded the RAUM Threshold, Total Assets Threshold, or Control Relationship Threshold.  
122
  See current Form ADV, Part 1A, Item 12. 

 
 
57 
whether an adviser is a “small entity,” (ii) reference updates to the form by the Commission to 
reflect changes to these thresholds due to the Inflation Adjustment Mechanism, and (iii) explain 
that the thresholds in Item 12 will be adjusted in conformity with the thresholds in rule 0-7.  
We request comment on all aspects of the proposed revisions to Form ADV, including 
the following items: 
30. Should Form ADV be revised to conform to the proposed revisions to rule 0-7, as 
proposed? Do commenters foresee any difficulties arising from increasing the RAUM 
threshold in Instruction 17 under which investment advisers may seek a continuing 
hardship exemption from electronic filing requirements? Are investment advisers 
with greater than $25 million in RAUM likely to take advantage of this continuing 
hardship exemption? 
31. Should the Commission amend Form ADV to require investment advisers to report 
additional information regarding their total assets? For example, in addition to what is 
already required, should Item 1.O be amended to require an investment adviser to 
report its total assets on the last day of its most recent fiscal year, to report whether it 
has $5 million (or any revised threshold adopted by the Commission) or more in 
assets on the last day of its most recent fiscal year, or to report any other range? 
32. Should the Commission amend Form ADV to require investment advisers to report 
additional information regarding other persons (other than natural persons) that the 
investment adviser controls? For example, should an investment adviser have to 
report the approximate total assets of persons (other than private funds reported in 
Section 7.B.(1)) that the investment adviser controls in Section 7.A. of Schedule D of 
Form ADV, as of the last day of the person’s most recent fiscal year? 

 
 
58 
33. Should the Commission amend Form ADV to require investment advisers to report 
additional information regarding other persons (other than natural persons) that 
control or are under common control with the investment adviser? What information 
could be requested here that would assist the Commission in establishing that a 
controlled investment adviser is a “small entity” for the purposes of the analyses 
conducted under the RFA? 
34. Should the Commission require investment advisers to report additional information 
regarding the nature of their control relationships? For example, if the Commission 
required an investment adviser to report whether it  received financial or 
administrative assistance from a person (other than a natural person) it is in a control 
relationship with, should the absence of such assistance impact whether an investment 
adviser is considered a “small entity” for purposes of the RFA?  
35. Does the text proposed to be added to Item 12 clarify that an investment adviser that 
is required to answer Item 12 and is properly able to respond “no” to each question in 
Item 12.A, B, and C is considered a “small entity” for the purposes of the analyses 
conducted under the RFA? Should the Commission require investment advisers to 
self-report their “small entity” status following completion of Item 12, or would it be 
helpful to add an automated message in the Investment Adviser Registration 
Depository (“IARD”) indicating an investment adviser’s reported “small entity” 
status once it properly completes Item 12? Would indicating an investment adviser’s 
reported “small entity” status be useful for investors reviewing Form ADV filings or 
for investment advisers completing Form ADV? 

 
 
59 
36. Should the Commission require e xempt reporting advisers to complete Item 12 or 
report their RAUM on Form ADV? If so, how should exempt reporting advisers 
report their RAUM? 
37. Should the Commission remove the parenthetical “(because you have assets under 
management of less than $25 million)” from Instruction 17? Would it provide 
investment advisers with useful information if the Commission instead left the 
parenthetical in Instruction 17 and periodically updated the threshold amount for 
inflation in accordance with the proposed rule 0-7(c)? Why or why not? 
38. Does the additional language proposed to be added to Item 12 regarding the inflation 
adjustment make clear that the thresholds in that item would be adjusted for inflation 
in conformity with the inflation adjustments to the thresholds in rule 0-7? Would 
referencing the inflation adjustments create confusion for investment advisers filling 
out Item 12? Why or why not? 
C. Periodic Future Adjustments 
In addition to proposing to adjust the asset-based thresholds, we are also proposing 
amendments to rules 0-7 and 0-  10 that would provide a mechanism for periodic future 
adjustments of the asset-based thresholds used in these rules’ small entity definitions.
123
 
Specifically, the amendments would provide that the Commission will issue an order every ten 
years adjusting: (i) the net asset threshold in the investment company small entity definition; and 
(ii)   in the investment adviser small entity definition, the RAUM Threshold, the Total Assets 
 
123
  Proposed rule 0-10(c); proposed rule 0-7(c).  

 
 
60 
Threshold, and the assets under management and total assets aspects of the Control Relationship 
Threshold. 
In proposing to adjust certain asset-based thresholds for “small entity” definitions as 
discussed above, the Commission considered an analysis of the distribution of fund and adviser 
assets and the growth in these assets over time. The thresholds provided for by the amendments 
would improve the utility of the RFA analysis at adoption in a manner, for the reasons discussed 
above, that is more appropriate than the alternatives we considered (e.g., an employee-based or 
revenue-based size standard or inflation adjusting the current thresholds). These proposed 
thresholds, however, may become less useful over time due to growth in markets and any 
subsequent changes in the investment company and investment adviser industries. The proposed 
adjustment would ensure that the thresholds are adjusted every ten years, because the adjustment 
would be required by rule and effected through a Commission order. A djustments that the 
Commission makes mechanically by order could help maintain the thresholds at levels that 
reflect the buying power of money over time, without the need for Commission action through 
rulemaking. The Commission has historically incorporated automatic inflation adjustments to 
certain dollar-based thresholds in regulations affecting investment companies and investment 
advisers.
124
 These automatic adjustments reflect that some level of change in dollar value is 
reasonably anticipated to occur in the future, and help ensure that the rules’ intended application 
remains consistent and relevant over time. We similarly expect that the proposed adjustments 
would prevent the thresholds in the small entity definitions from becoming less meaningful over 
time on account of anticipated changes in dollar value. Specifically, because a fund’s size is 
 
124
  See, e.g., rule 3c-7 under the Investment Company Act; rule 205-3 under the Advisers Act; see also infra 
footnote 128.  

 
 
61 
related to its ability to bear compliance costs, adjusting the asset-based thresholds is designed to 
account for potential increases in those compliance costs. It is possible, but less predictable, that 
the net asset thresholds may become less useful over time even taking the proposed adjustments 
into account (for example, with the advent of market events, changes in the makeup or 
distribution of size of the fund or adviser markets, or other industry changes). In this case, the 
Commission could consider performing appropriate analyses to propose amendments to the 
thresholds again in the future.  
Unlike our analysis that informed the proposed increases to the asset-based thresholds, 
inflation is a known factor for which a precise value can reliably be derived from a defined 
index. The proposed amendments to rule 0-10 and rule 0-7 would require that the adjustment of 
the asset-based thresholds be calculated by reference to the Personal Consumption Expenditures 
Chain-Type Price Index (the “PCE Index”),
125
 which is published by the Department of 
 
125
  Proposed rule 0-10 would require the net asset threshold for small entities be adjusted for inflation by (i) 
dividing the year-end value of the PCE Index for the calendar year preceding the calendar year in which the 
order is being issued, by the year-end value of the PCE Index for the calendar year any final rule is 
adopted, (ii) multiplying $10 billion (i.e., the proposed net asset threshold) by that quotient, and (iii) 
rounding the product to the nearest multiple of $1 billion. Proposed rule 0-7(c)(1) would adjust the RAUM 
Threshold and assets under management aspects of the Control Relationship Threshold by starting with the 
same quotient but would multiply that by $1 billion, rounded to the nearest multiple of $100 million. 
Proposed rule 0-7(c)(2) would, as discussed above, adjust the Total Assets Threshold and the net assets 
aspect of the Control Relationship Threshold by multiplying the same quotient by $5 million, rounded to 
the nearest multiple of $500,000. See also supra section II.B.2. 

 
 
62 
Commerce.
126
 The PCE Index is often used as an indicator of inflation in the U.S. economy.
127
 
Additionally, the Commission routinely has used the PCE Index in similar contexts in 
Commission rules, and it is also used in provisions of the federal securities laws.
128
 We are 
proposing to use the PCE Index to calculate inflation adjustments for this rulemaking for 
consistency with other Commission rules, and because the methodology and scope of the PCE 
Index reflects a broad sector of the U.S. economy.  
 
126
  The values of the PCE Index are available from the Bureau of Economic Analysis, a bureau of the 
Department of Commerce. See https://www.bea.gov. The PCE Index measures the prices that people living 
in the United States, or those buying on their behalf, pay for goods and services. The PCE Index is known 
for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in 
consumer behavior. See https://www.bea.gov/data/personal-consumption-expenditures-price-index. 
127
  See, e.g., Clinton P. McCully, Brian C. Moyer & Kenneth J. Stewart, Comparing the Consumer Price Index 
and the Personal Consumption Expenditures Price Index, SURVEY OF CURRENT BUS., Nov. 2007, at 
26, n.1 (PCE Index measures changes in “prices paid for goods and services by the personal sector in the 
U.S. national income and product accounts” and is primarily used for macroeconomic analysis and 
forecasting); see also FEDERAL RESERVE BOARD, MONETARY POLICY REPORT TO THE 
CONGRESS, at n.1 (Feb. 17, 2000), available at 
https://www.federalreserve.gov/boarddocs/hh/2000/february/ReportSection1.htm#FN1 (noting the reasons 
for using the PCE Index rather than the consumer price index). 
128
  See, e.g., Qualifying Venture Capital Funds Inflation Adjustment, Investment Company Act Release No. 
35305 (Aug. 24, 2024) [89 FR 70479 (Aug. 30, 2024)] (adopting a rule that adjusts for inflation the dollar 
threshold used in defining a “qualifying venture capital fund” using the PCE Index); Investment Adviser 
Performance Compensation, Investment Advisers Act Release No. 3372 (Feb. 15, 2012) [77 FR 10358, 
10367 (Feb. 22, 2012)] (stating that the Commission is using the PCE Index in connection with required 
inflation adjustments to the dollar thresholds in the definition of “qualified client” appearing in 17 CFR 
275.205-3, and stating that the PCE Index is widely used as a broad indicator of inflation in the economy); 
Definitions of Terms and Exemptions Relating to the “Broker” Exceptions for Banks, Securities Exchange 
Act Release No. 56501 (Sept. 24, 2007) [72 FR 56514 (Oct. 3, 2007)] (using PCE Index in adopting 
periodic inflation adjustments to the fixed-dollar thresholds for both “institutional customers” and “high net 
worth customers” under rule 701 of Regulation R “because it is a widely used and broad indicator of 
inflation in the U.S. economy”); see also Amendments to Form ADV, Investment Advisers Act Release 
No. 3060 (July 28, 2010) [75 FR 49234 (Aug. 12, 2010)] (using PCE Index in increasing for inflation the 
threshold amount for prepayment of advisory fees that triggers an adviser’s duty to provide clients with an 
audited balance sheet and the dollar threshold triggering the exception to the delivery of brochures to 
advisory clients receiving only impersonal advice). The Dodd-Frank Act also requires the use of the PCE 
Index to calculate inflation adjustments for the cash limit protection of each investor under the Securities 
Investor Protection Act of 1970. See section 929H(a) of the Dodd-Frank Act, 15 U.S.C. 78fff-3. 

 
 
63 
We are proposing a schedule of adjusting the investment company and investment 
adviser small entity asset thresholds for inflation every 10 years. Given the distributions of 
different-sized entities for investment companies and investment advisers, inflationary changes 
over shorter periods would generally not result in a meaningfully different set of investment 
companies and investment advisers being considered small entities under their respective 
definitions. Additionally, implementing more frequent adjustments would pose challenges for the 
Commission’s RFA analysis because more frequent inflation adjustments make it more likely 
that a fund’s or adviser’s small entity status would change between proposal and adoption. 
The proposed amendments providing for future inflation adjustment to the investment 
company small entity net asset threshold would require rounding to the nearest multiple of 
$1,000,000,000. The proposed amendments to the investment adviser small entity RAUM 
Threshold and assets under management aspect of the Control Relationship Threshold would 
require rounding to the nearest multiple of $100,000,000 whereas the amendments to the Total 
Assets Threshold and total assets aspect of the Control Relationship Threshold would require 
rounding to the nearest multiple of $500,000. Due to the magnitude of each of these thresholds 
($10 billion, $1 billion and $5 million respectively), rounding with greater specificity would not 
be a useful differentiator of funds’ or advisers’ ability to bear regulatory cost due to size.
129
 
We request comment on all aspects of the proposed amendments to rules 0-10 and 0-7 
that would provide for periodic future inflation adjustments to the asset-based thresholds used in 
these rules’ small entity definitions, including the following items: 
 
129
  We are proposing to round all the asset-based thresholds to the nearest 10% of the amount of the adjusted 
threshold. See proposed rule 0-7(c)(1)(ii) and (c)(2)(ii) and proposed rule 0-10(c)(2). 

 
 
64 
39. Should the Commission adopt the proposed mechanism for periodic adjustments of 
the small entity asset-based thresholds in rule 0-10 and rule 0-7 by order, and if not, 
why not? Is adjusting for inflation the best mechanism for determining this periodic 
adjustment? If so, is the PCE Index the price index best suited for this purpose? Are 
there other price indexes, such as the Consumer Price Index for All Urban 
Consumers, the Producer Price Index, or the GDP Price Deflator, that would be better 
suited for this purpose, and why?  
40. Instead of or in addition to periodically adjusting for inflation, should the 
Commission periodically and mechanically adjust the small entity thresholds to 
reflect any other metric? If so, why? For example, should the Commission 
periodically and mechanically adjust the thresholds to reflect overall growth in the 
markets (as a proxy for asset growth in the investment company and investment 
adviser industries) by reference to a securities market index or a blend of security 
market indexes? If so, what index, or blend of indexes, would be appropriate, given 
that funds and advisers invest in all types of securities, including in private markets? 
Should the Commission make periodic adjustments to the asset thresholds in order to 
maintain a fixed percentage of investment companies and investment advisers as 
small entities? Should this percentage be of fund families, total number of entities, 
total industry assets or some other metric? If the Commission were to maintain a 
fixed percentage of small entities, what should that percentage be for investment 
companies and for investment advisers? For example, should it be the percentages 
that result following the proposed increase in asset thresholds in rules 0-10 and 0-7, 
as discussed above? 

