SEC Signals Potential Shift In State Advisor AUM Threshold

We're closely monitoring recent developments regarding the Securities and Exchange Commission's (SEC) potential re-evaluation of the assets under management (AUM) threshold that distinguishes state-registered investment advisors from their federally-registered counterparts. Acting SEC Chair Mark Uyeda's recent statements at a joint conference with NASAA have sparked important discussions within the RIA community.

As many of you know, the Dodd-Frank Act of 2010 significantly altered the regulatory landscape, setting the current AUM threshold for state registration at $100 million. This framework aimed to streamline oversight, allowing the SEC to focus on larger, more complex advisory firms, while state regulators concentrated on smaller entities.

However, our team notes that Mr. Uyeda makes a valid point: the substantial growth in the number of advisors, particularly those managing between $100 million and $1 billion in AUM since the 2012 Dodd-Frank compliance date, suggests that this equilibrium may have become "unbalanced."

From AdvisorLaw's perspective, this potential re-evaluation carries significant implications for compliance and the operational landscape for many firms.

Potential Impacts & Considerations

• Increased Federal Scrutiny: A higher AUM threshold could lead to more mid-sized advisory firms transitioning from federal, to state oversight. This means increased scrutiny from the state and more inconsistency among rules and regulations across states. Firms undergoing this transition will need to ensure that their policies, procedures, and disclosures meet state standards — which can be complicated, as no true consistency exists across state regulations.
• Strain On State Resources: State regulators could face challenges handling a significant influx of larger advisory firms, if the threshold increases substantially. This could potentially lead to delays in examinations and inconsistencies in the application of state regulations.
• Complex Multi-State Registration: For advisory firms currently registered in multiple states, raising the federal threshold might paradoxically increase their regulatory burden, requiring registration in even more states. Navigating the complexities of varying state rules can be time-consuming and costly.
• Service Model Limitations: The regulatory frameworks of some states may not adequately accommodate the sophisticated service offerings of larger advisors. Firms employing complex investment strategies or practices common among SEC-registered advisors might find their operational flexibility limited by state-level regulations.

AdvisorLaw's Role In Navigating Change

Regardless of the outcome of the SEC's evaluation, AdvisorLaw remains committed to providing comprehensive compliance solutions for investment advisors at both the state and federal levels. We understand the nuances of each regulatory regime and are prepared to assist firms in navigating any potential shifts. Our services include:

• Registration & Transition Assistance: guiding firms through the complexities of initial registration or transitioning between state and federal oversight.
• Compliance Program Development & Review: creating and maintaining robust compliance programs tailored to the specific regulatory requirements of your firm.
• Mock Audits & Risk Assessments: proactively identifying potential compliance gaps and developing strategies to mitigate risk.
• Ongoing Compliance Support: providing continuous guidance and support so your firm remains in compliance with evolving regulations.

Looking Ahead

Acting Chair Uyeda's call for a "periodic evaluation" and his invitation for input from state regulators indicate a thoughtful approach to this important issue. We encourage investment advisors to stay informed about these developments and consider how potential changes might impact their businesses.

AdvisorLaw will continue to monitor this situation closely and provide timely updates and insights. If you have any questions or concerns about how a potential change in the AUM threshold might affect your firm or compliance, please don't hesitate to reach out to our team. We are here to help you navigate the evolving regulatory landscape and ensure your firm's continued success.

Contact us today for a complimentary consultation.