Federal regulators are preparing to dramatically increase the number of fund firms and families that are considered small, which would likely impact (and potentially curtail or slow down) future rulemaking related to the mutual fund and wealth management industry.

Paul S. Atkins U.S. Securities and Exchange Commission Chairman

Yesterday, Paul Atkins, chairman of the U.S. Securities and Exchange Commission (SEC), unveiled a proposal to amend its rules for classifying "registered investment companies" (aka mutual funds, be they open or closed or ETF or interval) and "registered investment advisers" (including fund firms themselves) as small for purposes of the Regulatory Flexibility Act. The RFA, in turn, requires the SEC and other federal regulators to conduct analyses, in advance, to minimize any proposed regulation's potential impact on small businesses.

Under the SEC's current rules (0-7 and 0-10) — which date back to 1982 and were last updated 28 years ago, in 1998 — a mutual fund is considered "small" if it is part of a fund family with less than $50 million in combined AUM. A fund firm (or other RIA) is considered small if it has less than $25 million in AUM.

Yesterday's 87-page proposal would increase both of those thresholds by more than an order of magnitude. Small funds would be those within families with less than $10 billion in combined AUM. Small fund firms and other small RIAs would be those with less than $1 billion in AUM each.

How many fund firms and families would be reclassified? Per the most recent Morningstar Direct, as of November 30, 2025, there were (by MFWire's count) 770 fund firms (including a number with multiple brands each). Under the current rules, 126 of those firms (16.4 percent) have small fund families. And 64 (8.3 percent) of those firms would be considered small RIAs if their mutual funds and ETFs accounted for all of their AUM.

Under the proposed limits, small fund firms and families would switch from being a small minority of the industry to a solid majority. 660 of those fund firms (85.7 percent) have less than $10 billion in fund AUM each, and 477 of them (61.9 percent) have less than $1 billion in AUM each. So the new rules would mean lots more fund firms would be considered small, increasing the likelihood that any given future SEC rulemaking effort would need to be proceeded by research on minimizing its effect on all those fund firms.

"Today's proposal — consistent with the SEC's intent to modernize regulatory requirements — would further this commitment by more accurately capturing the types and numbers of investment advisers and investment companies that are 'small,'" Atkins stated. "This, in turn, would help the Commission more appropriately promote the effectiveness and efficiency of its regulations, with the goal of minimizing the significant economic impact on small entities."

A key mutual fund industry trade group is already praising the SEC's proposal.

"This thoughtful update reflects the realities of today's markets and will ensure that regulations give appropriate consideration to the unique challenges facing smaller market participants," the Investment Company Institute (ICI) team states. "By increasing asset thresholds to capture more entities and offering inflation adjustments, the Commission is taking a long-needed step towards tailored rulemaking that refrains from imposing unnecessary burdens on smaller firms, while always preserving strong investor protections. This modernization effort will allow smaller advisers and funds to devote more resources to serving clients while helping preserve a broad and diverse financial services marketplace — a win for American investors." 

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