Inflation Threshold for Advisers Exemption

Summary#

The Small Business Investor Capital Access Act would amend the Investment Advisers Act of 1940. Its stated goal is to adjust for inflation the dollar threshold for an exemption from registration for certain private-fund investment advisers. The bill is not yet law.

  • The Securities and Exchange Commission (SEC) would have to adjust the threshold once when the change takes effect, using changes in the Consumer Price Index for All Urban Consumers since the 2010 law named in the bill.
  • The SEC would have to adjust the threshold annually after that, also using that index.
  • The bill changes the threshold’s dollar amount, but does not itself state the amount or change other rules for qualifying for the exemption.

What it means for you#

  • Private-fund investment advisers: The threshold for the exemption would be adjusted for inflation. An upward adjustment could allow some advisers to qualify for the exemption at a higher dollar amount, but the bill does not state the new threshold.
  • Investors and the public: The bill does not directly change investor rights, fees, or investment choices.
  • SEC: The agency would have a duty to make the initial and annual adjustments.

Money#

No cost information is in the available material.

  • The SEC would have to carry out the adjustments, but the bill gives no estimate of the work’s cost or staffing needs.
  • The bill does not provide an appropriation or change taxes, fees, or fines.

What is unclear#

  • The supplied material does not include the current text of the Investment Advisers Act. No publicly available information in the supplied material confirms the threshold’s current dollar amount or the other conditions for the exemption.
  • The bill says to adjust the amount to reflect CPI changes but does not specify a calculation method, rounding rule, or which months’ CPI figures to use for annual adjustments.
  • The bill does not explain how or when the SEC would publish the adjusted amount, or when an adjustment would take effect.

Case for#

  • The bill appears intended to keep the exemption threshold from staying fixed in dollar terms as prices change.
  • A possible argument for annual adjustments is that they would update the threshold without requiring Congress to pass a new law each time.
  • Using a named federal inflation measure gives the SEC a stated basis for the adjustments.

Case against#

  • The bill does not specify the calculation details, leaving important parts of how the adjustment is made unstated.
  • An upward threshold could allow some advisers to qualify for the registration exemption who would not qualify under a lower threshold. The bill provides no analysis of that possible effect.
  • The supplied material gives no estimate of the SEC’s implementation costs or of how many advisers could be affected.