On November 4, 2026, the US Securities and Exchange Commission (SEC or Commission) adopted amendmentsAmendments to the “Small Business” and “Small Organization” Definitions for Investment Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act, Release Nos. IA-7035; IC-36380; File No. S7-2026-01 (Nov. 4, 2026). (the Amendments) to its definitions of “small business” and “small organization” (collectively, small entities) under the Investment Advisers Act of 1940, as amended (the Advisers Act), and the Investment Company Act of 1940, as amended (the Investment Company Act), for purposes of the Regulatory Flexibility Act (RFA). The Commission adopted the Amendments largely as proposedSee Amendments to the “Small Business” and “Small Organization” Definitions for Investment Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act, Investment Company Act Release No. 35864 (Jan. 7, 2026) (the Proposing Release). in January 2026, with a few modifications — most notably, the elimination of the adviser $5 million total assets test.
These definitions, which are set forth in Rule 0-7 under the Advisers Act and Rule 0-10 under the Investment Company Act, determine which investment advisers, registered investment companies, and business development companies (collectively, funds) the SEC must consider when assessing the impact of its rules on small entities under the RFA. Importantly, the Amendments do not modify the asset threshold for SEC registration of investment advisers, and classification as a small entity does not exempt an adviser or fund from substantive regulatory requirements or guarantee differentiated regulatory treatment. Instead, the revised definitions principally determine the breadth of entities the Commission considers in evaluating the impact of its rules on small entities under the RFA, as well as potential regulatory alternatives that may minimize significant economic impacts on such entities.
The RFA generally requires federal agencies, including the SEC, to consider the impact of their regulations on small entities and, where applicable, to consider regulatory alternatives that could minimize significant economic impacts on those entities. Rule 0-10 under the Investment Company Act and 0-7 under the Advisers Act define which funds and investment advisers constitute small entities for these purposes.
The significance of the Amendments therefore lies primarily in how the SEC evaluates and potentially calibrates future rulemakings, rather than in providing a new exemption from existing substantive requirements. While advisers that newly qualify as small entities will become eligible to apply for the continuing hardship exemption from electronic filing under Rule 203-3(b) under the Advisers Act, the SEC anticipates that few additional advisers will be able to rely on it: Newly eligible advisers may be unable to demonstrate that filing electronically would impose an undue hardship.
Amended Rule 0-7(a)(1) under the Advisers Act raises the threshold used for determining whether an adviser is treated as a small entity from $25 million to $1 billion RAUM, as defined in Section 203A(a)(3) of the Advisers Act and as reported on the adviser’s annual updating amendment to Form ADV. The Amendments also remove the phrase “or such higher amount as the Commission may by rule deem appropriate under Section 203A(a)(1)(A) of the Act,” which had been intended to increase the threshold in tandem with any increase in the SEC adviser registration threshold. The small entity threshold, however, has never been increased in this way, despite the SEC registration threshold increasing in 2010.
In selecting the new $1 billion threshold, the Commission observed that advisers below that amount represented approximately 75% of advisers but collectively managed less than 3% of total industry RAUM. The SEC considered this disparity indicative of the substantial concentration of industry assets among significantly larger advisers.
The current Control Relationship Threshold disqualifies an adviser from being considered small if it is in a control relationship with an affiliated adviser exceeding an assets under management test that mirrors the current RAUM Threshold of $25 million. The Amendments raise the value of the Control Relationship Threshold to conform to the amended $1 billion RAUM Threshold. Therefore, an adviser will satisfy the Control Relationship Threshold if it does not control, is not controlled by, and is not under common control with, another adviser that has assets under management equal to or greater than the amended RAUM Threshold. The RAUM of the affiliated adviser is determined using the same RAUM methodology applicable to the main adviser (i.e., assets under management as defined in Section 203A(a)(3) of the Advisers Act and reported on the affiliated adviser’s annual updating amendment to Form ADV).