 
 
65 
41. Is 10 years an appropriate timeframe for future adjustments for the investment 
company and investment adviser small entity asset thresholds and if not, why not? 
Would a shorter or longer timeframe such as 1, 3, 5 or 15 years be more appropriate? 
Would different timeframes be appropriate for investment companies and investment 
advisers? Should there be circumstances where the rules specify that the periodic 
adjustment should not occur or should be postponed (e.g., in the case of a significant 
market downturn that extends beyond a certain period)?  
42. Should the Commission select an adjustment cycle that starts on a specified year, 
rather than based on the date of final adoption? For instance, if the Commission were 
to adopt these rules in 2026, should the first adjustment occur in 2035 and then every 
10 years thereafter (e.g., 2045, 2055, 2065, etc.)? Should the adjustment period 
coincide with the adjustment cycles for other rules?
130
 
43. When calculating the inflation-adjusted asset thresholds, should we round the dollar 
amount or use an exact number for the threshold? If we are rounding, is rounding to 
the proposed amounts the appropriate level of specificity for these calculations? Are 
there any considerations that are unique to any of the asset-based thresholds? Please 
supply explanations and reasoning.   
III. ECONOMIC ANALYSIS 
The Commission is mindful of the economic effects, including the costs and benefits, of 
its rules. The Commission has a long-held focus on small entities when engaged in rulemaking. 
A purpose of t he RFA  is to promote the effectiveness and efficiency of regulations, including 
 
130
  See supra footnote 128. 

 
 
66 
through consideration of alternative regulatory approaches, with the goal of minimizing the 
significant economic impact on small entities consistent with the stated objectives of applicable 
statutes.
131
 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.
132
 In 
applicable rulemakings, the Commission’s definitions of “small entities” determine the scope of 
the IRFA and FRFA. The proposed definitions are expected to 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. 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. To the extent such adaptations to future rulemakings would 
occur, the use of the amended definitions of “small entities” in RFA analyses could result in 
different benefits and costs of such rulemakings. For example, if the Commission, informed by 
the more tailored RFA analyses, determined to scope fewer small entities into future rulemakings 
or tailor obligations imposed by such rulemakings differently for small entities, there could be 
fewer compliance costs imposed on such entities. 
In addition to these indirect effects, the proposed rule would have direct economic effects 
where the proposed small entity definitions would affect the application of existing Commission 
rules and regulations.  Currently, the Commission’s definition of “small entity” under the RFA is 
incorporated into the Commission’s other rules and regulations only in connection with an 
adviser’s responses to Form ADV (and the Commission is proposing to make corresponding 
amendments to the form). We thus consider the effects of the proposed definition as it relates to 
 
131
 See supra footnote 2. 
132
  See supra footnote 3. 

 
 
67 
the use of that definition in Form ADV as well as the effects of the associated proposed changes 
to the form. 
First, t he proposal would amend Form ADV to revise Instruction 17 of the General 
Instructions, which currently permits registered or registering investment advisers to receive a 
continuing hardship exemption from Form ADV electronic filing requirements, pursuant to rule 
203-3(b), if such investment adviser is a small business and can demonstrate that filing Form 
ADV electronically would impose an undue hardship. Instruction 17, as revised, defines an 
investment adviser as a “small business” or “small organization” if it is required to answer Item 
12 (which itself relies on the definition in rule 0-7) and it is able to respond “no” to each question 
in Item 12. Since the proposed amendments to Item 12, in conformity with rule 0-7, would 
reflect that the RAUM Threshold was increased from $25 million to $1 billion, Instruction 17 
would similarly reflect this increase in the threshold for the availability of the continuing 
hardship exemption.
133
 A pproximately 10,051
134
 additional registered investment advisers may 
be eligible for the exemption under the revised definition, as reflected in the amended Instruction 
17, before any future adjustment for inflation.
135
   
We expect that the increased availability of the continuing hardship exemption to 
registered investment advisers meeting the proposed definition would have minimal economic 
impact. Due to the ubiquity of inexpensive access to computers and the internet -  both to advisers 
themselves and to the service providers they may employ - any newly eligible advisers are 
 
133
  See supra section II.B.4II.B.4. 
134
  This estimate captures the number of registered investment advisers with RAUM equal to or above $25 
million but below $1 billion. See infra footnote 149. 
135
  See supra section II.C. 

 
 
68 
unlikely to be able to demonstrate that filing Form ADV electronically would impose an undue 
hardship.
136
 We therefore anticipate that few, if any, additional advisers would be able to rely on 
the exemption.  
Second, the proposal would amend Item 12 of Part 1A of Form ADV to align the RAUM 
threshold for completing the questions in that item with the proposed amendments to the 
definitions of “small business” and “small organization” under rule 0-7;   t he amendments to that 
item would also revise the questions in Items 12.B.(1) and C.(1) to collect information on the 
elements of the amended small entity definition.
137
  As a result, approximately 10,051
138
 
additional registered investment advisers would be required to complete Item 12 of Part 1A 
(before any future adjustment for inflation).
139
 Because the information to complete the 
corresponding questions would be readily available to advisers, we estimate that the cost increase 
for each affected adviser would be minimal, averaging approximately $95 per adviser per 
year.
140
  
We use a discount rate to adjust for differences in the timing of estimated benefits and 
costs.
141
  Table 4 presents the discounted present value of expected annualized benefits and costs 
that are monetized in our economic analysis, using real discount rates of 3 percent and 7 
 
136
  The Commission has not received applications for the continuing hardship exemption in recent years. In 
addition, advisers may still be eligible for the temporary hardship exemption under 17 CFR 275.203-3(a), 
regardless of whether they are a small business or small organization, if they experience unforeseen 
technical difficulties.  
137
  See supra section II.B.4II.B.4. 
138
  See supra footnote 134. 
139
  See supra section II.C. 
140
  The $95 is based on the following calculations: hourly rate of a Management Analyst in the securities 
industry at $378 for 0.25 hours ≈ $95. See infra footnote 151. 
141
  See OMB, CIRCULAR A-4, at 32 (Sept. 17, 2003) (discussing the main rationales for this understanding). 

 
 
69 
percent.
142
 We use a 10-year horizon that encompasses the principal expected benefits and costs 
that are monetized in the economic analysis.
143
 
Table 4: Present Discounted Value of Monetized Benefits and Costs (in 2025 $) 
Over a 10-year Time Horizon
1 
 
 
Estimated Effects 3% real discount rate 7% real discount rate 
Benefits n/a n/a 
Costs $8,266,294
2
 $6,937,187
3
 
1 
This Table includes only benefits and costs that are monetized in the economic analysis.  
2
 We estimate recurring annual compliance costs of approximately $95 per adviser for 10,051 affected advisers. 
The resulting aggregate annual burden is $954,845. We assume that these costs are incurred in a steady stream, 
and we apply mid-year discount factors.  
3
 Id. 
 
We do not anticipate that the proposed amendments would have any direct effects on 
efficiency, competition, or capital formation because, as discussed above, they would have 
minimal direct economic impact. But to the extent that the amended definitions of “small 
entities” contribute to the Commission better tailoring its rulemaking to account for the 
regulatory challenges faced by small entities, they could have indirect effects on efficiency, 
competition, and capital formation resulting from future rulemakings. For example, if the 
Commission, informed by the more tailored RFA analyses, determined to tailor future 
rulemakings to reduce compliance costs for small entities, there could be benefits to competition. 
 
142
  Consistent with OMB Circular A-4 and to reflect the difference in timing of economic effects when 
benefits and costs do not take place in the same time period, the Commission presents monetized economic 
effects using discount factors. See id. at 31-34 (stating that, “[f]or regulatory analysis, [agencies] should 
provide estimates of net benefits using both 3 percent and 7 percent” discount rates and discussing why 
those rates are reasonable default rates). 
143
  See id. at 31 (stating that “[t]he ending point should be far enough in the future to encompass all the 
significant benefits and costs likely to result from the rule”). 

 
 
70 
Lastly, the Commission considered alternatives to the proposed amendments to Form 
ADV to align the form with the amended definition.
144
 Specifically, we considered replacing 
Item 12 of Part 1A of Form ADV with a single question that would ask advisers to indicate 
whether they fall under the amended small entity definition, instead of providing the information 
in Items 12.A, B, and C that would allow the Commission to continue to make that 
determination, under the amended definition. While the alternative would streamline the 
information reported in that item, we understand that it would not reduce costs for advisers 
because an adviser would still have to gather from its own records the information needed to 
apply the small entity definition.
145
 In addition, maintaining the requirement for advisers to 
report the information needed to apply the “small entity” definition would continue to provide 
the Commission with insight into the class of small entity advisers and how the individual parts 
of the definition affect whether advisers qualify as a small entity.  
We request comment on all aspects of the economic analysis of the proposed 
amendments. To the extent possible, we request that commenters provide supporting data and 
analysis on the benefits, costs, and effects on competition, efficiency, and capital formation of 
the proposed amendments or any reasonable alternatives.  
 
144
  Given the scope and context for this rulemaking, the Commission does not believe there are specific 
reasonable alternatives to the proposed conforming changes to the instruction for the continuing hardship 
exemption because these changes merely align the language in the instruction with the amended small 
entity definition and related changes to Item 12. 
145
  We anticipate that advisers would generate the necessary records in the ordinary course of their advisory 
businesses. See infra footnote 152. 

 
 
71 
IV. PAPERWORK REDUCTION ACT  
A. Introduction  
The proposal would revise an existing “collection of information” within the meaning of 
the Paperwork Reduction Act of 1995 (the “PRA”).
146
 The title for the collection of information 
is: “Form ADV” (OMB control number 3235-0049). The Commission is submitting this 
collection of information to the OMB for review and approval in accordance with the PRA.
147
 
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number. 
We discuss below the collection of information burdens associated with the proposed 
amendments to Form ADV. Responses to the disclosure requirements of the proposed 
amendment to Form ADV are not kept confidential.  
B. Proposed Amendments to Form ADV 
The proposal would amend Form ADV to revise Item 12 of Part 1A of Form ADV to 
increase the RAUM Threshold under which an investment adviser must complete Item 12 from 
$25 million to $1 billion, corresponding with the proposed amendments to the definitions of 
“small business” and “small organization” under rule 0-7 under the Advisers Act.
148
 The 
proposal would also revise the thresholds set forth in Items 12.B.(1) and C.(1)—which collect 
information on the elements of the small entity definition—to align with the proposed changes to 
the Control Relationship Threshold. These collections of information would provide information 
to the Commission and investors. The Commission staff may also use the collection of 
 
146
  44 U.S.C. 3501 et seq. 
147
  44 U.S.C. 3507(d); 5 CFR 1320.11. 
148
  See supra section II.B.1. 

 
 
72 
information in its examination and oversight program. Because the proposal would expand the 
group of advisers that are required to provide responses to Item 12, an additional burden would 
be imposed on advisers that have between $25 million and $1 billion in RAUM.  
We estimate this burden to amount to an average of fifteen minutes (or 0.25 hours) 
annually per adviser. We estimate the number of respondents to this information collection to be 
10,850 advisers, including 799 advisers that have less than $25 million in RAUM and may 
already complete Item 12.
149
 Accordingly, we estimate the total burden hours for the new Form 
ADV amendments to be 2,512.75 hours.
150
 We estimate that the total monetized cost to each 
registered investment adviser that would be newly required to respond to Item 12 as a result of 
 
149
  This estimate is based on information reported by advisers through the IARD. Based on IARD data as of 
Dec. 31, 2024, of the 15,909 SEC-registered advisers, 10,850 responded to Item 5.F. of Part 1A of Form 
ADV indicating that they have RAUM of less than $1 billion, and 799 indicated that they have RAUM of 
less than $25 million. 
150
  10,850 – 799 = 10,051 advisers. One-quarter (.25) hour x 10,051 advisers = 2,512.75 hours. 

 
 
73 
the amendments would be approximately $94.50,
151
 and that the total monetized cost for such 
advisers would be $949,819.50.
152
 
C. Proposed Amendments to Rule 0-7 of the Advisers Act and Rule 0-10 of the 
Investment Company Act 
Each of proposed rule 0 -7 and rule 0-10 does not contain a “collection of information” 
requirement within the meaning of the Paperwork Reduction Act of 1995 (the “PRA”), nor does 
it create any new filing, reporting, recordkeeping, or disclosure reporting requirements.
153
 
Accordingly, the PRA is not applicable.
154
 
 
151
 We estimate the cost at a rate of $378 per hour, which is the compensation rate that we have calculated for 
a Management Analyst in the securities industry. One-quarter (0.25) hours x $378 per hour = $94.50. To 
calculate the occupational hourly rates used in this release, the Commission uses occupation-specific mean 
hourly wage data from the Occupational Employment and Wage Statistics (OEWS) program of the Bureau 
of Labor Statistics (BLS) for the securities industry (NAICS 523). See Occupational Employment and 
Wage Statistics, U.S.
 BUREAU OF LABOR STATISTICS, https://www.bls.gov/oes/; see also Standard 
Occupational Classification, U.S.
 BUREAU OF LABOR STATISTICS, https://www.bls.gov/soc/ (describing 
occupational classification system used by BLS); E
XEC. OFF. OF THE PRESIDENT, OFF. OF MGMT. & 
BUDGET, NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM (2022), available at 
https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf (describing the industry 
classification system used by BLS and other agencies). To account for any changes in wages between the 
data reference period and when the data are released, the mean hourly wage for each occupation is 
multiplied by the seasonally adjusted employment cost index for private wages and salaries. See 
Employment Cost Index, U.S.
 BUREAU OF LABOR STATISTICS, https://www.bls.gov/eci/. The adjusted mean 
hourly wage is then multiplied by a factor that accounts for nonwage costs, such as bonuses, benefits, and 
overhead. The nonwage cost adjustment factor is calculated as an average over the 10 most recently 
available years of data of the ratio of the Bureau of Economic Analysis’s annual gross output data for the 
securities industry to total annual wages across all occupations for the securities industry’s OEWS data. See 
Gross Output by Industry, U.S.
 BUREAU OF ECONOMIC ANALYSIS, 
https://www.bea.gov/data/industries/gross-output-by-industry; Occupational Employment and Wage 
Statistics, U.S.
 BUREAU OF LABOR STATISTICS, https://www.bls.gov/oes/. The final product is the 
occupational hourly rate. See generally U
PDATED METHODOLOGY FOR CALCULATING OCCUPATIONAL 
HOURLY RATES (Dec. 19, 2025), available at https://www.sec.gov/files/method-occupational-hourly-
rates.pdf. 
152
  2,512.75 hours x $378 per hour = $949,819.50. We do not expect advisers to incur any external cost burden 
in connection with this information collection because advisers generate the necessary records in the 
ordinary course of their advisory businesses. 
153
  44 U.S.C. 3502(3). 
154
  44 U.S.C. 3501 et seq.  

 
 
74 
D. Total Estimated Burden 
We estimate that investment advisers that would be newly required to respond to Item 12 
of Part 1A of Form ADV would incur a total annual hour burden resulting from the collections of 
information discussed above of approximately 2,512.75 hours, at a monetized cost of 
$949,819.50.
155
 The total external burden costs would be $0.  
A chart summarizing the proposed components of the total annual burden for investment 
advisers is below. 
Form ADV Description of New 
Requirements 
No. of 
Responses 
Internal 
Burden Hours 
External Burden 
Costs 
Annual burden for making 
representations on Item 12 of Part 1A 
of Form ADV. 
10,051 2,512.75 (0.25 
hours per 
adviser) 
0 
We estimate the total burden associated with the proposed amendments to Form ADV to 
amount to an average of one-quarter ( 0.25) hours annually per adviser. The amendments do not 
require investment advisers to collect any new types of information. The only differences in 
burden hours and internal monetized costs between current and proposed Item 12 of Part 1A of 
Form ADV will be determined by the number of advisers newly required to respond to Item 12.  
E. Request for Comments 
We request comment on whether our estimates for burden hours and any external costs as 
described above are reasonable. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments in order to: (i) evaluate whether the proposed collections of information are necessary 
for the proper performance of the functions of the Commission, including whether the 
 
155
  This estimate is based upon the following calculation: 2,512.75 hours x $378 per hour.  

 
 
75 
information will have practical utility; (ii) evaluate the accuracy of the Commission’s estimate of 
the burden of the proposed collections of information, including whether the estimates are too 
high or too low; (iii) determine whether there are ways to enhance the quality, utility, and clarity 
of the information to be collected; and (iv) determine whether there are ways to minimize the 
burden of the collections of information on those who are to respond, including through the use 
of automated collection techniques or other forms of information technology.  
In addition to these general requests for comment, we also request comment specifically 
on the following issues:  
44. Our analysis relies upon certain assumptions, such as that it will take advisers 
approximately one-quarter (0.25) hours per year to respond to the proposed 
amendments to Item 12. Do commenters agree with these assumptions? If not, 
why not, and what data would commenters recommend that we use? 
Persons wishing to submit comments on the collection of information requirements of the 
proposed amendments should direct them to the OMB Desk Officer for the Securities and 
Exchange Commission, [email protected], and should send a 
copy to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-1090, with reference to File No. S7-2026-01. OMB is required to 
make a decision concerning the collections of information between 30 and 60 days after 
publication of this release; therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days after publication of this release. Requests for materials 
submitted to OMB by the Commission with regard to these collections of information should be 
in writing, refer to File No. S7-2026-01, and be submitted to the Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736.  

