1

SEC Asset Management Advisory Committee

Report and Recommendations on Regulatory Approach for Small Advisers and Funds

November 1, 2021

I. Introduction

Based on input from membership of the SEC Asset Management Advisory Committee1

(hereinafter the “AMAC”) regarding asset management industry priorities, the AMAC formed the 

Subcommittee on Small Advisers and Small Funds (hereinafter the “Subcommittee”). The asset 

management industry is largely comprised of small advisers and small funds, which provides important 

context as the Commission considers economic and competitive impacts of rulemakings and the overall 

regulatory landscape.2

 In addition, the AMAC and the Commission have each elevated and prioritized 

the goal of increasing and promoting diversity, equity, and inclusion in the asset management industry.3 

 1 At the time of this recommendation, the SEC’s Asset Management Advisory Committee includes the 

following members: AMAC Chair, Edward Bernard, Senior Adviser, T. Rowe Price (former Vice Chair, TRP Corporate 

Board of Directors, former Chair of the Board of Directors of TRP Mutual Funds); John Bajkowski, President & CEO, 

American Association of Individual Investors; Jane Carten, President, Saturna Capital; Scot Draeger, President & 

General Counsel, R.M. Davis Inc.; Mike Durbin, President, Fidelity Institutional; Gilbert Garcia, Managing Director, 

Garcia Hamilton & Associates; Paul Greff, Chief Investment Officer, Ohio Public Employees Retirement System; 

Rich Hall, Deputy Chief Investment Officer, University of Texas/Texas A&M Investment Management Co.; Adeel

Jivraj, Partner, Ernst & Young LLP; Renee LaRoche-Morris, Chief of Staff - COO/CAO, State Street Corporation; 

Susan McGee, Independent Director, Goldman Sachs BDC, Inc. (former President, U.S. Global Investors, Inc.); 

Jeffrey Ptak, Head of Global Manager Research, Morningstar Research Services; Erik Sirri, Professor of Finance, 

Babson College, Independent Director, Natixis Funds, Loomis Sayles Funds, and Natixis ETFs; Aye Soe, Managing 

Director and Global Head of Product Management, S&P Dow Jones Indices; Ross Stevens, CEO, Stone Ridge Asset 

Management, Chairman, New York Digital Investment Group, and Advisory Chairman of the Stevens Center for 

Innovation in Finance at University of Pennsylvania’s Wharton School; Rama Subramaniam, Head of Systemic Asset 

Management, GTS; John Suydam, Chief Legal Officer, Apollo Global Management; Russ Wermers, Chair of the 

Finance Department, Smith School of Business, University of Maryland; Joe Savage, Vice President and Counsel in 

FINRA’s Office of Regulatory Analysis (non-voting member).

2 See 2021 Investment Adviser Association Industry Snapshot: Evolution / Revolution Reimagined, 2nd

Edition, July 2021, https://investmentadviser.org/wp-content/upload/2021/10/investment-adviser-industrysnapshot-2021.pdf. (hereinafter the “2021 IAA Report”). The 2021 IAA Report includes data on approximately 

14,000 registered firms with over $110 Trillion in assets for approximately 60 million clients. See also presentation 

of Karen Barr and Gail Bernstein made to the AMAC on September 27, 2021, https://www.sec.gov/files/iaapresentation-karen-barr-gail-bernstein-092721.pdf. See also, testimony of Karen Barr, Gail Bernstein, Steve 

Yadegari, David Carson, Theresa Hamacher, and Russell Wermers at the AMAC meeting held September 27, 2021, 

https://www.sec.gov/files/amac-092721-transcript.pdf. See also presentation of Karen Barr and Gail Bernstein 

made to the AMAC on September 27, 2021, https://www.sec.gov/files/iaa-presentation-karen-barr-gail-bernstein092721.pdf. See also, comments of SEC Commissioner Peirce and SEC Commissioner Lee at the AMAC meeting 

held on September 27, 2021, https://www.sec.gov/files/amac-092721-transcript.pdf.

