Backers of bill to ease small-firm regulatory burden seek Senate gains after House win

Advocates for legislation that would ease the regulatory burden on small investment advisory firms hope the measure's overwhelming House approval this week will give it a boost in the Senate.

The House passed the bill — Small Entity Update Act — Tuesday, 367-8, under special floor procedures that fast-track bills that will gain a two-thirds majority.

The measure would require the Securities and Exchange Commission to conduct a study followed by a rulemaking that would update its definition of a “small entity” under the Regulatory Flexibility Act. The goal is to force the SEC to calibrate compliance costs for small and growing businesses, including advisory firms. The Investment Adviser Association is one of its strongest backers.

“We’re absolutely delighted this bill was passed by the House with such strong bipartisan support,” said Neil Simon, IAA vice president for government relations. “That support increases the likelihood this piece of legislation will be taken up in the Senate.”

The IAA asserts that the SEC needs to reassess how its rules affect small advisors because the agency currently considers small advisors to be those with $25 million or less in assets under management, despite the SEC registration threshold of $100 million in AUM.

That means a rule could be implemented in the same way for an advisor with $300 million in AUM as it is for one with AUM many multiples higher. The IAA would like to see a definition of small advisor that’s based on number of employees or some other metric.

The IAA has put the bill at the top of its agenda for its Advocacy Day in early June, when the organization's members will go to Capitol Hill to meet with lawmakers and staff.

“This is something we’re going to be working on in the days and weeks ahead,” Simon said.

During the House debate, the bill’s author, Rep. Ann Wagner, R-Mo., said government should account for the compliance challenges small firms face.

“In order for our economy to thrive, Congress and regulators must ensure that any policies enacted keep in mind any impacts [they] would have on our millions of small businesses,” said Wagner, chair of the House Financial Services Subcommittee on Capital Markets.

The ranking member of the full House Financial Services Committee, Rep. Maxine Waters, D-Calif., said the bill would empower small SEC registrants.

“Small entities under the SEC’s jurisdiction … would gain a louder voice when it comes to the development of SEC regulations that directly apply to them,” Waters said on the House floor.