 
 
76 
V. REGULATORY FLEXIBILITY ACT CERTIFICATION  
The RFA
156 
requires the SEC to prepare and make available for public comment an initial 
regulatory flexibly analysis of the impact of the proposed rule amendments on small entities, 
unless the SEC certifies that the rules, if adopted would not have a significant economic impact 
on a substantial number of small entities.
157
 Pursuant to section 605(b) of the RFA, the SEC 
hereby certifies that the proposed amendments to rule 0-10 under the Investment Company Act, 
rules 0-7 and 203-3(b) under the Advisers Act, and Form ADV would not, if adopted, have a 
significant economic impact on a substantial number of small entities. 
For the purposes of the Advisers Act and the Regulatory Flexibility Act, an investment 
adviser generally is a small entity if it: ( i) has assets under management having a total value of 
less than $25 million; (ii) did not have total assets of $5 million or more on the last day of the 
most recent fiscal year; and (iii) does not control, is not controlled by, and is not under common 
control with 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 its most recent fiscal year.
158 
For the purposes of the Investment Company Act 
and the Regulatory Flexibility Act, investment companies are considered small entities if they, 
together with other funds in the same group of related funds, have net assets of $50 million or 
less as of the end of its most recent fiscal year.
159
  
 
156
  5 U.S.C. 601 et seq. 
157
  See 5 U.S.C. 603(a) and 605(b). 
158
  Rule 0-7.    
159
  Rule 0-10.  

 
 
77 
The Commission’s proposed amendments to the Small Entity Rules would ultimately 
affect its analyses under the RFA in future rulemakings but would not themselves impose an 
economic impact on funds or advisers. The proposed amendments to rule 203-3(b) are clarifying 
in nature and would not impose a significant economic impact on advisers. While additional 
investment advisers would have to complete Item 12 of Form ADV, the information required by 
this Item is readily available to advisers and the additional cost of this change would be 
minimal.
160
 Therefore, there would be no significant economic impact on a substantial number of 
small entities as a result of these proposed amendments. The SEC encourages written comments 
on the certification. Commentators are asked to describe the nature of any impact on small 
entities and provide empirical data to support the extent of the impact.  
The Commission understands that no regulatory flexibility analysis is required for the 
proposed amendments. The proposed amendments to the definitions of the terms “small 
business” and “small organization” for investment companies and investment advisers do not 
impose any substantive requirements on small businesses. 
Pursuant to section 605(b) of the Regulatory Flexibility Act, the SEC hereby certifies that 
the proposed amendments to Investment Company Act rule 0-10, Advisers Act rule 0-7   and 
Form ADV would not, if adopted, have a significant economic impact on a substantial number of 
small entities.  
 
160
  See supra footnote 140 and accompanying text. 

 
 
78 
VI. CONSIDERATION OF IMPACT ON THE ECONOMY  
For purposes of SBREFA,
161
 we must advise OMB whether a  regulation constitutes a 
“major” rule. Under SBREFA, a rule is considered “major” where, if adopted, it results in or is 
likely to result in (i) an annual effect on the economy of $100 million or more; (ii) a major 
increase in costs or prices for consumers or individual industries; or (iii) significant adverse 
effects on competition, investment or innovation. 
We request comment on the potential impact of the proposed amendments on the 
economy on an annual basis. Commenters are requested to provide empirical data and other 
factual support for their views to the extent possible. 
VII. OTHER MATTERS 
This action is a significant regulatory action under Executive Order 12866, as amended, 
and has been reviewed by the Office of Management and Budget. 
STATUTORY AUTHORITY  
The Commission is proposing the rule and form amendments contained in this document 
under the authority set forth in chapter 6 of title 5 of the United States Code (particularly section 
601 thereof [5 U.S.C. 601]), the Investment Company Act, particularly, section 38 thereof [15 
U.S.C. 80a-37], the Advisers Act, particularly
 section 211 thereof [15 U.S.C. 80b-11]. 
List of Subjects in 17 CFR Parts 270, 275, and 279 
Investment companies, Investment advisers, Reporting and recordkeeping requirements, 
Administrative practice and procedure. 
 
 
161
  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). 

 
 
79 
Text of Proposed Rule and Form Amendments 
For the reasons set out in the preamble, the SEC proposes to amend title 17, chapter II of 
the Code of Federal Regulations as follows: 
PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 
1. The authority citation for part 270 continues to read, in part, as follows: 
Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 1681w(a)(1), 6801-6809, 
6825, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. 
*  *  *  *  * 
2. Amend § 270.0-10 by: 
a. Revising paragraph (a). 
b. Removing paragraph (b). 
c. Revising paragraph (c) and redesignating paragraph (c) as paragraph (b).  
d. Adding new paragraph (c). 
The revisions read as follows: 
§ 270.0-10 Small entities under the Investment Company Act for purposes of the 
Regulatory Flexibility Act. 
(a) General. For purposes of Commission rulemaking in accordance with the provisions 
of Chapter Six of the Administrative Procedure Act ( 5 U.S.C. 601 et seq.) and unless otherwise 
defined for purposes of a particular rulemaking, the term small business or small 
organization for purposes of the Investment Company Act of 1940 shall mean an investment 
company that, together with other investment companies in the same family of investment 
companies, has net assets of $10 billion or less as of the end of its most recent fiscal year, or, 
following [DATE TEN YEARS AFTER EFFECTIVE DATE OF FINAL RULE], the dollar 

 
 
80 
amount specified in the most recent order issued by the Commission in accordance with 
paragraph (c) of this section and as published in the FEDERAL REGISTER. For purposes of this 
section, family of investment companies has the same meaning and conditions as in Item B.5. of 
Form N-CEN. 
 (b) Determination of net assets. The Commission may calculate its determination of the 
net assets of a family of investment companies based on the net assets of each investment 
company in the family of investment companies as of the end of such company’s fiscal year. 
(c) Future inflation adjustments. The dollar amount specified in paragraph (a) of this 
section shall be adjusted by order of the Commission, issued on or about [DATE TEN YEARS 
AFTER EFFECTIVE DATE OF FINAL RULE], and approximately every ten years thereafter. 
The adjusted dollar amount established in such orders shall be computed by: 
 (1) Dividing the year-end value of the Personal Consumption Expenditures Chain-Type 
Price Index (or any successor index thereto), as published by the United States Department of 
Commerce, for the calendar year preceding the calendar year in which the order is being issued, 
by the year-end value of such index (or successor) for the calendar year [YEAR OF EFFECTIVE 
DATE OF FINAL RULE]; and 
 (2) Multiplying $10 billion times the quotient obtained in paragraph (c)(1) of this section 
and rounding the product to the nearest multiple of $1 billion. 
PART 275—RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940 
3. The authority citation for part 275 continues to read, in part, as follows:  
Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-2(a)(17), 80b-3, 80b-4, 
80b-4a, 80b-6(4), 80b-6a, 80b-11, 1681w(a)(1), 6801-6809, and 6825, unless otherwise noted. 
*  *  *  *  * 

 
 
81 
4. Amend § 275.0-7 by revising paragraph (a) and adding new paragraph (c). 
The revisions read as follows: 
§ 275.0-7 Small entities under the Investment Advisers Act for purposes of the Regulatory 
Flexibility Act. 
(a) For purposes of Commission rulemaking in accordance with the provisions of Chapter Six 
of the Administrative Procedure Act ( 5 U.S.C. 601 et seq.) and unless otherwise defined for 
purposes of a particular rulemaking proceeding, the term small business or small 
organization for purposes of the Investment Advisers Act of 1940 shall mean an investment 
adviser that: 
(1) Has assets under management, as defined under Section 203A(a)(3) of the Act (15 
U.S.C. 80b-3a(a)(2)) and reported on its annual updating amendment to Form ADV (17 CFR 
279.1), of less than $1 billion, or, following [DATE TEN YEARS AFTER EFFECTIVE 
DATE OF FINAL RULE], the dollar amount specified in the most recent order issued by the 
Commission in accordance with paragraph (c) of this section and as published in the Federal 
Register; 
(2) Did not have total assets of $5 million or more on the last day of the most recent fiscal 
year, or, following [DATE TEN YEARS AFTER EFFECTIVE DATE OF FINAL RULE], did 
not have total assets equal to or greater than on the last day of the most recent fiscal year the 
dollar amount specified in the most recent order issued by the Commission in accordance with 
paragraph (c) of this section and as published in the Federal Register; and 
(3) Does not control, is not controlled by, and is not under common control with another 
investment adviser that has assets under management of $1 billion 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 

 
 
82 
most recent fiscal year, or following [DATE TEN YEARS AFTER EFFECTIVE DATE OF 
FINAL RULE], does not control, is not controlled by, and is not under common control with 
another investment adviser that has assets under management equal to or greater than the 
dollar amount specified in the most recent order issued by the Commission in accordance with 
paragraph (c) of this section and as published in the Federal Register, or any person (other 
than a natural person) that had total assets equal to or greater than the dollar amount specified 
in the most recent order issued by the Commission in accordance with paragraph (c) of this 
section and as published in the Federal Register; 
*  *  *  *  * 
(c) The dollar amounts specified in paragraph (a) of this section shall be adjusted by order of 
the Commission, issued on or about [DATE TEN YEARS AFTER EFFECTIVE DATE OF 
FINAL RULE], and approximately every ten years thereafter. The adjusted dollar amounts 
established in such orders shall be computed by: 
(1) For purposes of paragraph (a)(1) and determining assets under management for 
purposes of paragraph (a)(3),  
(i) Dividing the year-end value of the Personal Consumption Expenditures Chain-Type 
Price Index (or any successor index thereto), as published by the United States Department of 
Commerce, for the calendar year preceding the calendar year in which the order is being 
issued, by the year-end value of such index (or successor) for the calendar year [YEAR OF 
EFFECTIVE DATE OF FINAL RULE]; and 
(ii) Multiplying $1 billion times the quotient obtained in paragraph (c)(1)(i)   of this 
section and rounding the product to the nearest multiple of $100 million; and 

 
 
83 
(2) For purposes of paragraph (a)(2) and determining total assets for purposes of 
paragraph (a)(3),  
(i) Dividing the year-end value of the Personal Consumption Expenditures Chain-Type 
Price Index (or any successor index thereto), as published by the United States Department of 
Commerce, for the calendar year preceding the calendar year in which the order is being 
issued, by the year-end value of such index (or successor) for the calendar year [YEAR OF 
EFFECTIVE DATE OF FINAL RULE]; and  
(ii) Multiplying $5 million times the quotient obtained in paragraph (c)(2)  (i)   of this 
section and rounding the product to the nearest multiple of $500,000. 
*  *  *  *  * 
5. Amend § 275.203-3 by revising paragraph (b). 
The revisions read as follows: 
§ 275.203-3 Hardship exemptions 
*  *  *  *  * 
(b) Continuing hardship exemption — 
(1) Eligibility for exemption. If you are a “small business” or “small organization” (as 
described in paragraph (b)(5) of this section), you may apply for a continuing hardship 
exemption. 
 
The period of the exemption may be no longer than one year after the date on which you 
apply for the exemption. 
 
*  *  *  *  * 
 
(5) Small business or small organization. You are a “small business” or “small 
organization” for purposes of this section if you are required to answer Item 12 of Form 
ADV (17 CFR 279.1) and checked “no” to each question in Item 12 that you were 
required to answer. 
 

 
 
84 
PART 279—FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 
1940 
6. The authority citation for part 279 continues to read as follows: 
Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et seq., Pub. L. 111- 
203, 124 Stat. 1376. 
*  *  *  *  * 
7. Amend Form ADV (referenced in § 279.1) by: 
a.    In the General Instructions, revising the second bullet point paragraph of Instruction 17 
related to continuing hardship exemptions; and 
b. In Part 1A, revising Item 12. 
NOTE: Form ADV is attached as Appendix A to this document. The text of Form ADV 
does not, and this amendment will not, appear in the Code of Federal Regulations.  
 
By the Commission. 
Dated: January 7, 2026. 
 
J. Matthew DeLesDernier, 
Deputy Secretary. 
 
Note: The following appendix will not appear in the Code of Federal Regulations.    

 
 
85 
APPENDIX A 
FORM ADV (Paper Version)  
UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND 
REPORT BY EXEMPT REPORTING ADVISERS 
Form ADV General Instructions  
*  *  *  *  * 
 
17.  What if I am not able to file electronically? 
 
If you are required to file electronically but cannot do so, you may be eligible for one of two 
types of hardship exemptions from the electronic filing requirements. 
 
*  *  *  *  * 
 
• A continuing hardship exemption may be granted if you are a small business or small 
organization and you can demonstrate that filing electronically would impose an undue 
hardship.  You are a small business or small organization, and may be eligible for a 
continuing hardship exemption, if you are required to answer Item 12 of Part 1A and you 
are able to respond “no” to each question in Item 12.  See SEC rule 0-7. 
 
 If you have been granted a continuing hardship exemption, you must complete and 
 submit the paper version of Form ADV to FINRA.  FINRA will enter your responses into 
 the IARD.  As discussed in General Instruction 16, FINRA will charge you a fee to 
 reimburse it for the expense of data entry. 
 
*  *  *  *  * 
PART 1A 
*  *  *  *  * 
 
Item 12   Small Businesses 
 
The SEC is required by the Regulatory Flexibility Act to consider the effect of its regulations on 
small entities.  In order to do this, we need to determine whether you meet the definition of 
“small business” or “small organization” under rule 0-7.  You are a “small business” or “small 
organization” under rule 0-7 if you have regulatory assets under management of less than $1 
billion and you answer “no” to each question in A., B., and C. below.  Each of these thresholds is 
updated every [TEN YEARS AFTER EFFECTIVE DATE OF FINAL RULE] for inflation in 
accordance with rule 0-7(c).  The thresholds described in this item will be updated accordingly 
when the thresholds in rule 0-7 are inflation adjusted. 

 
 
86 
 
Answer this Item 12 only if you are registered or registering with the SEC and you indicated in 
response to Item 5.F.(2)(c) that you have regulatory assets under management of less than $1 
billion.  You are not required to answer this Item 12 if you are filing for initial registration as a 
state adviser, amending a current state registration, or switching from SEC to state registration. 
 
For purposes of this Item 12 only: 
 
• Total Assets refers to the total assets of a firm, rather than the assets managed on behalf of 
clients.  In determining your or another person’s total assets, you may use the total assets 
shown on a current balance sheet (but use total assets reported on a consolidated balance 
sheet with subsidiaries included, if that amount is larger). 
 
• Control means the power to direct or cause the direction of the management or policies of a 
person, whether through ownership of securities, by contract, or otherwise.  Any person that 
directly or indirectly has the right to vote 25 percent or more of the voting securities, or is 
entitled to 25 percent or more of the profits, of another person is presumed to control the 
other person. 
 
                      Yes  No 
 
 A.  Did you have total assets of $5 million or more on the last day of your 
  most recent fiscal year?                   
  
 If “yes,” you do not need to answer Items 12.B. and 12.C. 
 
 B.  Do you: 
 
  (1) control another investment adviser that had regulatory assets under 
   management (calculated in response to Item 5.F.(2)(c) of Form  
   ADV) of $1 billion or more on the last day of its most recent 
   fiscal year?                     
 
  (2) control another person (other than a natural person) that had total 
   assets of $5 million or more on the last day of its most recent 
   fiscal year?                      
 
 C.  Are you: 
 
  (1) controlled by or under common control with another investment 
   adviser that had regulatory assets under management (calculated 
   in response to Item 5.F.(2)(c) of Form ADV) of $1 billion or 
   more on the last day of its most recent fiscal year?              
 
  (2) controlled by or under common control with another person  
   (other than a natural person) that had total assets of $5 million 

 
 
87 
   or more on the last day of its most recent fiscal year?          
 
*  *  *  *  * 

1 

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 asset-

based 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/s7-2026-

01/small-entity-definition-amendments-investment-advisers-investment-companies); or  

https://www.sec.gov/comments/s7-2026-01/small-entity-definition-amendments-investment-advisers-investment-companies
https://www.sec.gov/comments/s7-2026-01/small-entity-definition-amendments-investment-advisers-investment-companies


 
 

2 

• Send an email to [email protected]. 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/s7-2026-

01/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, 

https://www.sec.gov/comments/s7-2026-01/small-entity-definition-amendments-investment-advisers-investment-companies
https://www.sec.gov/comments/s7-2026-01/small-entity-definition-amendments-investment-advisers-investment-companies
https://www.sec.gov/rules-regulations/2026/01/s7-2026-01


 
 

3 

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. 