3 See AMAC Recommendations to the U.S. Securities Exchange Commission on Diversity and Inclusion

https://www.sec.gov/spotlight/amac/amac-report-recommendations-diversity-inclusion-asset-managemenetindustry.pfd. See also https://www.sec.gov/files/amac-recommendations-di-subcommittee-07-07-21 (adopted in 

full by the AMAC on July 7, 2021). See also https://www.sec.gov/files/amac-070721-transcript.pdf.
2

The goals of assessing the impact of the regulatory framework on small businesses and promoting the 

growth of diversity, inclusion, and equity in the asset management industry, are not only aligned, but

inextricably tied together.4

 With these goals in mind, the Subcommittee’s purpose was the study of how 

the evolution of industry market structures and regulatory priorities have impacted the economic and 

operational challenges of small advisers and funds, and to identify areas where agency study, refined 

policy positions, guidance, and/or regulatory action(s) by the U.S. Securities and Exchange Commission 

(hereinafter the “Commission”) or the Commission Staff may further advance fair competition and 

growth of small and diverse businesses in the asset management industry, while also supporting core 

investor protections. As members of the Commission and the AMAC have highlighted, small advisers 

provide a bridge to prosperity as they engage on a daily basis with retail investors in communities across 

the country (including communities that have historically been on the sidelines of participation in the 

capital markets), i.e., these small advisers assist in capital formation, a goal of the SEC.

5

 Commissioners 

and AMAC members also commented on the importance of encouraging the growth of small firms and 

lowering barriers to entry and continued existence as consistent with the Commission’s mission.6

 The 

AMAC remains dedicated to focusing recommendations on matters directly germane to the 

Commission’s mission, which it believes includes investor protection, market fairness, and 

encouragement of a market environment that is worthy of public trust.

II. Background on Small Asset Management Firms and Unique Regulatory Consideration 

“Small” Advisory Firm and “Small” Fund Essentially Means the “Typical” SEC Registrant

It is important to define what we mean by “small firm” and “small fund“ and to highlight that 

the vast majority of investment advisory firms registered with the Commission (including those firms 

that manage funds) are, indeed, “small firms.” The Investment Advisers Association (IAA) publishes an 

informative report each year that provides reliable data on the “shape” of the industry (compiled from 

an annual study of Form ADV filings). The IAA 2021 Snapshot, Evolution Revolution Reimagined – “A 

Profile of the Investment Adviser Profession,” (hereinafter, the “2021 IAA Report”)7 defines a “typical” 

 

4 See id.

5 See Comments of Commissioners Peirce and Commissioner Lee at the AMAC meeting held on September 

27, 2021, https://www.sec.gov/files/amac-070721-transcript.pdf. See also AMAC discussions on September 27, 

2021 and October 27, 2021, https://www.sec.gov/files/amac-070721-transcript.pdf and 

https://www.sec.gov/files/amac-102721-transcript.pdf.

6 See Comments of Commissioners Peirce and Commissioner Lee at the AMAC meeting held on September 

27, 2021, https://www.sec.gov/files/amac-070721-transcript.pdf. See also AMAC discussions on September 27, 

2021 and October 27, 2021, https://www.sec.gov/files/amac-070721-transcript.pdf and 

https://www.sec.gov/files/amac-102721-transcript.pdf.

7 See 2021 Investment Adviser Association Industry Snapshot: Evolution / Revolution Reimagined, 2nd

Edition, July 2021, https://investmentadviser.org/wp-content/upload/2021/10/investment-adviser-industrysnapshot-2021.pdf. (hereinafter the “2021 IAA Report”). See also presentation of Karen Barr and Gail Bernstein 

made to the AMAC on September 27, 2021, https://www.sec.gov/files/iaa-presentation-karen-barr-gail-bernstein-
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SEC-registered investment advisory firm (according to Form ADV-based data) as having the following 

shape:

• Most of its clients are individuals (on average two or fewer institutional clients)

• Average of $355 Million in AUM

• Average of 9 employees (non-clerical)

• Average number of clients served is 3,149

• Average size of account of an individual investor around $350,000

The investment adviser profession has always been dominated by small businesses.8 As 

highlighted in the 2021 IAA Report, of the approximately 14,000 SEC registered advisory firms, 

approximately 12,300 of those firms (almost 88%) reported employing 50 or fewer individuals in nonclerical positions and managing less than $2 Billion in assets.9 Indeed, these businesses have humble 

revenues and tight budgets. More than half of the advisory firms registered with the Commission (both 

those who primarily manage funds and those primarily managing separately managed accounts) 

reported employing ten or fewer people.10 They are “small businesses” by any commonsense measure.

The IAA 2021 Report also highlights that the majority of investment advisory firms are not located in 

New York, California or the largest of metropolitan areas; rather, firms are spread out throughout the 

country with most located in middle markets across the nation.

11 Despite the small size of the typical 

advisory firm, the investment advisory industry in aggregate is a powerful job creator, employing over 

1,000,000 workers, largely in small businesses.

