SEC Changes Affecting Investment Advisers

A regulatory reset is underway at the SEC. For investment advisers, the message is less about fewer rules, and more about a changing compliance landscape.

The U.S. Securities and Exchange Commission is recalibrating how it approaches regulation of investment advisers, with several developments in 2026 carrying implications for firms of all sizes.

The most recent change arrived November 4, when the SEC adopted amendments updating the definitions of “small business” and “small organization” for purposes of the Regulatory Flexibility Act. The changes substantially raise the threshold used to identify smaller investment advisers and introduce future inflation adjustments.

For advisers, however, there is an important distinction: being classified as a “small entity” under these rules does not mean a firm is exempt from the Advisers Act or from its existing compliance obligations.

Instead, the changes could influence how the SEC evaluates the economic impact of future rulemaking on smaller firms.

That distinction matters.

A Bigger Definition of “Small”

Under the SEC's new rule, an investment adviser with regulatory assets under management below $1 billion can qualify as a “small entity” for the purposes covered by the amended framework. The previous threshold was $25 million.

The SEC says the change reflects the growth of the asset-management industry since the existing thresholds were established.

The Commission also eliminated the separate total-assets threshold applicable to investment advisers and added a mechanism for periodic inflation adjustments. Corresponding amendments were made to Form ADV and certain electronic-filing hardship provisions.

On paper, the change may look technical.

For smaller and midsize advisory firms, however, it signals something broader: the SEC is attempting to make its regulatory framework more reflective of today's asset-management industry.

What the Change Does, and Does Not Do

This is where advisers should resist the temptation to overinterpret the announcement.

The new definition does not eliminate an adviser's fiduciary duty. It does not eliminate the requirement to maintain appropriate compliance policies and procedures. It does not waive Form ADV obligations, advertising requirements, custody requirements, books-and-records rules, or other applicable Advisers Act requirements.

In fact, SEC Commissioner Mark Uyeda specifically noted that the amendments do not change substantive requirements applicable to firms.

Instead, the revised definition gives the SEC a broader population of firms to consider when evaluating the economic consequences of future regulations.

That could matter when new rules are proposed.

Why Compliance Teams Should Pay Attention

The practical impact may emerge gradually rather than overnight.

Investment advisers have spent years navigating increasingly complex requirements around marketing, cybersecurity, custody, private funds, conflicts of interest, valuation, recordkeeping and regulatory reporting.

At the same time, the SEC's 2026 rulemaking agenda shows an active pipeline of adviser-related proposals.

Among them are proposed changes involving:

• Performance-based compensation;

• Custody of crypto assets;

• Form PF reporting;

• Political contributions and the “pay-to-play” rule;

• Electronic delivery of regulatory information.

Several of these proposals remain proposals, not final rules, and therefore should not be treated as current compliance requirements.

For compliance officers, that creates a familiar challenge: separating what has changed from what might change.

Annual Compliance Reviews Are Also Under the Microscope

Another 2026 development deserves particular attention.

In September, the SEC's Division of Examinations published observations regarding investment advisers' annual compliance reviews.

The message was straightforward: advisers are required to review their compliance policies and procedures at least annually, and the review should assess both their adequacy and the effectiveness of their implementation. The SEC encouraged firms to use the process to identify weaknesses and make appropriate modifications.

That is more than a calendar exercise.

A strong annual review should demonstrate that a firm understands its actual risks, tests whether its controls work in practice, documents deficiencies and follows through on remediation.

For firms preparing for an SEC examination, the difference between having a compliance manual and operating an effective compliance program can be significant.

Crypto Custody: Another Area to Watch

The SEC is also proposing changes to the custody framework, including provisions addressing how registered investment advisers could custody client crypto funds and securities.

The proposal would also modernize aspects of the existing custody framework and related reporting and recordkeeping requirements. The public comment period is scheduled to run through December 7, 2026.

For advisers with digital-asset exposure, this is an area where regulatory monitoring should remain active.

But again, the distinction between proposed and final matters.

A proposal is not a new compliance obligation. Firms should evaluate potential impacts without prematurely treating proposed language as settled law.

Performance Fees Could Also Change

Another proposal could affect advisers' ability to receive performance-based compensation.

The SEC has proposed expanding the circumstances under which registered investment advisers could receive performance-based compensation from certain registered investment companies and business development companies, while introducing additional disclosure requirements.

The proposal would also broaden the definition of “qualified client” to include certain accredited investors under Regulation D. Comments are due December 7, 2026.

For advisers using performance-based compensation structures, this proposal warrants close attention, but it is not yet a final rule.

The Pay-to-Play Rule Is Also in Focus

In September, the SEC proposed rescinding its investment adviser “pay-to-play” rule, Rule 206(4)-5.

The existing rule restricts advisers from providing compensated advisory services to certain government clients for two years following specified political contributions.

The proposal would eliminate the rule and related recordkeeping provisions. Importantly, other Advisers Act requirements, including fiduciary obligations, the compliance rule and code of ethics requirements, would remain in place.

For firms managing public-sector assets, the proposal could eventually have meaningful operational consequences.

For now, however, it remains a proposal.

What Advisers Should Do Now

The changing regulatory environment does not call for a wholesale rewrite of every compliance manual.

It does call for disciplined regulatory monitoring.

Advisers should consider five practical steps:

1. Separate final rules from proposals. Maintain a regulatory inventory that clearly identifies what is effective, what has a future compliance date and what remains under consideration.

2. Reassess the annual compliance review. The SEC's recent observations make this an especially important area for CCOs to examine.

3. Review policies against actual business practices. A policy that describes activities the firm does not perform, or fails to address activities it does perform, can create unnecessary examination risk.

4. Monitor Form ADV implications. The new small-entity rule includes conforming changes to Form ADV, making it worthwhile for advisers to understand whether the firm's regulatory profile or filing processes are affected.

5. Watch the SEC rulemaking pipeline. The regulatory environment is moving. Firms should have a process for assessing proposed rules before they become final, rather than beginning analysis after an effective date is announced.

The Bigger Picture

The SEC's latest changes are not a regulatory holiday for investment advisers.

They are better understood as part of a broader effort to recalibrate the regulatory framework around a financial-services industry that looks very different from the one that existed when many of today's thresholds were established.

For smaller and midsize advisers, the revised definition of “small entity” could mean greater consideration of their economic circumstances when the SEC develops future regulations.

But the immediate compliance message is simpler:

The rules may be changing, but the need for a thoughtful, documented and effective compliance program has not gone away.

For investment advisers, the firms best positioned for the next phase of regulation will not necessarily be those with the thickest compliance manuals. They will be the firms that know which rules apply, understand which changes are actually final, identify where their risks are changing, and can demonstrate that their compliance program works in the real world.