  



 
 

4 

TABLE OF CONTENTS 
 
I. 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 
 
  



 
 

5 

I. INTRODUCTION  

A. 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 

 

1  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/divisions-
offices/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-business-
capital-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/small-
business-capital-formation-advisory-committee.  

https://www.sec.gov/resources-small-businesses/office-small-business-policy-division-corporation-finance
https://www.sec.gov/about/divisions-offices/office-advocate-small-business-capital-formation
https://www.sec.gov/about/divisions-offices/office-advocate-small-business-capital-formation
https://www.sec.gov/about/divisions-offices/office-advocate-small-business-capital-formation
https://www.sec.gov/about/divisions-offices/office-advocate-small-business-capital-formation
https://www.sec.gov/about/advisory-committees/small-business-capital-formation-advisory-committee
https://www.sec.gov/about/advisory-committees/small-business-capital-formation-advisory-committee


 
 

6 

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  

 
2  Pub. L. 96–354, §2, Sept. 19, 1980, 94 Stat. 1164; 5 U.S.C. 601–612. 
3  See 5 U.S.C. 602. The RFA does not define “significant economic impact” or “substantial number of small 

entities.” 
4  5 U.S.C. 605. 
5  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.” 
6  13 CFR 121.903(c). See also Small Business Size Regulations; Size Standards for Programs of Other 

Agencies, 67 FR 13714 (Mar. 26, 2002). 
7  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. 



 
 

7 

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 19989 and, in 

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

update the definitions.10 

 
8  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. 

9  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”).  

10  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-advisers-
and-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. 

https://www.sec.gov/files/2024-oasb-annual-forum-report.pdf
https://www.sec.gov/files/rules/petitions/2023/petn4-811.pdf
https://www.sec.gov/files/final-recommendations-amac-sec-small-advisers-and-funds-110321.pdf
https://www.sec.gov/files/final-recommendations-amac-sec-small-advisers-and-funds-110321.pdf


 
 

8 

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 

 
11  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. 

12  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). 



 
 

9 

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

or (ii) have a common administrator.13 

1. 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 apply15 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.  

 
13  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. 
14  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). 

15  See 5 U.S.C. 603 (setting forth the requirements for the IRFA). 
16  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”). 

17  Id. 



 
 

10 

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 entities19 

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 

 
18  5 U.S.C. 604 (setting forth the requirements for the FRFA). 
19  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.  

20  5 U.S.C. 602. 
21  5 U.S.C. 612. 



 
 

11 

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  

2. Investment Company Size Standards 

a. 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 

 
22  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. 

23  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. 

24  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). 



 
 

12 

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.   

b. 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 

 
25  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). 
26  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. 

27  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.” 



 
 

13 

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 

 
28  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.  

29  1998 Adopting Release, supra footnote 9.  
30  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. 
31  Rule 0-10(a)(2).  

https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=dfb422c15f5ae2d3a8cf5596905ae022&term_occur=999&term_src=Title:17:Chapter:II:Part:270:270.0-10


 
 

14 

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  

3. Investment Adviser Size Standards  

a. 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 

 
32  Rule 0-10(b).  
33  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. 

34  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).  



 
 

15 

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  

 
35  See 1981 Proposing Release, supra footnote 23, and 1982 Adopting Release, supra footnote 8. 
36  1981 Proposing Release, supra footnote 23, at section II.F.  
37  1982 Adopting Release, supra footnote 8. 
38  See 1997 Proposing Release, supra footnote 33, at n.57. 



 
 

16 

b. 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 (Dodd-

Frank 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. 

 
39  See 1998 Adopting Release, supra footnote 9, at section II.B. 
40  See id. at section II.B.  
41  See 1998 Adopting Release, supra footnote 9, at n.47 and accompanying text. 



 
 

17 

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 

 
42  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). 
43  13 CFR 121.103(f). 
44  See 5 U.S.C. 601(4). 
45  1997 Proposing Release, supra footnote 33, at section I.B. 
46  See rule 0-7(a)(3). 
47  See 1998 Adopting Release, supra footnote 9, at section II.B. 



 
 

18 

B. 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”). 

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

“family of investment companies.”  



 
 

19 

  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.  

 
49  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). 



 
 

20 

II. DISCUSSION  

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

1. 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 

 
50  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.  

51  Id.  
52  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.  
53  1982 Adopting Release, supra footnote 8.  
54  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”).  

https://www.icifactbook.org/25-fb-data-tables.html21 

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 

 
55  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.  

56  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.  



 
 

22 

decreasing expense ratios across open-end funds generally57—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 Families59 

Percentile of fund 
families1 at or 

below threshold 

Net Asset Threshold  % of individual funds2 in 
fund families at or below 

threshold 

% of fund assets3 in 
fund families at or below 

threshold 

10th $23.7 million 0.87% 0.0016% 
20th $68.4 million 1.84% 0.01% 

 
57  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. 

58  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. 

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



 
 

23 

Percentile of fund 
families1 at or 

below threshold 

Net Asset Threshold  % of individual funds2 in 
fund families at or below 

threshold 

% of fund assets3 in 
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% 
80th  $10.04 billion  22.91% 2.13% 
90th  $43.47 billion  37.87% 6.99% 
100th $9,450.72 billion 100.00% 100.00% 

 
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 

 
60  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.  



 
 

24 

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 

 
61  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. 



 
 

25 

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. 

 
62  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.  

63  13 CFR 121.201, at subsector 525.  



 
 

26 

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 

 
64  See supra section I.A.2.a. 



 
 

27 

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.   

2. 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 

 
65  See infra footnote 126. 



 
 

28 

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 

 
66  See supra footnotes 30-32 and accompanying text; see also 1998 Adopting Release, supra footnote 9.  
67  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. 

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



 
 

29 

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 0-

10 alongside the existing definition of “family of investment companies” from Form N-CEN:  

 
69  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). 



 
 

30 

Table 2 

“Group of Related Investment 
Companies” “Family of 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: 

(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 

(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. 

“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  

(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. 

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 



 
 

31 

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 

 
70  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. 

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



 
 

32 

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 

 
72  Rule 0-10(a)(2).  



 
 

33 

“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 

 
73  See Instruction to Item B.5 of Form N-CEN. 
74  Rule 0-10(b). 



 
 

34 

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  

 

 
75  See N-SAR Release, supra footnote 69. 
76  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)]. 

77  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.  



 
 

35 

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? 



 
 

36 

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?   

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

1. 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 

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



 
 

37 

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   

 
79  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. 80b-
3a(a)(1)(A)” because the RAUM Threshold, as proposed, would exceed and thus not align with the 
minimum threshold for adviser registration.  

80  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.  

81  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. 



 
 

38 

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: 

 

 
82  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.).  



 
 

39 

Table 3 

Distribution of Investment Advisers and RAUM83 

Percentile of 
Advisers 

Individual RAUM 
of Adviser at 
Percentile84 

Total Number of 
All Advisers at or 
below Percentile 

Total RAUM of All Advisers at or 
below Percentile 

(Millions) (Millions) (Percent) 

10th $33 2,172 $21,482  0.0% 
20th $96 4,331 $151,003  0.1% 
25th $125 5,414 $271,591 0.2% 
50th $324 10,827 $1,399,259 0.9% 
55th $399 11,910 $1,788,139 1.2% 
60th $500 12,993 $2,271,386  1.5% 
65th $632 14,075 $2,879,161  1.9% 
70th $834 15,158 $3,665,541  2.4% 
75th $1,130 16,240 $4,711,141  3.1% 
80th $1,654 17,323 $6,182,565  4.0% 
85th $2,612 18,406 $8,342,641  5.5% 
90th $4,944 19,488 $12,370,725  8.1% 
95th  $14,040 20,571 $21,290,612  13.9% 
100th $10,246,596 21,654 $152,878,412  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 

 
83  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. 

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



 
 

40 

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 

 
85  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. 

86  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). 

87  See supra footnote 61.41 

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, 

 
88  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. 

89  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). 

90  1998 Adopting Release, supra footnote 9, at n.50; 1997 Proposing Release, supra footnote 33, at n.58; 
1981 Proposing Release, supra footnote 23. 

91  See supra footnote 82. 



 
 

42 

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 

 
92  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. 

93  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. 

94  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-Investment-
Advisors.pdf.  

https://advocacy.sba.gov/wp-content/uploads/2024/05/Comment-Letter-FInCEN-Investment-Advisors.pdf
https://advocacy.sba.gov/wp-content/uploads/2024/05/Comment-Letter-FInCEN-Investment-Advisors.pdf


 
 

43 

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 

 
95  See 1982 Adopting Release, supra footnote 89; 1981 Proposing Release, supra footnote 23.  
96  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). 

97  See also infra section II.C. 



 
 

44 

scale directly with its assets under management, the proposal is generally consistent with the 

approach of the SBA size standards to measure the amount of business carried out by an entity.98 

We request comment on all aspects of the proposed amendments to the RAUM 

Threshold, including the following items: 

13. If we maintain a RAUM-based size standard, should we use a threshold amount other 

than the proposed amount of $1 billion? Would a lesser or greater amount be more 

appropriate? For example, based on Form ADV reporting data (as shown in Table 3 

above), using a $100 million threshold would cover approximately 20% of advisers, a 

$200 million threshold would cover approximately 35% of advisers, a $300 million 

threshold would cover approximately 50% of advisers, a $1.5 billion threshold would 

cover approximately 80% of advisers, a $2.5 billion threshold would cover 

approximately 85% of advisers, and a $5 billion threshold would cover approximately 

90% of advisers. Alternatively, should the RAUM Threshold not be amended? 

14. Should we use criteria instead of RAUM for our adviser size standards? For example, 

are there qualitative criteria that should be used (e.g., types of clients)? Would any 

recommended alternative criterion enable the Commission to meaningfully 

differentiate small advisers from non-small advisers, and could it be used in size 

standards derived from information that is readily available to the Commission with 

respect to all advisers (i.e., both registered investment advisers and exempt reporting 

advisers)? To the extent that necessary information related to the recommended 

criterion is not readily available to the Commission, please address whether the costs 

 
98  See supra footnote 28 and section I.A.3.a. 



 
 

45 

to advisers in reporting such information would be appropriate to enable the use of a 

small entity size standard based on that information.  

15. Consistent with the IAA Petition and AMAC Report’s recommendation, should the 

Commission develop a form of employee-based size standard and, if so, how many 

employees should establish its threshold?99 Should we, as suggested in the IAA 

Petition, use a standard of 100 or fewer employees or, as recommended in the AMAC 

Report, use a standard of fewer than 50 employees—or should we use another higher 

or lower number of employees? If the Commission were to determine its own 

numerical threshold for an employee-based size standard, what factors should it 

consider when determining that number? Would an employee-based size standard 

enable the Commission to more meaningfully differentiate small advisers from non-

small advisers for purposes of the RFA? In order to enable any employee-based size 

standard for all advisers, should exempt reporting advisers also be required to provide 

employee information on Form ADV? Who should qualify as an employee for this 

purpose? For example, if a person were an employee of an affiliate, but worked for 

the adviser full or part-time and was paid by the affiliate, should that person be 

considered an employee of the adviser? Additionally, how should the use of service 

providers and outsourcing by advisers impact a potential employee-based size 

standard (and any related reporting)? To the extent that an employee-based size 

standard would be relevant in combination with a RAUM-based standard (or a 

 
99  For discussion related to employee-based size standards, see supra footnotes 88-96 and accompanying text. 



 
 

46 

revenue-based or other alternative size standard), how should it be meaningfully 

combined (e.g., as an additional standard or as a standard in the alternative)?  

16. Do commenters agree that the Commission should continue to have its own size 

standards for investment advisers rather than use the default size standards provided 

by the SBA? Would using a $47 million “annual receipts” size standard enable the 

Commission to meaningfully differentiate small advisers from non-small advisers for 

RFA purposes, and would advisers be capable of reporting this information to the 

Commission pursuant to potential amendments to Form ADV? Alternatively, should 

the Commission consider another form of a revenue-based size standard (or another 

amount)? For example, should the Commission utilize the AMAC’s recommendation 

of annual revenue of less than $25 million? To the extent that a revenue-based size 

standard would be relevant in combination with another size standard, what is that 

size standard and how would it be meaningfully combined? 

17. Should the RAUM Threshold be tied to adviser registration thresholds, as discussed 

above? For instance, should the RAUM Threshold be tied to the $100 million 

registration threshold for mid-sized advisers introduced by the Dodd-Frank Act in 

2010, and if so, should the RAUM Threshold be further adjusted since 2010?100 If the 

$100 million RAUM registration threshold from the Dodd-Frank Act were used and 

adjusted for inflation since its enactment in 2010, it would result in a RAUM 

Threshold of approximately $150 million and approximately 30% of advisers falling 

within the threshold. 

 
100  See supra footnote 79.  



 
 

47 

18. Alternatively, should the RAUM Threshold (or other aspects of the small entity 

definition for investment advisers) be tied to the particular registration status of an 

investment adviser, such that, for instance, rulemakings that create distinct 

obligations between registered investment advisers, exempt reporting advisers and/or 

unregistered advisers would use distinct criteria to identify advisers that are small 

entities within the distinct classes of registration status? 

19. Should the Commission consider using the same figure for investment advisers’ 

RAUM Threshold as for investment companies’ net asset threshold (or vice versa) as 

was the case when initially adopted in 1982?101 Why or why not? 

2. The Total Assets Threshold 

We are requesting comment on whether to amend the Total Assets Threshold. Currently 

this threshold excludes from the definition of small entity any adviser that has total assets of $5 

million or more on the last day of its most recent fiscal year.102 The Commission set this $5 

million asset threshold in 1998 to in part to align with the $5 million total assets test used in the 

“small entity” definition in 17 CFR 240.0-10 (“Exchange Act rule 0-10”).103 The Commission 

 
101  See supra section II.A.1. 
102  Rule 0-7(a)(2) under the Advisers Act. “Total assets” is defined in rule 0-7(b)(2) to mean total assets as 

shown on the balance sheet of the investment adviser (or of a “person” in a control relationship with the 
adviser in accordance with paragraph (a)(3) of rule 0-7). It includes business assets, such as leases and 
equipment, as well as other types of assets, such as cash and accounts receivable. See 1998 Adopting 
Release, supra footnote 9, at n.42. 

103  Rule 0-10(a) under the Exchange Act; see 1998 Adopting Release, supra footnote 9, at n.51. Before the 
1998 amendments, paragraph (a)(2) of rule 0-7 included a “business assets” test instead of a total assets 
test; and the threshold used for this test was approximately the median value for advisers’ business assets at 
the time. See 1997 Proposing Release, supra footnote 33, at n.57 (“The Commission originally selected [the 
business asset threshold] because it was approximately the median value of advisers’ business assets. . . . 
The median may have changed in recent years, but that figure remains significant inasmuch as more than 
half of all advisers apparently do not have assets exceeding it.”); 1982 Adopting Release, supra footnote 8.  