12

Consistent with the data reviewed above, the AMAC considers the “typical” SEC registrant 

(under the Investment Advisers Act of 1940 and/or the Investment Company Act of 1940) to be a “small 

business” which likely has less than $25 Million in annual revenue and significant budgetary constraints.

 

092721.pdf. See also, testimony of Karen Barr, Gail Bernstein, Steve Yadegari, David Carson, Theresa Hamacher, 

and Russell Wermers at the AMAC meeting held September 27, 2021, https://www.sec.gov/files/amac-092721-

transcript.pdf.

 

8 Id. 

9 Id.

10 Id.

11 Id.

12 Id.
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II. AMAC Observations on Economic and Operating Challenges of Small Advisers and Small 

Funds Relevant to Recommendations 

As our panelists reinforced, small firms have challenges and opportunities that are often distinct 

from large firms.13 Furthermore, regional and local firms serving primarily individual investors (typically 

in their own communities) have business models that are entirely distinct from firms serving national or 

global institutional markets and typically involve activities that implicate a lower risk profile. For 

instance, the vast majority of advisory firms in this category do not manage derivatives or actively 

deploy strategies that involve holding a material allocation of securities with liquidity constraints.

14

Nonetheless, despite deploying activities and strategies that typically involve less risk, regulatory 

compliance expenses, as a percentage of revenue, for these firms tends to be “outsized” as compared to 

the small number of large firms.15 

 

13 See testimony of Karen Barr, Gail Bernstein, Steve Yadegari, David Carson, Theresa Hamacher, and Russell 

Wermers at the AMAC meeting held September 27, 2021, https://www.sec.gov/files/amac-092721-transcript.pdf.

See also Presentation of Steve Yadegari, Chief Operating Officer and GC of Cramer, Rosenthal, & McGlynn,

https://www.sec.gov/files/cramer-rosenthal-mcglynn-presentation-092721.pdf; Presentation of David Carson, SVP 

of Ultimus Fund Solutions and Trustee, Ultimus Managers Trust and Unified Series Trust, 

https://www.sec.gov/files/ultimus-strengths-series-trusts-092721.pdf; Presentation by Russell Wermers, Chair of 

the Finance Department, Smith School of Business, University of Maryland, Technology & “Big Data”: Effects on 

Asset Manager Economies of Scale, https://www.sec.gov/files/technology-and-big-data-presentation-092721.pdf.

14 See 2021 IAA Report, https://investmentadviser.org/wp-content/upload/2021/10/investment-adviserindustry-snapshot-2021.pdf. See also presentation of Karen Barr and Gail Bernstein made to the AMAC on 

September 27, 2021, https://www.sec.gov/files/iaa-presentation-karen-barr-gail-bernstein-092721.pdf. See also, 

testimony of Karen Barr, Gail Bernstein, Steve Yadegari, David Carson, Theresa Hamacher, and Russell Wermers at 

the AMAC meeting held September 27, 2021, https://www.sec.gov/files/amac-092721-transcript.pdf. See also 

Presentation by Russell Wermers, Chair of the Finance Department, Smith School of Business, University of 

Maryland, Technology & “Big Data”: Effects on Asset Manager Economies of Scale, 

https://www.sec.gov/files/technology-and-big-data-presentation-092721.pdf; Presentation of Steve Yadegari, 

Chief Operating Officer and GC of Cramer, Rosenthal, & McGlynn, https://www.sec.gov/files/cramer-rosenthalmcglynn-presentation-092721.pdf; and Presentation of David Carson, SVP of Ultimus Fund Solutions and Trustee, 

Ultimus Managers Trust and Unified Series Trust, https://www.sec.gov/files/ultimus-strengths-series-trusts092721.pdf.

15 See testimony of Karen Barr, Gail Bernstein, Steve Yadegari, David Carson, Theresa Hamacher, and Russell 

Wermers at the AMAC meeting held September 27, 2021, https://www.sec.gov/files/amac-092721-transcript.pdf.
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AMAC Observations16: 

◦ Data Management and Internal Control Environments Leading to Outsourcing: The evolution of 

“big data” and data management practices are driving the need for the typical adviser and fund 

to outsource a growing level of operational, compliance, and even investment activities to thirdparty vendors.17

◦ Small Advisers and Small Funds Have Rapidly Decreasing Negotiating Leverage with the FinTech 

