The Securities and Exchange Commission's plan to modernize its definition of a small business by increasing the AUM thresholds under which investment advisors are deemed small entities would result in a threefold increase for Schwab advisors — a boost from 4,400 to more than 14,700 firms — the firm told the SEC on Friday.
The agency's plan, floated in early January, would increase the assets under management threshold below which an advisor is considered a "small entity" from $25 million to $1 billion.
The plan would also provide for inflation adjustments to the asset thresholds every 10 years, amend Form ADV in conformity with the threshold changes and make certain clarifying changes.
The SEC is seeking to make changes regarding small entities for purposes of the Regulatory Flexibility Act, which requires federal agencies to analyze the economic impact of their rules.
In its comment letter, Charles Schwab Advisor Services said that of the 16,000 advisors it serves, 4,400 have less than $25 million in assets under management.
"The proposed change would expand that number to more than 14,700 firms — a threefold increase that would bring the RFA framework in line with current market conditions and ensure it accurately identifies firms with limited operational scale," Schwab said.
"Many advisory firms operate with the characteristics of small businesses — limited staff, constrained resources, and lean infrastructures — yet, the SEC's outdated small entity definition prevents them from being treated as such for regulatory purposes," Schwab continued.
"As a result, these firms shoulder disproportionate compliance burdens," Schwab said. "For example, a two-to-five-person advisory firm may spend hundreds of staff hours each year preparing and updating Form ADV, maintaining books and records, and implementing annual compliance reviews — often requiring the firm to divert senior advisors or principals away from the important work with investors."
While Schwab supports the SEC's plan, it says the agency should provide adequate notice and a reasonable implementation period of 180 days to allow firms to reassess their "small entity" status as well as update internal form ADV filing procedures, among other measures.
Schwab also recommeneded that the SEC "explicitly state in the final rule that the revised 'small entity' definition is intended solely for RFA purposes and does not alter an adviser's substantive regulatory obligations or the assets under management threshold that triggers SEC registration."
Credit: Diego M. Radzinschi/ALM
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.