 
 

48 

aligned the values in these “small entity” definitions under the Advisers Act and Exchange Act 

in view of financial industry affiliations between advisers and other large financial services firms 

to which the Exchange Act definition would apply.104  

The Total Assets Threshold enables the Commission to differentiate more meaningfully 

between small advisers and non-small advisers that may not have significant RAUM but do have 

significant assets related to a non-advisory line or component of their business.105 The Total 

Assets Threshold also works in concert with the Control Relationship Threshold in capturing 

common types of advisory industry affiliations. The Commission, however, receives limited 

information regarding advisers’ total assets that would allow it to analyze with specificity the 

impact of potential changes to the Total Assets Threshold over the distribution of investment 

advisers. The Commission only receives information in Item 1.O. of Part 1A of Form ADV 

regarding investment advisers with $1 billion or more in total assets106 as well as information in 

Item 12 from registered investment advisers with less than $25 million in RAUM regarding 

whether they have less than $5 million in total assets.107 Accordingly, we are not proposing to 

 
104  See 1998 Adopting Release, supra footnote 9, at n.51; see also 1997 Proposing Release, supra footnote 33 

(“An adviser in a control relationship with a large broker-dealer or other large financial services firm 
typically benefits from the financial and technical resources of the large firm. The large firm may handle 
much of the administrative and compliance needs of its affiliated adviser using resources not reflected in 
the adviser’s client assets or business assets.”). In addition, the 1998 amendments relatedly added 
paragraph (a)(3) to rule 0-7, which, as discussed below, applies the Total Assets Threshold in paragraph 
(a)(2) to any “person” in a control relationship with the investment adviser. 

105  The IAA Petition states that using an asset-based standard, including standards based on total firm balance 
sheet assets, does not accurately reflect regulatory burdens imposed on smaller advisers. See IAA Petition, 
supra footnote 10. As with the RAUM Threshold discussed above, asset-based metrics like the Total Assets 
Threshold are an effective and appropriate method to differentiate small members of the investment 
advisory industry from other members. See supra footnotes 90-93 and accompanying text. 

106  According to Form ADV data, about 680 investment advisers (over 3% of all advisers) report having $1 
billion or more in total assets. 

107  See infra section II.B.4. As discussed below, we are proposing to amend Item 12 of Part 1A of Form ADV 
to conform to any amendments made to rule 0-7. 



 
 

49 

modify the Total Assets Threshold at this time, but are requesting comment on possible changes 

to the threshold.    

Although we are broadly seeking comment on whether and, if so, how to update the Total 

Assets Threshold, we are proposing to include an Inflation Adjustment Mechanism to inflation-

adjust the Total Assets Threshold every ten years, rounded to the nearest multiple of $500,000, 

or 10% of the current Total Assets Threshold. We expect that in any final rule this mechanism 

would be calculated against and scale with the Total Assets Threshold ultimately used by the 

Commission. If an updated Total Assets Threshold were ultimately adopted, we would adjust the 

dollar amount to be rounded to the nearest multiple of 10% of such updated Total Assets 

Threshold (e.g., if the final Total Assets Threshold is updated to $10 million, then future 

inflation adjustments would be rounded to the nearest multiple of $1 million). 

We request comment on all aspects of the proposed Total Assets Threshold, including the 

following items: 

20. Should the Total Assets Threshold remain $5 million? If the threshold should be 

increased, to what should it be increased, and why? If the threshold should be 

decreased, to what should it be decreased, and why? Should we look to a median or 

other value for investment advisers based on information provided to the Commission 

as a result of public comment? 

21. Should the Total Assets Threshold continue to be aligned with the total asset 

threshold in Exchange Act rule 0-10(a)? If so, should we expressly tie the Total 

Assets Threshold to the total assets threshold in Exchange Act rule 0-10(a) by cross-

referencing that rule in rule 0-7 under the Advisers Act? Are there other total asset 



 
 

50 

thresholds under Commission regulations to which the Total Assets Threshold should 

be aligned? If so, what are they, and why? 

22. Should the Total Assets Threshold be adjusted based on inflation or some other 

market growth metric? If so, which metric or index and from when should the 

threshold be adjusted, and why? For example, the Inflation Adjustment Mechanism as 

proposed to apply to the Total Assets Threshold utilizes the Personal Consumption 

Expenditures Chain-Type Price Index and compares it to 1998 prices. Applying that 

standard to the Total Assets Threshold itself would result in a new threshold value of 

approximately $10 million. 

23. Should the Total Assets Threshold be adjusted to represent an increase proportionate 

to the proposed amendments to the RAUM Threshold by increasing the Total Assets 

Threshold by the same factor (x40, as proposed) that we are increasing the RAUM 

Threshold (e.g., $200 million)? Why or why not? 

24. Should the Total Assets Threshold be eliminated from rule 0-7? Given that there are 

some investment advisers that register with the Commission but report to have zero or 

virtually zero RAUM, as well as that there are large advisers that may have 

insignificant RAUM but have significant assets from a non-advisory component of 

their business, would removing the total assets test diminish the Commission’s 

capacity to differentiate these types of advisers and small advisers for RFA purposes? 

If the total assets test were removed, what other size standards (e.g., employee or 

client-based) could be used to differentiate these advisers, and why should they be 

used? What existing sources of data does the Commission have to support the use of 

such other standards? If the Commission does not have existing sources of data, 



 
 

51 

should the Commission require the reporting of such data, what would be the costs to 

registrants of such reporting, and how are the costs of such reporting justified? 

25.  In what ways should the Inflation Adjustment Mechanism be adjusted should the 

Commission adopt a different Total Assets Threshold from the current one? 

3. The Control Relationship Threshold 

Currently, the Control Relationship Threshold uses an assets under management standard 

to establish the disqualifying size of affiliated advisers that is the same standard ($25 million) 

used in the RAUM Threshold. The proposal would amend paragraph (a)(3) of rule 0-7 under the 

Advisers Act to increase this assets under management threshold from $25 million to $1 

billion.108 The proposal would also, as discussed in more detail in section II.C, include Inflation 

Adjustment Mechanisms for the assets under management and total assets aspects of the Control 

Relationship Threshold that are identical to those proposed for the RAUM and Total Assets 

Thresholds, respectively.109 

The proposed amendments are designed to conform this threshold to the proposed 

revisions to the RAUM Threshold and the inclusion of an Inflation Adjustment Mechanism in 

the Total Assets Threshold.110 The Commission previously stated that “Congress did not intend 

 
108  Proposed rule 0-7(a)(3) under the Advisers Act. The proposal would also revise paragraph (a)(3) to remove 

“(or such higher amount as the Commission may deem appropriate)” in line with the proposed removal of 
related language in paragraph (a)(1). See supra footnote 79 (discussing the proposal’s revision to 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. 80b-3a(a)(1)(A)”). 

109  Proposed rule 0-7(c) under the Advisers Act. 
110  The proposed amendments to the Control Relationship Threshold would continue to consider an adviser’s 

affiliates on an individual basis, unlike the proposed amendments applicable to investment companies, 
which would instead continue to consider the net assets of multiple related investment companies as 

 

 



 
 

52 

to confer the benefit of any determination that an entity is small upon the affiliates of large 

businesses, because only those business and organizations that are ‘independently owned’ may 

qualify as small entities pursuant to the definitions contained in the RFA.”111 As such, the 

Commission noted its belief “that it is appropriate . . . to preclude entities with significant 

economic or financial resources [from their large business affiliates] from obtaining potential 

regulatory benefits under the RFA.”112 The proposed amendments to the Control Relationship 

Threshold would align its assets under management threshold to the RAUM Threshold that, as 

discussed above, more appropriately captures advisers that should be deemed “small entities” for 

purposes of our analyses under the RFA. 

Based on Form ADV reporting, the Commission estimates that updating the Control 

Relationship Threshold to reflect the increase of the RAUM Threshold from $25 million to $1 

billion would result in approximately 1,225 investment advisers (or approximately 5.7% of all 

 

aggregated together. See supra section II.A.2. The proposed amendments would thus remain consistent 
with the Commission’s historically distinct approaches between identifying “small entity” investment 
advisers and “small entity” investment companies. Retaining this distinction as proposed would continue to 
be appropriate in light of the distinct operational and organizational structures of investment advisers and 
investment companies (for example, investment companies generally do not have any staff, unlike 
investment advisers, but instead rely on service providers for all of their operations, including regulatory 
compliance), as well as because of the distinct reporting information that the Commission receives with 
respect to investment advisers and investment companies.  

111  1981 Proposing Release, supra footnote 23 (citing 5 U.S.C. 601(4) and 15 U.S.C. 632, which define as a 
small business or small organization an entity that “is independently owned and operated and is not 
dominant in its field”); see also 1997 Proposing Release, supra footnote 33. 

112  See 1997 Proposing Release, supra footnote 33. A non-control affiliation with a large adviser or other 
person, or a control relationship with an adviser or other person that is itself a “small entity,” would not 
trigger exclusion under the Control Relationship Threshold. As noted above, per the Commission’s prior 
positions and staff observations, advisers that are in a control relationship with other large firms typically 
benefit from the financial and technical resources of the large firm in a manner that is not reflected in 
advisers’ own client or balance sheet assets. We continue to view this benefit as typically deriving from a 
control relationship rather than mere affiliation and, accordingly, believe that the RFA’s exclusion of 
businesses that benefit from large affiliates is appropriately applied to advisers that are in a control 
relationship with other large advisers (or other firms).  



 
 

53 

advisers) being excluded from treatment as a “small entity.” As such, the Commission estimates 

that, as a result of the proposed amendments to the assets under management thresholds in 

paragraphs (a)(1) and (a)(3), approximately 14,620 of the total 21,650 investment advisers, or 

approximately 70% of all advisers, would meet the revised RAUM and Control Relationship 

Thresholds. This would be an appropriate result despite the increase in excluded advisers. As 

noted above, one aspect of the statutory definition of small business or small organization under 

the RFA is that the entity is “independently owned and operated.”113 The continued application 

of a control relationship threshold (including as amended) would exclude advisers that may not 

have significant RAUM or total assets themselves but are in a control relationship with a large 

adviser (or other firm) and thus are not “independently owned and operated,” appropriately 

focusing the Commission’s analyses on those advisers that are small for purposes of the RFA.114 

We are not at this time proposing revisions to the Total Assets Threshold. Accordingly, 

we are not proposing to amend the total assets threshold in the Control Relationship Threshold, 

but are requesting comment on whether to revise the threshold.  

We request comment on all aspects of the proposed amendments to the Control 

Relationship Threshold, including the following items: 

26.  Should the assets under management threshold in the Control Relationship Threshold 

be increased to $1 billion as proposed? Should the threshold be tied to the RAUM 

Threshold as proposed? Should the total assets threshold in the Control Relationship 

Threshold be changed? If so, what should it be changed to, and why? Should the 

threshold be tied to the Total Assets Threshold? Or should we use a different assets 

 
113  5 U.S.C. 601(3), 601(4), and 15 U.S.C. 632(a). 
114  See supra footnotes 109-110 and accompanying text. 



 
 

54 

under management threshold and total assets threshold for this purpose? Should the 

Control Relationship Threshold include alternative criteria other than assets under 

management and total assets, for example, if alternative criteria are used at adoption 

to replace or modify the current RAUM Threshold and/or Total Assets Threshold?115 

Should the Control Relationship Threshold be eliminated? 

27. As discussed above, the Commission is considering whether to amend the Total 

Assets Threshold but is not proposing specific revisions to it at this time. Should the 

Commission incorporate any future amendments to the Total Assets Threshold into 

the Control Relationship Threshold? If the Commission modifies or eliminates the 

Total Assets Threshold in paragraph (a)(2) with respect to investment advisers, 

should it also do so or instead maintain the total assets threshold with respect to 

persons that are control affiliates in paragraph (a)(3)? Why or why not? 

28. Does paragraph (a)(3)’s treatment of advisers affiliated with other advisers and 

persons that are not themselves “small entities” properly focus on control affiliations? 

Are there other relationships that more appropriately capture the types of affiliations 

the Control Relationship Threshold was designed to capture? If so, what are they, and 

why? Are there specific factors that would appropriately include as small entities 

those advisers that are substantially managed and resourced independently of any 

control affiliate?116 If so, what are they, and why? Are they different from the types 

 
115  See supra sections II.B.1 and II.B.2. 
116  See IAA Petition, supra footnote 10 (“We would expect the Commission, as part of the notice and 

comment process, to seek input on all elements of the proposed definition, including what specific factors 
would appropriately include as small entities those advisers that are substantially managed and resourced 
independently of any control affiliate.”). 



 
 

55 

of factors that may already be used to rebut the presumption of control arising from 

ownership? 

29. Should the Control Relationship Threshold be amended to consider an adviser’s 

control affiliates on an aggregate rather than individual basis, similar to the historical 

and proposed approach for investment companies, notwithstanding the operational 

and organizational differences between investment advisers and investment 

companies? If so, why, and how should this aggregation of control affiliates function? 

For example, should an adviser be considered a “small entity” if it, collectively with 

other investment advisers that are its control affiliates, has less than a certain amount 

of RAUM (e.g., $1 billion)? 

4. Form ADV Amendments 

The proposal would amend Form ADV to revise Instruction 17 of the General 

Instructions,117 Item 12 of Part 1A of Form ADV,118 and rule 203-3(b).119 The proposed 

amendments to Form ADV are designed to reflect the proposed revisions to the RAUM 

Threshold and the Control Relationship Threshold. Instruction 17, pursuant to rule 203-3(b), 

currently provides a continuing hardship exemption from electronic filing requirements if a 

registered or registering investment adviser is a small business and can demonstrate that filing 

electronically would impose an undue hardship.120 In line with the amendments to the definition 

of small entity, the proposed amendments to Instruction 17 would permit a continuing hardship 

 
117  See proposed Form ADV General Instructions, Instruction 17. 
118  See proposed Form ADV, Part 1A, Item 12. 
119  See 17 CFR 275.203-3(b) (setting forth the conditions for an investment adviser to apply for a continuing 

hardship exemption). 
120  See current Form ADV General Instructions, Instruction 17. 



 
 

56 

exemption from electronic filing requirements for investment advisers which: (i) can 

demonstrate that filing electronically would impose an undue hardship, (ii) are required to 

answer Item 12 because they have less than $1 billion, instead of $25 million, in RAUM, and 

(iii) are able to respond “no” to each question in Item 12, which would continue to track the 

elements of the small entity definition and which determines whether registered or registering 

investment advisers meet the definition of “small business” or “small organization” under rule 0-

7.121 We are also proposing to remove the parenthetical “(because you have assets under 

management of less than $25 million)” from Instruction 17 because this language is implicit in 

Instruction 17’s requirement that an investment adviser be required to answer Item 12 and the 

threshold amount set forth in Instruction 17 would otherwise need to be updated periodically in 

conformity with rule 0-7 to remain valid. We are also proposing to revise the language of 

Instruction 17 and rule 203-3(b) to explicitly apply to an investment adviser who is either a 

“small business” or “small organization” in conformity with Item 12.  

The amendments to Item 12 would revise the RAUM threshold under which an 

investment adviser must complete Item 12 from $25 million to $1 billion, corresponding with the 

proposed amendments to the definitions of “small business” and “small organization” under rule 

0-7.122 They would also revise the thresholds set forth in Items 12.B.(1) and C.(1)—which 

collect information on the elements of the small entity definition—to align with the proposed 

Total Assets Threshold and Control Relationship Threshold. Finally, we are proposing to revise 

Item 12 in order to: (i) provide more context regarding the significance of Item 12 in determining 

 
121  A registered or registering investment adviser which can respond “no” to each question in Item 12 has not 

exceeded the RAUM Threshold, Total Assets Threshold, or Control Relationship Threshold.  
122  See current Form ADV, Part 1A, Item 12. 



 
 

57 

whether an adviser is a “small entity,” (ii) reference updates to the form by the Commission to 

reflect changes to these thresholds due to the Inflation Adjustment Mechanism, and (iii) explain 

that the thresholds in Item 12 will be adjusted in conformity with the thresholds in rule 0-7.  

We request comment on all aspects of the proposed revisions to Form ADV, including 

the following items: 

30. Should Form ADV be revised to conform to the proposed revisions to rule 0-7, as 

proposed? Do commenters foresee any difficulties arising from increasing the RAUM 

threshold in Instruction 17 under which investment advisers may seek a continuing 

hardship exemption from electronic filing requirements? Are investment advisers 

with greater than $25 million in RAUM likely to take advantage of this continuing 

hardship exemption? 