Industry: Consolidation among major FinTech providers is leaving the typical adviser/fund

beholden to the price schedules and offerings of fewer providers, emboldened to charge more, 

while contractually shifting material risks and liabilities to the adviser/fund. FinTech pricing has 

increasingly shifted to annuitized model pricing and implicated a dramatic increase in the 

volume and amount of licensing fees needed to deploy operating, risk management, compliance 

 16 The AMAC observations are based on a combination of member industry experiences, independent study 

by AMAC members, as well as the full scope of reports and testimony provided by panelists convened before the 

AMAC and related subcommittee meetings. See Presentation of the Subcommittee on Small Advisers and Small 

Funds to the AMAC on October 28, 2021, presented by Scot Draeger, President and General Counsel of R.M. Davis, 

Inc.; Renee LaRoche-Morris, Chief of Staff - COO/CAO, State Street Corporation, Susan McGee, Independent 

Director, Goldman Sachs BDC, Inc. (former President, U.S. Global Investors, Inc.), Jane Carten, President, Saturna 

Capital, and Russ Wermers, Chair of the Finance Department, Smith School of Business, University of Maryland, 

https://www.sec.gov/files/amac-20211028-draft-recommendations-safc.pdf. See also the dialogue among AMAC 

members at the AMAC meetings held on October 28, 2021 and September 27, 2021, 

https://www.sec.gov/files/amac-102821-transcript.pdf, https://www.sec.gov/files/amac-092721-transcript.pdf.

See also 2021 IAA Report, https://investmentadviser.org/wp-content/upload/2021/10/investment-adviserindustry-snapshot-2021.pdf; Presentation of Karen Barr and Gail Bernstein made to the AMAC on September 27, 

2021, https://www.sec.gov/files/iaa-presentation-karen-barr-gail-bernstein-092721.pdf. Testimony of Karen Barr, 

Gail Bernstein, Steve Yadegari, David Carson, Theresa Hamacher, and Russell Wermers at the AMAC meeting held 

September 27, 2021, https://www.sec.gov/files/amac-092721-transcript.pdf. Presentation by Russell Wermers, 

Chair of the Finance Department, Smith School of Business, University of Maryland, Technology & “Big Data”: 

Effects on Asset Manager Economies of Scale, https://www.sec.gov/files/technology-and-big-data-presentation092721.pdf; Presentation of Steve Yadegari, Chief Operating Officer and GC of Cramer, Rosenthal, & McGlynn,

https://www.sec.gov/files/cramer-rosenthal-mcglynn-presentation-092721.pdf; and Presentation of David Carson, 

SVP of Ultimus Fund Solutions and Trustee, Ultimus Managers Trust and Unified Series Trust, 

https://www.sec.gov/files/ultimus-strengths-series-trusts-092721.pdf.

17 For instance, a Morgan Stanley/Oliver Wyman report concludes that advances in data science and 

artificial intelligence may help streamline the investment and distribution processes, but only for a select few asset 

managers. The implication is that the majority of asset managers will increasingly outsource such efforts to lower 

costs or leverage more skilled intermediaries (or both). Further, this report indicates that “outsourced Chief 

Investment Officers” may dilute the value of in-house asset manager value-added. See “Wholesale Banks & Asset 

Managers: Winning Under Pressure,” Morgan Stanley/Oliver Wyman “Bluepaper,” available at 

https://www.oliverwyman.com/our-expertise/insights/2018/mar/wholesale-banks-asset-management-analysis2018.html.
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and investment tools, together, creating new margin pressures. To a certain extent, the same is 

true regarding pricing mechanisms and tactics of the major data vendors.

◦ Insurance Markets Are of Weakening Utility: While large firms can (and do) “self-insure,” the 

insurance industry is hardening for small firms. Insurance industry products (especially for 

cybersecurity/data security) provide little real protections for advisers/funds or their clients. 

◦ Cybersecurity Costs Are Growing as a Percent of Revenue and Operating Costs for Small Firms: 

Costs and expenses associated with cybersecurity tools and protocols, as well as Business 

Continuity and Disaster Recovery technology tools are all becoming a much more significant 

expense as a percentage of revenue for small advisers/funds. While these expenses are also 

increasing in hard dollars for large firms, the impact is outsized for small firms, as both a 

percentage of operating expenses and a percentage of revenues. 

◦ Outsourcing Shift Occurring Simultaneous with Loss of Leverage over Vendors: Outsourcing of 

“full economy” or “full operational chain” support is moving from a “choice” closer to a 

mandate in the context of business judgment of small adviser/fund boards and executive teams. 