The Commission has also eliminated the existing component of the Control Relationship Threshold that looks to whether an adviser is affiliated with any non-natural person having $5 million or more in total assets. This change is particularly relevant for dual registrants and advisers in holding company structures because this component was the only part of the Control Relationship Threshold that considered an adviser’s non-advisory affiliates, such as broker-dealers. Accordingly, affiliation with a large broker-dealer, holding company, or other non-adviser entity will no longer, absent other provisions, prevent an adviser from qualifying as a small entity.
Importantly, unlike the fund family test described below, the amended Rule 0-7 does not expressly require aggregation of the RAUM of all affiliated advisers. Instead, the Control Relationship Threshold considers whether another adviser in the control relationship itself has RAUM equal to or greater than the applicable threshold.
In an important departure from the Proposing Release, the Commission eliminated the existing Total Assets Threshold in Rule 0-7 under the Advisers Act. This threshold currently excludes from the definition of small entity any adviser that had total assets of $5 million or more on the last day of its most recent fiscal year, even if its RAUM otherwise fell below the applicable threshold. Eliminating the Total Assets Threshold simplifies the small entity analysis and may permit advisers with relatively small advisory businesses (but significant balance sheet or non-advisory assets) to qualify as small entities if they otherwise satisfy the RAUM Threshold and Control Relationship Threshold.
Amended Rule 0-10 under the Investment Company Act raises the net asset threshold for funds from $50 million to $10 billion. A fund generally qualifies as a small entity if the fund, together with the other funds in its family of investment companies, has net assets of $10 billion or less. For this purpose, “funds” does not include private funds (i.e., those relying on the exclusions in Section 3(c)(1) or 3(c)(7) of the Investment Company Act) or other issuers excluded from the definition of investment company under the Investment Company Act.
The Amendments also change how related funds are grouped for purposes of applying the new $10 billion threshold. Rule 0-10 under the Investment Company Act currently aggregates funds based on a “group of related investment companies.” Amended Rule 0-10 instead incorporates the concept of a “family of investment companies” as used in Item B.5 of Form N-CEN, allowing the Commission to rely on information that is already reported on Form N-CEN to identify small entities for purposes of RFA analyses.
Broadly, the Form N-CEN definition covers any two or more registered investment companies that share the same investment adviser or principal underwriter and hold themselves out to investors as related companies for purposes of investment and investor services.Item B.5 of Form N-CEN (avail. at https://www.sec.gov/files/formn-cen.pdf). Since the existing and amended formulations are not identical, the change may affect which entities are grouped together in particular circumstances.
The Amendments also make corresponding changes to General Instruction 17 and Item 12 of Part 1A of Form ADV, as well as to Rule 203-3(b) under the Advisers Act. Item 12 requires eligible SEC-registered advisers to report how they qualify as a small business or small organization pursuant to Rule 0-7 under the Advisers Act. It will be revised to remove references to the Total Assets Threshold and to refer to the threshold in Rule 0-7, rather than restating a dollar amount, so that it remains accurate following future inflation adjustments. General Instruction 17 and Rule 203-3(b) set out the conditions under which certain small SEC-registered advisers may apply for a continuing hardship exemption from electronic filing through IARD.
To reduce the likelihood that the revised thresholds again become outdated, the Amendments establish a mechanism for periodic inflation adjustments beginning on or about March 1, 2037, and approximately every 10 years thereafter.§ 270.0-10 Small entities under the Investment Company Act for purposes of the Regulatory Flexibility Act. The adjustment mechanism will allow the Commission to account periodically for inflation without conducting a separate rulemaking solely to update the dollar amounts.
The Amendments to Rule 0-10 under the Investment Company Act and Rule 0-7 under the Advisers Act will become effective on February 4, 2027. The Amendments to Rule 203-3 under the Advisers Act and Form ADV will have the same effective and compliance date.
For advisers and fund managers, the principal significance of the Amendments is not immediate or substantive regulatory relief, but rather a significant expansion of the population that the SEC will treat as small entities when conducting RFA analyses in future rulemakings. While small entity status does not in itself provide an exemption from requirements or rulemakings, it may affect how the Commission evaluates the economic impact of future regulatory requirements and potential alternatives for smaller entities. Additionally, SEC-registered advisers may consider the amended small entity definitions when completing the revised Item 12 of Form ADV in their next annual updating amendment.