31. Should the Commission amend Form ADV to require investment advisers to report 

additional information regarding their total assets? For example, in addition to what is 

already required, should Item 1.O be amended to require an investment adviser to 

report its total assets on the last day of its most recent fiscal year, to report whether it 

has $5 million (or any revised threshold adopted by the Commission) or more in 

assets on the last day of its most recent fiscal year, or to report any other range? 

32. Should the Commission amend Form ADV to require investment advisers to report 

additional information regarding other persons (other than natural persons) that the 

investment adviser controls? For example, should an investment adviser have to 

report the approximate total assets of persons (other than private funds reported in 

Section 7.B.(1)) that the investment adviser controls in Section 7.A. of Schedule D of 

Form ADV, as of the last day of the person’s most recent fiscal year? 



 
 

58 

33. Should the Commission amend Form ADV to require investment advisers to report 

additional information regarding other persons (other than natural persons) that 

control or are under common control with the investment adviser? What information 

could be requested here that would assist the Commission in establishing that a 

controlled investment adviser is a “small entity” for the purposes of the analyses 

conducted under the RFA? 

34. Should the Commission require investment advisers to report additional information 

regarding the nature of their control relationships? For example, if the Commission 

required an investment adviser to report whether it received financial or 

administrative assistance from a person (other than a natural person) it is in a control 

relationship with, should the absence of such assistance impact whether an investment 

adviser is considered a “small entity” for purposes of the RFA?  

35. Does the text proposed to be added to Item 12 clarify that an investment adviser that 

is required to answer Item 12 and is properly able to respond “no” to each question in 

Item 12.A, B, and C is considered a “small entity” for the purposes of the analyses 

conducted under the RFA? Should the Commission require investment advisers to 

self-report their “small entity” status following completion of Item 12, or would it be 

helpful to add an automated message in the Investment Adviser Registration 

Depository (“IARD”) indicating an investment adviser’s reported “small entity” 

status once it properly completes Item 12? Would indicating an investment adviser’s 

reported “small entity” status be useful for investors reviewing Form ADV filings or 

for investment advisers completing Form ADV? 



 
 

59 

36. Should the Commission require exempt reporting advisers to complete Item 12 or 

report their RAUM on Form ADV? If so, how should exempt reporting advisers 

report their RAUM? 

37. Should the Commission remove the parenthetical “(because you have assets under 

management of less than $25 million)” from Instruction 17? Would it provide 

investment advisers with useful information if the Commission instead left the 

parenthetical in Instruction 17 and periodically updated the threshold amount for 

inflation in accordance with the proposed rule 0-7(c)? Why or why not? 

38. Does the additional language proposed to be added to Item 12 regarding the inflation 

adjustment make clear that the thresholds in that item would be adjusted for inflation 

in conformity with the inflation adjustments to the thresholds in rule 0-7? Would 

referencing the inflation adjustments create confusion for investment advisers filling 

out Item 12? Why or why not? 

C. Periodic Future Adjustments 

In addition to proposing to adjust the asset-based thresholds, we are also proposing 

amendments to rules 0-7 and 0-10 that would provide a mechanism for periodic future 

adjustments of the asset-based thresholds used in these rules’ small entity definitions.123 

Specifically, the amendments would provide that the Commission will issue an order every ten 

years adjusting: (i) the net asset threshold in the investment company small entity definition; and 

(ii) in the investment adviser small entity definition, the RAUM Threshold, the Total Assets 

 
123  Proposed rule 0-10(c); proposed rule 0-7(c).  



 
 

60 

Threshold, and the assets under management and total assets aspects of the Control Relationship 

Threshold. 

In proposing to adjust certain asset-based thresholds for “small entity” definitions as 

discussed above, the Commission considered an analysis of the distribution of fund and adviser 

assets and the growth in these assets over time. The thresholds provided for by the amendments 

would improve the utility of the RFA analysis at adoption in a manner, for the reasons discussed 

above, that is more appropriate than the alternatives we considered (e.g., an employee-based or 

revenue-based size standard or inflation adjusting the current thresholds). These proposed 

thresholds, however, may become less useful over time due to growth in markets and any 

subsequent changes in the investment company and investment adviser industries. The proposed 

adjustment would ensure that the thresholds are adjusted every ten years, because the adjustment 

would be required by rule and effected through a Commission order. Adjustments that the 

Commission makes mechanically by order could help maintain the thresholds at levels that 

reflect the buying power of money over time, without the need for Commission action through 

rulemaking. The Commission has historically incorporated automatic inflation adjustments to 

certain dollar-based thresholds in regulations affecting investment companies and investment 

advisers.124 These automatic adjustments reflect that some level of change in dollar value is 

reasonably anticipated to occur in the future, and help ensure that the rules’ intended application 

remains consistent and relevant over time. We similarly expect that the proposed adjustments 

would prevent the thresholds in the small entity definitions from becoming less meaningful over 

time on account of anticipated changes in dollar value. Specifically, because a fund’s size is 

 
124  See, e.g., rule 3c-7 under the Investment Company Act; rule 205-3 under the Advisers Act; see also infra 

footnote 128.61 

related to its ability to bear compliance costs, adjusting the asset-based thresholds is designed to 

account for potential increases in those compliance costs. It is possible, but less predictable, that 

the net asset thresholds may become less useful over time even taking the proposed adjustments 

into account (for example, with the advent of market events, changes in the makeup or 

distribution of size of the fund or adviser markets, or other industry changes). In this case, the 

Commission could consider performing appropriate analyses to propose amendments to the 

thresholds again in the future.  

Unlike our analysis that informed the proposed increases to the asset-based thresholds, 

inflation is a known factor for which a precise value can reliably be derived from a defined 

index. The proposed amendments to rule 0-10 and rule 0-7 would require that the adjustment of 

the asset-based thresholds be calculated by reference to the Personal Consumption Expenditures 

Chain-Type Price Index (the “PCE Index”),125 which is published by the Department of 

 
125  Proposed rule 0-10 would require the net asset threshold for small entities be adjusted for inflation by (i) 

dividing the year-end value of the PCE Index for the calendar year preceding the calendar year in which the 
order is being issued, by the year-end value of the PCE Index for the calendar year any final rule is 
adopted, (ii) multiplying $10 billion (i.e., the proposed net asset threshold) by that quotient, and (iii) 
rounding the product to the nearest multiple of $1 billion. Proposed rule 0-7(c)(1) would adjust the RAUM 
Threshold and assets under management aspects of the Control Relationship Threshold by starting with the 
same quotient but would multiply that by $1 billion, rounded to the nearest multiple of $100 million. 
Proposed rule 0-7(c)(2) would, as discussed above, adjust the Total Assets Threshold and the net assets 
aspect of the Control Relationship Threshold by multiplying the same quotient by $5 million, rounded to 
the nearest multiple of $500,000. See also supra section II.B.2. 



 
 

62 

Commerce.126 The PCE Index is often used as an indicator of inflation in the U.S. economy.127 

Additionally, the Commission routinely has used the PCE Index in similar contexts in 

Commission rules, and it is also used in provisions of the federal securities laws.128 We are 

proposing to use the PCE Index to calculate inflation adjustments for this rulemaking for 

consistency with other Commission rules, and because the methodology and scope of the PCE 

Index reflects a broad sector of the U.S. economy.  

 
126  The values of the PCE Index are available from the Bureau of Economic Analysis, a bureau of the 

Department of Commerce. See https://www.bea.gov. The PCE Index measures the prices that people living 
in the United States, or those buying on their behalf, pay for goods and services. The PCE Index is known 
for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in 
consumer behavior. See https://www.bea.gov/data/personal-consumption-expenditures-price-index. 

127  See, e.g., Clinton P. McCully, Brian C. Moyer & Kenneth J. Stewart, Comparing the Consumer Price Index 
and the Personal Consumption Expenditures Price Index, SURVEY OF CURRENT BUS., Nov. 2007, at 
26, n.1 (PCE Index measures changes in “prices paid for goods and services by the personal sector in the 
U.S. national income and product accounts” and is primarily used for macroeconomic analysis and 
forecasting); see also FEDERAL RESERVE BOARD, MONETARY POLICY REPORT TO THE 
CONGRESS, at n.1 (Feb. 17, 2000), available at 
https://www.federalreserve.gov/boarddocs/hh/2000/february/ReportSection1.htm#FN1 (noting the reasons 
for using the PCE Index rather than the consumer price index). 

128  See, e.g., Qualifying Venture Capital Funds Inflation Adjustment, Investment Company Act Release No. 
35305 (Aug. 24, 2024) [89 FR 70479 (Aug. 30, 2024)] (adopting a rule that adjusts for inflation the dollar 
threshold used in defining a “qualifying venture capital fund” using the PCE Index); Investment Adviser 
Performance Compensation, Investment Advisers Act Release No. 3372 (Feb. 15, 2012) [77 FR 10358, 
10367 (Feb. 22, 2012)] (stating that the Commission is using the PCE Index in connection with required 
inflation adjustments to the dollar thresholds in the definition of “qualified client” appearing in 17 CFR 
275.205-3, and stating that the PCE Index is widely used as a broad indicator of inflation in the economy); 
Definitions of Terms and Exemptions Relating to the “Broker” Exceptions for Banks, Securities Exchange 
Act Release No. 56501 (Sept. 24, 2007) [72 FR 56514 (Oct. 3, 2007)] (using PCE Index in adopting 
periodic inflation adjustments to the fixed-dollar thresholds for both “institutional customers” and “high net 
worth customers” under rule 701 of Regulation R “because it is a widely used and broad indicator of 
inflation in the U.S. economy”); see also Amendments to Form ADV, Investment Advisers Act Release 
No. 3060 (July 28, 2010) [75 FR 49234 (Aug. 12, 2010)] (using PCE Index in increasing for inflation the 
threshold amount for prepayment of advisory fees that triggers an adviser’s duty to provide clients with an 
audited balance sheet and the dollar threshold triggering the exception to the delivery of brochures to 
advisory clients receiving only impersonal advice). The Dodd-Frank Act also requires the use of the PCE 
Index to calculate inflation adjustments for the cash limit protection of each investor under the Securities 
Investor Protection Act of 1970. See section 929H(a) of the Dodd-Frank Act, 15 U.S.C. 78fff-3. 



 
 

63 

We are proposing a schedule of adjusting the investment company and investment 

adviser small entity asset thresholds for inflation every 10 years. Given the distributions of 

different-sized entities for investment companies and investment advisers, inflationary changes 

over shorter periods would generally not result in a meaningfully different set of investment 

companies and investment advisers being considered small entities under their respective 

definitions. Additionally, implementing more frequent adjustments would pose challenges for the 

Commission’s RFA analysis because more frequent inflation adjustments make it more likely 

that a fund’s or adviser’s small entity status would change between proposal and adoption. 

The proposed amendments providing for future inflation adjustment to the investment 

company small entity net asset threshold would require rounding to the nearest multiple of 

$1,000,000,000. The proposed amendments to the investment adviser small entity RAUM 

Threshold and assets under management aspect of the Control Relationship Threshold would 

require rounding to the nearest multiple of $100,000,000 whereas the amendments to the Total 

Assets Threshold and total assets aspect of the Control Relationship Threshold would require 

rounding to the nearest multiple of $500,000. Due to the magnitude of each of these thresholds 

($10 billion, $1 billion and $5 million respectively), rounding with greater specificity would not 

be a useful differentiator of funds’ or advisers’ ability to bear regulatory cost due to size.129 

We request comment on all aspects of the proposed amendments to rules 0-10 and 0-7 

that would provide for periodic future inflation adjustments to the asset-based thresholds used in 

these rules’ small entity definitions, including the following items: 

 
129  We are proposing to round all the asset-based thresholds to the nearest 10% of the amount of the adjusted 

threshold. See proposed rule 0-7(c)(1)(ii) and (c)(2)(ii) and proposed rule 0-10(c)(2). 



 
 

64 

39. Should the Commission adopt the proposed mechanism for periodic adjustments of 

the small entity asset-based thresholds in rule 0-10 and rule 0-7 by order, and if not, 

why not? Is adjusting for inflation the best mechanism for determining this periodic 

adjustment? If so, is the PCE Index the price index best suited for this purpose? Are 

there other price indexes, such as the Consumer Price Index for All Urban 

Consumers, the Producer Price Index, or the GDP Price Deflator, that would be better 

suited for this purpose, and why?  

40. Instead of or in addition to periodically adjusting for inflation, should the 

Commission periodically and mechanically adjust the small entity thresholds to 

reflect any other metric? If so, why? For example, should the Commission 

periodically and mechanically adjust the thresholds to reflect overall growth in the 

markets (as a proxy for asset growth in the investment company and investment 

adviser industries) by reference to a securities market index or a blend of security 

market indexes? If so, what index, or blend of indexes, would be appropriate, given 

that funds and advisers invest in all types of securities, including in private markets? 

Should the Commission make periodic adjustments to the asset thresholds in order to 

maintain a fixed percentage of investment companies and investment advisers as 

small entities? Should this percentage be of fund families, total number of entities, 

total industry assets or some other metric? If the Commission were to maintain a 

fixed percentage of small entities, what should that percentage be for investment 

companies and for investment advisers? For example, should it be the percentages 

that result following the proposed increase in asset thresholds in rules 0-10 and 0-7, 

as discussed above? 



 
 

65 

41. Is 10 years an appropriate timeframe for future adjustments for the investment 

company and investment adviser small entity asset thresholds and if not, why not? 

Would a shorter or longer timeframe such as 1, 3, 5 or 15 years be more appropriate? 

Would different timeframes be appropriate for investment companies and investment 

advisers? Should there be circumstances where the rules specify that the periodic 

adjustment should not occur or should be postponed (e.g., in the case of a significant 

market downturn that extends beyond a certain period)?  

42. Should the Commission select an adjustment cycle that starts on a specified year, 

rather than based on the date of final adoption? For instance, if the Commission were 

to adopt these rules in 2026, should the first adjustment occur in 2035 and then every 

10 years thereafter (e.g., 2045, 2055, 2065, etc.)? Should the adjustment period 

coincide with the adjustment cycles for other rules?130 

43. When calculating the inflation-adjusted asset thresholds, should we round the dollar 

amount or use an exact number for the threshold? If we are rounding, is rounding to 

the proposed amounts the appropriate level of specificity for these calculations? Are 

there any considerations that are unique to any of the asset-based thresholds? Please 

supply explanations and reasoning.   

III. ECONOMIC ANALYSIS 

The Commission is mindful of the economic effects, including the costs and benefits, of 

its rules. The Commission has a long-held focus on small entities when engaged in rulemaking. 

A purpose of the RFA  is to promote the effectiveness and efficiency of regulations, including 

 
130  See supra footnote 128. 



 
 

66 

through consideration of alternative regulatory approaches, with the goal of minimizing the 

significant economic impact on small entities consistent with the stated objectives of applicable 

statutes.131 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.132 In 

applicable rulemakings, the Commission’s definitions of “small entities” determine the scope of 

the IRFA and FRFA. The proposed definitions are expected to 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. 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. To the extent such adaptations to future rulemakings would 

occur, the use of the amended definitions of “small entities” in RFA analyses could result in 

different benefits and costs of such rulemakings. For example, if the Commission, informed by 

the more tailored RFA analyses, determined to scope fewer small entities into future rulemakings 

or tailor obligations imposed by such rulemakings differently for small entities, there could be 

fewer compliance costs imposed on such entities. 

In addition to these indirect effects, the proposed rule would have direct economic effects 

where the proposed small entity definitions would affect the application of existing Commission 

rules and regulations.  Currently, the Commission’s definition of “small entity” under the RFA is 

incorporated into the Commission’s other rules and regulations only in connection with an 

adviser’s responses to Form ADV (and the Commission is proposing to make corresponding 

amendments to the form). We thus consider the effects of the proposed definition as it relates to 

 
131 See supra footnote 2. 
132  See supra footnote 3. 



 
 

67 

the use of that definition in Form ADV as well as the effects of the associated proposed changes 

to the form. 

