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Could Thousands of Investment Advisers Be Forced Back to State Registration?
The Securities and Exchange Commission’s recent review of the investment adviser registration threshold could have significant consequences for thousands of registered investment advisers (“RIAs”). If the SEC ultimately raises the assets-under-management (“AUM”) threshold required for federal registration, many advisers currently registered with the SEC could be required to withdraw their federal registrations and return to state regulation.
Although no formal rule proposal has yet been issued, SEC leadership has publicly questioned whether the current registration framework—largely unchanged since 2012—continues to reflect the division of regulatory authority contemplated by Congress.[1] For mid-sized advisers, the possibility of a higher registration threshold presents substantial compliance, operational, and business risks.
Under Section 203A of the Investment Advisers Act of 1940, advisers generally are prohibited from registering with the SEC unless they manage sufficient regulatory assets under management or otherwise qualify for an exemption. Following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress shifted many mid-sized advisers from federal oversight to state regulation by increasing the registration threshold from $25 million to $100 million in AUM.[2]
Today, advisers generally become eligible for SEC registration at approximately $100 million in regulatory assets under management and are generally required to register with the SEC once they reach approximately $110 million.[3] Advisers below those levels typically are regulated by one or more state securities regulators.
Why the SEC Is Reconsidering the Threshold
On April 8, 2025, then-Acting SEC Chairman Mark Uyeda announced that SEC staff had been directed to evaluate whether the current registration threshold remains appropriate.[4] Uyeda observed that the number of SEC-registered investment advisers has grown dramatically since the threshold was last adjusted in 2012 and suggested that the balance between federal and state oversight may warrant reconsideration.[5]
The rationale behind a potential increase is straightforward. The SEC’s examination and enforcement resources are finite, and federal regulators may conclude that those resources should be focused on larger advisers with broader national operations, while smaller and mid-sized firms are supervised primarily by state securities regulators.[6] While the SEC has not identified a specific replacement threshold, industry observers have speculated that any increase could be substantial.[7]
History Suggests the Impact Could Be Significant
The last major shift in adviser registration occurred following Dodd-Frank. When Congress increased the federal registration threshold from $25 million to $100 million in AUM, thousands of advisers were required to transition from SEC oversight to state regulation. SEC estimates at the time indicated that more than 3,000 advisers would move from federal to state registration.[8] Importantly, advisers generally were not permitted to remain SEC-registered simply because they had previously qualified for federal registration. Firms that no longer met the applicable threshold were required to withdraw their SEC registrations and register with the appropriate states.[9] If the SEC adopts a higher threshold today, many currently SEC-registered advisers could face a similar transition.
1. Multiple State Registration Obligations
One of the principal benefits of SEC registration is the ability to operate under a largely uniform federal regulatory regime. Advisers that lose eligibility for SEC registration may find themselves subject to registration, examination, and reporting requirements in multiple states.
Although NASAA and state regulators have worked to harmonize certain requirements, significant differences remain among state regulatory programs, filing requirements, examination practices, and enforcement priorities.[10] For firms serving clients across numerous jurisdictions, managing multiple state registrations can create substantial administrative burdens and increased compliance costs.
Many SEC-registered advisers have built compliance programs around federal rules, SEC examination priorities, and SEC guidance. A transition to state regulation may require firms to reevaluate compliance policies, procedures, and disclosure practices to address varying state requirements.
State regulators may also place different emphasis on advertising practices, custody arrangements, books-and-records requirements, and supervisory procedures. Maintaining compliance across multiple jurisdictions often requires additional legal and compliance resources.
A large-scale transition from SEC registration to state registration would likely involve significant operational expenses, including but not limited to:
· Preparation and filing of Form ADV amendments;
· Withdrawal of SEC registration;
· State registration filings and fees;
· Revisions to compliance manuals and supervisory procedures;
· Updates to client disclosure documents; and
· Personnel training regarding state-specific requirements.
For firms operating in numerous states, these costs could be substantial.
Perhaps the most immediate challenge is uncertainty itself. Advisers currently have little guidance regarding what threshold the SEC may ultimately consider or whether any future rule would include transition periods, exemptions, or grandfathering provisions.
Recent SEC regulatory initiatives[11] also suggest that the Commission may be increasingly willing to revisit longstanding assumptions regarding the regulatory treatment of smaller entities. For example, the SEC recently proposed amendments to its rules implementing the Regulatory Flexibility Act (“RFA”), which would significantly expand the number of entities classified as “small entities” for purposes of SEC rulemaking analyses. The proposal acknowledges that many of the Commission’s existing size standards have not been updated for decades and no longer accurately reflect the modern financial services industry.
Although the RFA proposal is unrelated to investment adviser registration, it reflects a broader willingness by the Commission to reconsider regulatory thresholds that have remained largely unchanged over time. That same policy rationale could support a reevaluation of the investment adviser registration threshold established in 2012. Indeed, some industry observers have suggested that if the SEC concludes that its examination and enforcement resources should be concentrated on the largest market participants, the Commission could ultimately consider a threshold as high as $1 billion in regulatory assets under management, effectively returning a substantial segment of today’s SEC-registered advisers to state oversight.
To be clear, the SEC has not proposed a $1 billion registration threshold, and no formal rulemaking has been initiated. Nevertheless, the Commission’s ongoing review of the federal-state division of regulatory authority, coupled with its broader reassessment of regulatory size standards under the RFA, may signal an increased openness to significant structural changes in adviser regulation. As a result, firms near any plausible future threshold face difficulty predicting their long-term regulatory status.
Although no formal rulemaking proposal has been released, advisers should begin evaluating the potential impact of a higher registration threshold. Firms should consider:
· Current and projected regulatory assets under management;
· States in which registration would be required if SEC registration were unavailable;
· Existing state-law exemptions that may apply;
· Potential transition and compliance costs; and
· Whether current compliance systems are capable of supporting multi-state regulation.
Advisers near any potential future threshold should also closely monitor SEC developments and consider discussing contingency planning with experienced securities counsel.
The SEC’s review of the investment adviser registration threshold represents one of the most consequential potential regulatory developments affecting mid-sized advisory firms in more than a decade. While the Commission has not yet proposed a rule, the possibility that thousands of advisers could once again be shifted from federal oversight to state regulation is a realistic scenario.
For advisers that have spent years operating under a federal regulatory framework, a return to state registration could bring increased compliance obligations, higher operating costs, and greater regulatory complexity. Firms that begin evaluating these risks now will be better positioned to respond if the SEC ultimately decides to raise the registration threshold.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney Robert R. Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
1. Mark T. Uyeda, Remarks at the Annual Conference on Federal and State Securities Cooperation (Apr. 8, 2025).
2. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 410, 124 Stat. 1376 (2010).
3. Investment Advisers Act Rule 203A-1, 17 C.F.R. § 275.203A-1.
6. Id.; see also SEC Release No. IA-3221, Rules Implementing Amendments to the Investment Advisers Act of 1940 (June 22, 2011).
7. See, e.g., industry commentary discussing potential future threshold increases following Acting Chairman Uyeda’s remarks.
8. SEC Release No. IA-3221, supra note 6.
10. North American Securities Administrators Association (“NASAA”), state investment adviser regulatory materials and model rules.