In early April 2025, acting U.S. Securities and Exchange (SEC) Commissioner Mark T. Uyeda raised the possibility of increasing the asset threshold required for investment advisor registration with the SEC. With the confirmation and tenure of new SEC Commissioner Paul Atkins on April 21st, it is unlikely this idea will be withdrawn. This potential change may significantly affect Registered Investment Advisors (RIAs), particularly those with assets under management (AUM) close to the current thresholds.

Currently, RIAs can register with the SEC as “large advisors” if they manage at least $100 million in client regulatory AUM. In New York, “mid-sized” advisors with at least $25 million in client AUM can also register with the SEC.

Registering with the SEC offers several advantages over state registration:

• Uniform Regulation: Compliance with a single set of federal regulations, rather than multiple and potentially conflicting state regulations.
• Extensive Guidance: Access to decades of interpretive guidance published by the SEC, which is often lacking at the state level.
• Simplified State Compliance: Notice filing in states with a fee, instead of full registration processes.
• IAR Registration: Investment Advisor Representatives (IARs) of SEC RIAs only need to be registered in their home state and any state where they have a “place of business.”

Potential Impact of AUM Threshold Increase

If the SEC increases its AUM threshold, smaller SEC RIAs (those with AUM between $100 million and $250 million, and New York firms with AUM between $25 and $100 million) should prepare to transition to state registration.

State-registered investment advisors typically must apply for registration in each state where they have six or more clients. (Texas and Louisiana require notice filing for the first client and full registration before taking on the sixth.) Registration is also required in any state where an advisor has a branch office or an IAR has a “place of business.”

Transitioning from SEC to State Registration

If the SEC raises the AUM threshold, affected RIAs will need to withdraw their SEC registration and register with relevant states. The SEC will allow a reasonable transition period for firms actively pursuing state registration. The transition process may include:

• Amending Form ADV and paying state registration fees
• Updating compliance policies and procedures to meet state requirements
• Ensuring compliance with state net capital requirements, if applicable
• Updating client contracts to reflect state registration and requirements (e.g., written consent for contract assignment)
• Submitting updated documents to state securities regulators
• Filing a partial Form ADV-W to withdraw SEC registration
• Amending and refiling the firm’s disclosure Brochure to reflect state registration.

The Effect on Mid-Sized Advisors if the SEC Raises the AUM Threshold

If the SEC raises the AUM threshold, any currently registered advisor that does not qualify under another registration exemption will be required to transition to state registration and withdraw its SEC registration.  The SEC will not automatically terminate an RIA’s registration.  As long as the SEC sees that a firm has taken steps to apply for registration with its home state, the SEC will allow a reasonable amount of time for the firm to complete the transition.

The process to transition to state registration might look something like this:

• Amend Form ADV and pay applicable fees to apply for registration with one or more states
• Update compliance program policies and procedures to address the new state regulatory requirements
• Ensure firm meets the home state’s minimum net capital requirement, if applicable
• Update client contract templates with appropriate language (for example, to correct statements that the firm is registered with the SEC, or that the firm delivers an invoice to the client each time fees are directly deducted from the account, and to state that assignment of contracts can only occur with prior written consent of the parties)
• Deliver all required and updated documents to the applicable state securities regulator/s to complete the state registration application/s
• Upon approval of state application/s, file a partial Form ADV-W to withdraw SEC registration
• Amend and re-file the firm’s disclosure Brochure/s to ensure disclosure of state, rather than federal, registration

Additional Considerations for State-Registered Advisors

A change from SEC to state registration does not require client notification or delivery of a new Brochure.  However, there are additional considerations for new state-registered advisors:

• Client Notification: Additional document delivery requirements (e.g., invoicing for direct fee deductions (about half of states), Fee Table (Massachusetts only), Form CRS (Rhode Island only), trusted third-party contact forms (Missouri only))
• Client Contracts: Updating contracts may be necessary to ensure state compliance (e.g., requiring written consent for assignment and including state-specific disclosures)
• Books and Records: While many states model their requirements after SEC Rule 204-2, there are nuances. State requirements may differ regarding record retention periods, net capital, marketing rules, vulnerable adult protections, and IAR continuing education.

Other Potential Scenarios

Even if the proposed AUM threshold increase does not occur, market volatility and the strong potential for the United States entering a recession could cause some SEC RIAs to fall below the current $90 million AUM threshold required for annual Form ADV updates, necessitating a transition to state registration.

Contact Information

If you need help navigating the complex and variable terrain of SEC and state registration requirements, amending your firm’s compliance program or registration documents, or have any questions about your firm’s ongoing regulatory and compliance responsibilities, please contact us at Info@AdvisorGuidance.com.