First, the proposal would amend Form ADV to revise Instruction 17 of the General 

Instructions, which currently permits registered or registering investment advisers to receive a 

continuing hardship exemption from Form ADV electronic filing requirements, pursuant to rule 

203-3(b), if such investment adviser is a small business and can demonstrate that filing Form 

ADV electronically would impose an undue hardship. Instruction 17, as revised, defines an 

investment adviser as a “small business” or “small organization” if it is required to answer Item 

12 (which itself relies on the definition in rule 0-7) and it is able to respond “no” to each question 

in Item 12. Since the proposed amendments to Item 12, in conformity with rule 0-7, would 

reflect that the RAUM Threshold was increased from $25 million to $1 billion, Instruction 17 

would similarly reflect this increase in the threshold for the availability of the continuing 

hardship exemption.133 Approximately 10,051134 additional registered investment advisers may 

be eligible for the exemption under the revised definition, as reflected in the amended Instruction 

17, before any future adjustment for inflation.135   

We expect that the increased availability of the continuing hardship exemption to 

registered investment advisers meeting the proposed definition would have minimal economic 

impact. Due to the ubiquity of inexpensive access to computers and the internet - both to advisers 

themselves and to the service providers they may employ - any newly eligible advisers are 

 
133  See supra section II.B.4II.B.4. 
134  This estimate captures the number of registered investment advisers with RAUM equal to or above $25 

million but below $1 billion. See infra footnote 149. 
135  See supra section II.C. 



 
 

68 

unlikely to be able to demonstrate that filing Form ADV electronically would impose an undue 

hardship.136 We therefore anticipate that few, if any, additional advisers would be able to rely on 

the exemption.  

Second, the proposal would amend Item 12 of Part 1A of Form ADV to align the RAUM 

threshold for completing the questions in that item with the proposed amendments to the 

definitions of “small business” and “small organization” under rule 0-7; the amendments to that 

item would also revise the questions in Items 12.B.(1) and C.(1) to collect information on the 

elements of the amended small entity definition.137  As a result, approximately 10,051138 

additional registered investment advisers would be required to complete Item 12 of Part 1A 

(before any future adjustment for inflation).139 Because the information to complete the 

corresponding questions would be readily available to advisers, we estimate that the cost increase 

for each affected adviser would be minimal, averaging approximately $95 per adviser per 

year.140  

We use a discount rate to adjust for differences in the timing of estimated benefits and 

costs.141  Table 4 presents the discounted present value of expected annualized benefits and costs 

that are monetized in our economic analysis, using real discount rates of 3 percent and 7 

 
136  The Commission has not received applications for the continuing hardship exemption in recent years. In 

addition, advisers may still be eligible for the temporary hardship exemption under 17 CFR 275.203-3(a), 
regardless of whether they are a small business or small organization, if they experience unforeseen 
technical difficulties.  

137  See supra section II.B.4II.B.4. 
138  See supra footnote 134. 
139  See supra section II.C. 
140  The $95 is based on the following calculations: hourly rate of a Management Analyst in the securities 

industry at $378 for 0.25 hours ≈ $95. See infra footnote 151. 
141  See OMB, CIRCULAR A-4, at 32 (Sept. 17, 2003) (discussing the main rationales for this understanding). 



 
 

69 

percent.142 We use a 10-year horizon that encompasses the principal expected benefits and costs 

that are monetized in the economic analysis.143 

Table 4: Present Discounted Value of Monetized Benefits and Costs (in 2025 $) 
Over a 10-year Time Horizon1  

 
Estimated Effects 3% real discount rate 7% real discount rate 

Benefits n/a n/a 
Costs $8,266,2942 $6,937,1873 

1 This Table includes only benefits and costs that are monetized in the economic analysis.  
2 We estimate recurring annual compliance costs of approximately $95 per adviser for 10,051 affected advisers. 
The resulting aggregate annual burden is $954,845. We assume that these costs are incurred in a steady stream, 
and we apply mid-year discount factors.  
3 Id. 

 

We do not anticipate that the proposed amendments would have any direct effects on 

efficiency, competition, or capital formation because, as discussed above, they would have 

minimal direct economic impact. But to the extent that the amended definitions of “small 

entities” contribute to the Commission better tailoring its rulemaking to account for the 

regulatory challenges faced by small entities, they could have indirect effects on efficiency, 

competition, and capital formation resulting from future rulemakings. For example, if the 

Commission, informed by the more tailored RFA analyses, determined to tailor future 

rulemakings to reduce compliance costs for small entities, there could be benefits to competition. 

 
142  Consistent with OMB Circular A-4 and to reflect the difference in timing of economic effects when 

benefits and costs do not take place in the same time period, the Commission presents monetized economic 
effects using discount factors. See id. at 31-34 (stating that, “[f]or regulatory analysis, [agencies] should 
provide estimates of net benefits using both 3 percent and 7 percent” discount rates and discussing why 
those rates are reasonable default rates). 

143  See id. at 31 (stating that “[t]he ending point should be far enough in the future to encompass all the 
significant benefits and costs likely to result from the rule”). 



 
 

70 

Lastly, the Commission considered alternatives to the proposed amendments to Form 

ADV to align the form with the amended definition.144 Specifically, we considered replacing 

Item 12 of Part 1A of Form ADV with a single question that would ask advisers to indicate 

whether they fall under the amended small entity definition, instead of providing the information 

in Items 12.A, B, and C that would allow the Commission to continue to make that 

determination, under the amended definition. While the alternative would streamline the 

information reported in that item, we understand that it would not reduce costs for advisers 

because an adviser would still have to gather from its own records the information needed to 

apply the small entity definition.145 In addition, maintaining the requirement for advisers to 

report the information needed to apply the “small entity” definition would continue to provide 

the Commission with insight into the class of small entity advisers and how the individual parts 

of the definition affect whether advisers qualify as a small entity.  

We request comment on all aspects of the economic analysis of the proposed 

amendments. To the extent possible, we request that commenters provide supporting data and 

analysis on the benefits, costs, and effects on competition, efficiency, and capital formation of 

the proposed amendments or any reasonable alternatives.  

 
144  Given the scope and context for this rulemaking, the Commission does not believe there are specific 

reasonable alternatives to the proposed conforming changes to the instruction for the continuing hardship 
exemption because these changes merely align the language in the instruction with the amended small 
entity definition and related changes to Item 12. 

145  We anticipate that advisers would generate the necessary records in the ordinary course of their advisory 
businesses. See infra footnote 152. 



 
 

71 

IV. PAPERWORK REDUCTION ACT  

A. Introduction  

The proposal would revise an existing “collection of information” within the meaning of 

the Paperwork Reduction Act of 1995 (the “PRA”).146 The title for the collection of information 

is: “Form ADV” (OMB control number 3235-0049). The Commission is submitting this 

collection of information to the OMB for review and approval in accordance with the PRA.147 

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of 

information unless it displays a currently valid OMB control number. 

We discuss below the collection of information burdens associated with the proposed 

amendments to Form ADV. Responses to the disclosure requirements of the proposed 

amendment to Form ADV are not kept confidential.  

B. Proposed Amendments to Form ADV 

The proposal would amend Form ADV to revise Item 12 of Part 1A of Form ADV to 

increase the RAUM Threshold under which an investment adviser must complete Item 12 from 

$25 million to $1 billion, corresponding with the proposed amendments to the definitions of 

“small business” and “small organization” under rule 0-7 under the Advisers Act.148 The 

proposal would also revise the thresholds set forth in Items 12.B.(1) and C.(1)—which collect 

information on the elements of the small entity definition—to align with the proposed changes to 

the Control Relationship Threshold. These collections of information would provide information 

to the Commission and investors. The Commission staff may also use the collection of 

 
146  44 U.S.C. 3501 et seq. 
147  44 U.S.C. 3507(d); 5 CFR 1320.11. 
148  See supra section II.B.1. 



 
 

72 

information in its examination and oversight program. Because the proposal would expand the 

group of advisers that are required to provide responses to Item 12, an additional burden would 

be imposed on advisers that have between $25 million and $1 billion in RAUM.  

We estimate this burden to amount to an average of fifteen minutes (or 0.25 hours) 

annually per adviser. We estimate the number of respondents to this information collection to be 

10,850 advisers, including 799 advisers that have less than $25 million in RAUM and may 

already complete Item 12.149 Accordingly, we estimate the total burden hours for the new Form 

ADV amendments to be 2,512.75 hours.150 We estimate that the total monetized cost to each 

registered investment adviser that would be newly required to respond to Item 12 as a result of 

 
149  This estimate is based on information reported by advisers through the IARD. Based on IARD data as of 

Dec. 31, 2024, of the 15,909 SEC-registered advisers, 10,850 responded to Item 5.F. of Part 1A of Form 
ADV indicating that they have RAUM of less than $1 billion, and 799 indicated that they have RAUM of 
less than $25 million. 

150  10,850 – 799 = 10,051 advisers. One-quarter (.25) hour x 10,051 advisers = 2,512.75 hours. 



 
 

73 

the amendments would be approximately $94.50,151 and that the total monetized cost for such 

advisers would be $949,819.50.152 

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

Investment Company Act 

Each of proposed rule 0-7 and rule 0-10 does not contain a “collection of information” 

requirement within the meaning of the Paperwork Reduction Act of 1995 (the “PRA”), nor does 

it create any new filing, reporting, recordkeeping, or disclosure reporting requirements.153 

Accordingly, the PRA is not applicable.154 

 
151 We estimate the cost at a rate of $378 per hour, which is the compensation rate that we have calculated for 

a Management Analyst in the securities industry. One-quarter (0.25) hours x $378 per hour = $94.50. To 
calculate the occupational hourly rates used in this release, the Commission uses occupation-specific mean 
hourly wage data from the Occupational Employment and Wage Statistics (OEWS) program of the Bureau 
of Labor Statistics (BLS) for the securities industry (NAICS 523). See Occupational Employment and 
Wage Statistics, U.S. BUREAU OF LABOR STATISTICS, https://www.bls.gov/oes/; see also Standard 
Occupational Classification, U.S. BUREAU OF LABOR STATISTICS, https://www.bls.gov/soc/ (describing 
occupational classification system used by BLS); EXEC. OFF. OF THE PRESIDENT, OFF. OF MGMT. & 
BUDGET, NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM (2022), available at 
https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf (describing the industry 
classification system used by BLS and other agencies). To account for any changes in wages between the 
data reference period and when the data are released, the mean hourly wage for each occupation is 
multiplied by the seasonally adjusted employment cost index for private wages and salaries. See 
Employment Cost Index, U.S. BUREAU OF LABOR STATISTICS, https://www.bls.gov/eci/. The adjusted mean 
hourly wage is then multiplied by a factor that accounts for nonwage costs, such as bonuses, benefits, and 
overhead. The nonwage cost adjustment factor is calculated as an average over the 10 most recently 
available years of data of the ratio of the Bureau of Economic Analysis’s annual gross output data for the 
securities industry to total annual wages across all occupations for the securities industry’s OEWS data. See 
Gross Output by Industry, U.S. BUREAU OF ECONOMIC ANALYSIS, 
https://www.bea.gov/data/industries/gross-output-by-industry; Occupational Employment and Wage 
Statistics, U.S. BUREAU OF LABOR STATISTICS, https://www.bls.gov/oes/. The final product is the 
occupational hourly rate. See generally UPDATED METHODOLOGY FOR CALCULATING OCCUPATIONAL 
HOURLY RATES (Dec. 19, 2025), available at https://www.sec.gov/files/method-occupational-hourly-
rates.pdf. 

152  2,512.75 hours x $378 per hour = $949,819.50. We do not expect advisers to incur any external cost burden 
in connection with this information collection because advisers generate the necessary records in the 
ordinary course of their advisory businesses. 

153  44 U.S.C. 3502(3). 
154  44 U.S.C. 3501 et seq.  

https://www.bls.gov/oes/
https://www.bls.gov/soc/
https://www.bls.gov/eci/
https://www.bea.gov/data/industries/gross-output-by-industry
https://www.bls.gov/oes/
https://www.sec.gov/files/method-occupational-hourly-rates.pdf
https://www.sec.gov/files/method-occupational-hourly-rates.pdf


 
 

74 

D. Total Estimated Burden 

We estimate that investment advisers that would be newly required to respond to Item 12 

of Part 1A of Form ADV would incur a total annual hour burden resulting from the collections of 

information discussed above of approximately 2,512.75 hours, at a monetized cost of 

$949,819.50.155 The total external burden costs would be $0.  

A chart summarizing the proposed components of the total annual burden for investment 

advisers is below. 

Form ADV Description of New 
Requirements 

No. of 
Responses 

Internal 
Burden Hours 

External Burden 
Costs 

Annual burden for making 
representations on Item 12 of Part 1A 
of Form ADV. 

10,051 2,512.75 (0.25 
hours per 
adviser) 

0 

We estimate the total burden associated with the proposed amendments to Form ADV to 

amount to an average of one-quarter (0.25) hours annually per adviser. The amendments do not 

require investment advisers to collect any new types of information. The only differences in 

burden hours and internal monetized costs between current and proposed Item 12 of Part 1A of 

Form ADV will be determined by the number of advisers newly required to respond to Item 12.  

E. Request for Comments 

We request comment on whether our estimates for burden hours and any external costs as 

described above are reasonable. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 

comments in order to: (i) evaluate whether the proposed collections of information are necessary 

for the proper performance of the functions of the Commission, including whether the 

 
155  This estimate is based upon the following calculation: 2,512.75 hours x $378 per hour.  



 
 

75 

information will have practical utility; (ii) evaluate the accuracy of the Commission’s estimate of 

the burden of the proposed collections of information, including whether the estimates are too 

high or too low; (iii) determine whether there are ways to enhance the quality, utility, and clarity 

of the information to be collected; and (iv) determine whether there are ways to minimize the 

burden of the collections of information on those who are to respond, including through the use 

of automated collection techniques or other forms of information technology.  

In addition to these general requests for comment, we also request comment specifically 

on the following issues:  

44. Our analysis relies upon certain assumptions, such as that it will take advisers 

approximately one-quarter (0.25) hours per year to respond to the proposed 

amendments to Item 12. Do commenters agree with these assumptions? If not, 

why not, and what data would commenters recommend that we use? 

Persons wishing to submit comments on the collection of information requirements of the 

proposed amendments should direct them to the OMB Desk Officer for the Securities and 

Exchange Commission, [email protected], and should send a 

copy to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street 

NE, Washington, DC 20549-1090, with reference to File No. S7-2026-01. OMB is required to 

make a decision concerning the collections of information between 30 and 60 days after 

publication of this release; therefore, a comment to OMB is best assured of having its full effect 

if OMB receives it within 30 days after publication of this release. Requests for materials 

submitted to OMB by the Commission with regard to these collections of information should be 

in writing, refer to File No. S7-2026-01, and be submitted to the Securities and Exchange 

Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736.  



 
 

76 

V. REGULATORY FLEXIBILITY ACT CERTIFICATION  

The RFA156 requires the SEC to prepare and make available for public comment an initial 

regulatory flexibly analysis of the impact of the proposed rule amendments on small entities, 

unless the SEC certifies that the rules, if adopted would not have a significant economic impact 

on a substantial number of small entities.157 Pursuant to section 605(b) of the RFA, the SEC 

hereby certifies that the proposed amendments to rule 0-10 under the Investment Company Act, 

rules 0-7 and 203-3(b) under the Advisers Act, and Form ADV would not, if adopted, have a 

significant economic impact on a substantial number of small entities. 

For the purposes of the Advisers Act and the Regulatory Flexibility Act, an investment 

adviser generally is a small entity if it: (i) has assets under management having a total value of 

less than $25 million; (ii) did not have total assets of $5 million or more on the last day of the 

most recent fiscal year; and (iii) does not control, is not controlled by, and is not under common 

control with 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 its most recent fiscal year.158 For the purposes of the Investment Company Act 

and the Regulatory Flexibility Act, investment companies are considered small entities if they, 

together with other funds in the same group of related funds, have net assets of $50 million or 

less as of the end of its most recent fiscal year.159  

 
156  5 U.S.C. 601 et seq. 
157  See 5 U.S.C. 603(a) and 605(b). 
158  Rule 0-7.  
159  Rule 0-10.  



 
 

77 

The Commission’s proposed amendments to the Small Entity Rules would ultimately 

affect its analyses under the RFA in future rulemakings but would not themselves impose an 

economic impact on funds or advisers. The proposed amendments to rule 203-3(b) are clarifying 

in nature and would not impose a significant economic impact on advisers. While additional 

investment advisers would have to complete Item 12 of Form ADV, the information required by 

this Item is readily available to advisers and the additional cost of this change would be 

minimal.160 Therefore, there would be no significant economic impact on a substantial number of 

small entities as a result of these proposed amendments. The SEC encourages written comments 

on the certification. Commentators are asked to describe the nature of any impact on small 

entities and provide empirical data to support the extent of the impact.  

The Commission understands that no regulatory flexibility analysis is required for the 

proposed amendments. The proposed amendments to the definitions of the terms “small 

business” and “small organization” for investment companies and investment advisers do not 

impose any substantive requirements on small businesses. 

Pursuant to section 605(b) of the Regulatory Flexibility Act, the SEC hereby certifies that 

the proposed amendments to Investment Company Act rule 0-10, Advisers Act rule 0-7 and 

Form ADV would not, if adopted, have a significant economic impact on a substantial number of 

small entities.  

 
160  See supra footnote 140 and accompanying text. 



 
 

78 

VI. CONSIDERATION OF IMPACT ON THE ECONOMY  

For purposes of SBREFA,161 we must advise OMB whether a  regulation constitutes a 

“major” rule. Under SBREFA, a rule is considered “major” where, if adopted, it results in or is 

likely to result in (i) an annual effect on the economy of $100 million or more; (ii) a major 

increase in costs or prices for consumers or individual industries; or (iii) significant adverse 

effects on competition, investment or innovation. 

We request comment on the potential impact of the proposed amendments on the 

economy on an annual basis. Commenters are requested to provide empirical data and other 

factual support for their views to the extent possible. 

VII. OTHER MATTERS 

This action is a significant regulatory action under Executive Order 12866, as amended, 

and has been reviewed by the Office of Management and Budget. 

STATUTORY AUTHORITY  

The Commission is proposing the rule and form amendments contained in this document 

under the authority set forth in chapter 6 of title 5 of the United States Code (particularly section 

601 thereof [5 U.S.C. 601]), the Investment Company Act, particularly, section 38 thereof [15 

U.S.C. 80a-37], the Advisers Act, particularly section 211 thereof [15 U.S.C. 80b-11]. 

List of Subjects in 17 CFR Parts 270, 275, and 279 

Investment companies, Investment advisers, Reporting and recordkeeping requirements, 

Administrative practice and procedure. 

 

 
161  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). 



 
 

79 

Text of Proposed Rule and Form Amendments 

For the reasons set out in the preamble, the SEC proposes to amend title 17, chapter II of 

the Code of Federal Regulations as follows: 

PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 

1. The authority citation for part 270 continues to read, in part, as follows: 

Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 1681w(a)(1), 6801-6809, 

6825, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. 

*  *  *  *  * 

2. Amend § 270.0-10 by: 

a. Revising paragraph (a). 

b. Removing paragraph (b). 

c. Revising paragraph (c) and redesignating paragraph (c) as paragraph (b).  

d. Adding new paragraph (c). 

The revisions read as follows: 

§ 270.0-10 Small entities under the Investment Company Act for purposes of the 

Regulatory Flexibility Act. 

(a) General. For purposes of Commission rulemaking in accordance with the provisions 

of Chapter Six of the Administrative Procedure Act (5 U.S.C. 601 et seq.) and unless otherwise 

defined for purposes of a particular rulemaking, the term small business or small 

organization for purposes of the Investment Company Act of 1940 shall mean an investment 

company that, together with other investment companies in the same family of investment 

companies, has net assets of $10 billion or less as of the end of its most recent fiscal year, or, 

following [DATE TEN YEARS AFTER EFFECTIVE DATE OF FINAL RULE], the dollar 

https://www.law.cornell.edu/topn/administrative_procedure_act
https://www.law.cornell.edu/uscode/text/5/601
https://www.law.cornell.edu/topn/investment_company_act_of_1940
https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=64fb68743f40f2ce5aecc0f6e178c44d&term_occur=999&term_src=Title:17:Chapter:II:Part:270:270.0-10
https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=62dcb1ffe7435559868266a418b4e75c&term_occur=999&term_src=Title:17:Chapter:II:Part:270:270.0-10


 
 

80 

amount specified in the most recent order issued by the Commission in accordance with 

paragraph (c) of this section and as published in the FEDERAL REGISTER. For purposes of this 

section, family of investment companies has the same meaning and conditions as in Item B.5. of 

Form N-CEN. 

 (b) Determination of net assets. The Commission may calculate its determination of the 

net assets of a family of investment companies based on the net assets of each investment 

company in the family of investment companies as of the end of such company’s fiscal year. 

(c) Future inflation adjustments. The dollar amount specified in paragraph (a) of this 

section shall be adjusted by order of the Commission, issued on or about [DATE TEN YEARS 

AFTER EFFECTIVE DATE OF FINAL RULE], and approximately every ten years thereafter. 

The adjusted dollar amount established in such orders shall be computed by: 

 (1) Dividing the year-end value of the Personal Consumption Expenditures Chain-Type 

Price Index (or any successor index thereto), as published by the United States Department of 

Commerce, for the calendar year preceding the calendar year in which the order is being issued, 

by the year-end value of such index (or successor) for the calendar year [YEAR OF EFFECTIVE 

DATE OF FINAL RULE]; and 

 (2) Multiplying $10 billion times the quotient obtained in paragraph (c)(1) of this section 

and rounding the product to the nearest multiple of $1 billion. 

PART 275—RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940 

3. The authority citation for part 275 continues to read, in part, as follows:  

Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-2(a)(17), 80b-3, 80b-4, 

80b-4a, 80b-6(4), 80b-6a, 80b-11, 1681w(a)(1), 6801-6809, and 6825, unless otherwise noted. 

*  *  *  *  * 

https://www.govinfo.gov/link/uscode/15/80b-2
https://www.govinfo.gov/link/uscode/15/80b-2
https://www.govinfo.gov/link/uscode/15/80b-2
https://www.govinfo.gov/link/uscode/15/80b-3
https://www.govinfo.gov/link/uscode/15/80b-4
https://www.govinfo.gov/link/uscode/15/80b-4a
https://www.govinfo.gov/link/uscode/15/80b-6
https://www.govinfo.gov/link/uscode/15/80b-6a
https://www.govinfo.gov/link/uscode/15/80b-11
https://www.govinfo.gov/link/uscode/15/1681w
https://www.govinfo.gov/link/uscode/15/6801
https://www.govinfo.gov/link/uscode/15/682581 

4. Amend § 275.0-7 by revising paragraph (a) and adding new paragraph (c). 

The revisions read as follows: 

§ 275.0-7 Small entities under the Investment Advisers Act for purposes of the Regulatory 

Flexibility Act. 

(a) For purposes of Commission rulemaking in accordance with the provisions of Chapter Six 

of the Administrative Procedure Act (5 U.S.C. 601 et seq.) and unless otherwise defined for 

purposes of a particular rulemaking proceeding, the term small business or small 

organization for purposes of the Investment Advisers Act of 1940 shall mean an investment 

adviser that: 

(1) Has assets under management, as defined under Section 203A(a)(3) of the Act (15 

U.S.C. 80b-3a(a)(2)) and reported on its annual updating amendment to Form ADV (17 CFR 

279.1), of less than $1 billion, or, following [DATE TEN YEARS AFTER EFFECTIVE 

DATE OF FINAL RULE], the dollar amount specified in the most recent order issued by the 

Commission in accordance with paragraph (c) of this section and as published in the Federal 

Register; 

(2) Did not have total assets of $5 million or more on the last day of the most recent fiscal 

year, or, following [DATE TEN YEARS AFTER EFFECTIVE DATE OF FINAL RULE], did 

not have total assets equal to or greater than on the last day of the most recent fiscal year the 

dollar amount specified in the most recent order issued by the Commission in accordance with 

paragraph (c) of this section and as published in the Federal Register; and 

(3) Does not control, is not controlled by, and is not under common control with another 

investment adviser that has assets under management of $1 billion 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 



 
 

82 

most recent fiscal year, or following [DATE TEN YEARS AFTER EFFECTIVE DATE OF 

FINAL RULE], does not control, is not controlled by, and is not under common control with 

another investment adviser that has assets under management equal to or greater than the 

dollar amount specified in the most recent order issued by the Commission in accordance with 

paragraph (c) of this section and as published in the Federal Register, or any person (other 

than a natural person) that had total assets equal to or greater than the dollar amount specified 

in the most recent order issued by the Commission in accordance with paragraph (c) of this 

section and as published in the Federal Register; 

*  *  *  *  * 

(c) The dollar amounts specified in paragraph (a) of this section shall be adjusted by order of 

the Commission, issued on or about [DATE TEN YEARS AFTER EFFECTIVE DATE OF 

FINAL RULE], and approximately every ten years thereafter. The adjusted dollar amounts 

established in such orders shall be computed by: 

(1) For purposes of paragraph (a)(1) and determining assets under management for 

purposes of paragraph (a)(3),  

(i) Dividing the year-end value of the Personal Consumption Expenditures Chain-Type 

Price Index (or any successor index thereto), as published by the United States Department of 

Commerce, for the calendar year preceding the calendar year in which the order is being 

issued, by the year-end value of such index (or successor) for the calendar year [YEAR OF 

EFFECTIVE DATE OF FINAL RULE]; and 

(ii) Multiplying $1 billion times the quotient obtained in paragraph (c)(1)(i) of this 

section and rounding the product to the nearest multiple of $100 million; and 



 
 

83 

(2) For purposes of paragraph (a)(2) and determining total assets for purposes of 

paragraph (a)(3),  

(i) Dividing the year-end value of the Personal Consumption Expenditures Chain-Type 

Price Index (or any successor index thereto), as published by the United States Department of 

Commerce, for the calendar year preceding the calendar year in which the order is being 

issued, by the year-end value of such index (or successor) for the calendar year [YEAR OF 

EFFECTIVE DATE OF FINAL RULE]; and  

(ii) Multiplying $5 million times the quotient obtained in paragraph (c)(2)(i) of this 

section and rounding the product to the nearest multiple of $500,000. 

*  *  *  *  * 

5. Amend § 275.203-3 by revising paragraph (b). 

The revisions read as follows: 

§ 275.203-3 Hardship exemptions 

*  *  *  *  * 

(b) Continuing hardship exemption — 

(1) Eligibility for exemption. If you are a “small business” or “small organization” (as 
described in paragraph (b)(5) of this section), you may apply for a continuing hardship 
exemption. 
 
The period of the exemption may be no longer than one year after the date on which you 
apply for the exemption. 
 

*  *  *  *  * 
 
(5) Small business or small organization. You are a “small business” or “small 
organization” for purposes of this section if you are required to answer Item 12 of Form 
ADV (17 CFR 279.1) and checked “no” to each question in Item 12 that you were 
required to answer. 

 

https://www.ecfr.gov/current/title-17/section-275.203-3#p-275.203-3(b)(5)
https://www.ecfr.gov/current/title-17/section-279.1


 
 

84 

PART 279—FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 

1940 

6. The authority citation for part 279 continues to read as follows: 

Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et seq., Pub. L. 111- 

203, 124 Stat. 1376. 

*  *  *  *  * 

7. Amend Form ADV (referenced in § 279.1) by: 

a. In the General Instructions, revising the second bullet point paragraph of Instruction 17 

related to continuing hardship exemptions; and 

b. In Part 1A, revising Item 12. 

NOTE: Form ADV is attached as Appendix A to this document. The text of Form ADV 

does not, and this amendment will not, appear in the Code of Federal Regulations.  

 

By the Commission. 

Dated: January 7, 2026. 

 

J. Matthew DeLesDernier, 

Deputy Secretary. 

 

Note: The following appendix will not appear in the Code of Federal Regulations.   



 
 

85 

APPENDIX A 

FORM ADV (Paper Version)  

UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND 

REPORT BY EXEMPT REPORTING ADVISERS 

Form ADV General Instructions  

*  *  *  *  * 
 
17.  What if I am not able to file electronically? 
 

If you are required to file electronically but cannot do so, you may be eligible for one of two 
types of hardship exemptions from the electronic filing requirements. 
 

*  *  *  *  * 
 

• A continuing hardship exemption may be granted if you are a small business or small 
organization and you can demonstrate that filing electronically would impose an undue 
hardship.  You are a small business or small organization, and may be eligible for a 
continuing hardship exemption, if you are required to answer Item 12 of Part 1A and you 
are able to respond “no” to each question in Item 12.  See SEC rule 0-7. 

 
 If you have been granted a continuing hardship exemption, you must complete and 
 submit the paper version of Form ADV to FINRA.  FINRA will enter your responses into 
 the IARD.  As discussed in General Instruction 16, FINRA will charge you a fee to 
 reimburse it for the expense of data entry. 
 
*  *  *  *  * 

PART 1A 

*  *  *  *  * 
 
Item 12 Small Businesses 
 
The SEC is required by the Regulatory Flexibility Act to consider the effect of its regulations on 
small entities.  In order to do this, we need to determine whether you meet the definition of 
“small business” or “small organization” under rule 0-7.  You are a “small business” or “small 
organization” under rule 0-7 if you have regulatory assets under management of less than $1 
billion and you answer “no” to each question in A., B., and C. below.  Each of these thresholds is 
updated every [TEN YEARS AFTER EFFECTIVE DATE OF FINAL RULE] for inflation in 
accordance with rule 0-7(c).  The thresholds described in this item will be updated accordingly 
when the thresholds in rule 0-7 are inflation adjusted. 



 
 

86 

 
Answer this Item 12 only if you are registered or registering with the SEC and you indicated in 
response to Item 5.F.(2)(c) that you have regulatory assets under management of less than $1 
billion.  You are not required to answer this Item 12 if you are filing for initial registration as a 
state adviser, amending a current state registration, or switching from SEC to state registration. 
 
For purposes of this Item 12 only: 
 
• Total Assets refers to the total assets of a firm, rather than the assets managed on behalf of 

clients.  In determining your or another person’s total assets, you may use the total assets 
shown on a current balance sheet (but use total assets reported on a consolidated balance 
sheet with subsidiaries included, if that amount is larger). 

 
• Control means the power to direct or cause the direction of the management or policies of a 

person, whether through ownership of securities, by contract, or otherwise.  Any person that 
directly or indirectly has the right to vote 25 percent or more of the voting securities, or is 
entitled to 25 percent or more of the profits, of another person is presumed to control the 
other person. 

 
                      Yes  No 
 
 A. Did you have total assets of $5 million or more on the last day of your 
  most recent fiscal year?                  
  
 If “yes,” you do not need to answer Items 12.B. and 12.C. 
 
 B. Do you: 
 
  (1) control another investment adviser that had regulatory assets under 
   management (calculated in response to Item 5.F.(2)(c) of Form  
   ADV) of $1 billion or more on the last day of its most recent 
   fiscal year?                    
 
  (2) control another person (other than a natural person) that had total 
   assets of $5 million or more on the last day of its most recent 
   fiscal year?                     
 
 C. Are you: 
 
  (1) controlled by or under common control with another investment 
   adviser that had regulatory assets under management (calculated 
   in response to Item 5.F.(2)(c) of Form ADV) of $1 billion or 
   more on the last day of its most recent fiscal year?          
 
  (2) controlled by or under common control with another person  
   (other than a natural person) that had total assets of $5 million 



 
 

87 

   or more on the last day of its most recent fiscal year?         
 

*  *  *  *  *