For example, multiple series trust products (for funds) and outsourcing of full-chain middle- and 

back-office services for advisers is increasingly perceived as necessary to meet governance, 

operational, data management, and compliance demands. As a practical matter, due to leverage 

constraints, vendor due diligence is limited by the “curated” information offering of the vendor 

(summaries of SOC and SSAE reports). 

◦ Standard Setting Defaults to “Institutional” Style of (and Tools for) Risk Management: Regulator 

perspective on “best practices” often mirrors/reinforces the approach taken by large 

institutional firms to risk management and compliance, setting expectations difficult to achieve 

(operationally or financially) for small advisers/funds.

◦ Balance Sheet Vise Is Tightening for Small Advisers and Funds: The growth of fixed costs18 for 

small advisers and small funds (including those representing barriers to entry) persists in an 

environment where fee compression is also ever-present. Both the revenue side and the 

expense side of the balance sheet are “closing in” on small firms. The cumulative costs of 

regulatory compliance efforts for small firms is a budget item that represents a growing fixed 

 18 Examples of regulatory compliance costs and efforts that represent fixed costs that are increasing yearover-year and also represent a growing expense as a percentage of revenue and/or total operating costs include, 

among other things: the cost of proxy voting and proxy voting advisory services; valuation tools; fund and SMA 

accounting and fee software; frequent fintech upgrades for performance reporting software and the cost of 

systems that maintain/validate data integrity in performance history; best execution reporting tools; back-up 

servers and cloud-based solutions for supporting disaster recovery and business continuity planning; custodial 

software tools for reconciling access-person personal trade review; cybersecurity measures such as multi-layer

penetration testing and cybersecurity risk assessments; the cost of independent surprise custody examinations; 

general recordkeeping costs for 5-6 years’ worth of electronic data stored by data storage providers; developing

and maintaining and independent derivatives risk management program; the costs of independent pricing service

subscriptions (and the licensing fees they pass through/require); the costs of data management systems (and the 

licensing fees they pass through/require); and the cost of annual assistance in vendor due diligence and the DDQ 

regime. 
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cost (in hard dollars) and is also growing as a percentage of both operating costs and revenue 

(growing year-over-year).

◦ Creativity Balanced with Budgetary Discipline Required to Meet Operating and Regulatory 

Demands: The approach small advisers/funds must take toward risk management and 

compliance (as well as their approach to markets and counterparties) requires creativity and 

budgetary disciplines in order to account for a lack of leverage across all business needs, 

including access to “new issues” in the bond market, negotiation with FinTech vendors, licensing 

fee burdens, managing relationships with custodians, approaches taken to derivatives risk 

management, access to research, and deployment of cybersecurity tools (just to name a few). 

◦ Economic Analysis Remains a Critical Part of the SEC Rulemaking Process: The economic analysis 

done in the context of rulemaking initiatives and proposals that the Administrative Procedure 

Act and Regulatory Flexibility Act require is critical work that remains truly relevant to the 

Commission’s informed consideration of the impact of rules and regulations (individually or in 

aggregate) on the everyday lives and work of most investment advisory firms. Given the reality 

that nearly all firms with material gender and racial diversity among the owner group are small 

firms, the implications of the economic impact of regulation on small businesses is important if 

our industry is serious about facilitating growth of diversity in the asset management industry. 

◦ Existing definitions of “Small Business,” “Small Organization,” and “Small Entity” utilized by the 

SEC in Conducting Economic Analysis in Connection with Rulemaking are Severely Outdated. 

◦ For example, Rule 0-7 promulgated under the Investment Advisers Act of 1940 (the 

“Advisers Act”) defines “small entities” under the Advisers Act for purposes of the 

Regulatory Flexibility Act, to be those with $25 million or less in Assets Under 

Management (AUM). Given that the basic threshold for SEC registration is currently 

$100 million in AUM, very few SEC-registered advisers are deemed to be “small” for 

purposes of analysis under the Regulatory Flexibility Act. Similar definitional 

insufficiencies exist in other relevant rules describing “small business” and “small 

organization” as they pertain to registered investment advisers. Current definitions 

originally intended to capture small businesses are entirely insufficient and do not help 

the Commission to fulfill important regulatory policy goals of assessing economic impact 

on small businesses in the investment management industry.

◦ Agency “Connection” with Cumulative Impact of Regulations on Small Business is Missing: The 

Commission’s Division of Economic & Risk Analysis, historically, has engaged primarily in a ruleby-rule analysis of economic impacts (including assessment of the impact on small businesses in 

our industry). Given the breadth, scope, and depth of the regulatory requirements on all 

registrants and considering the growing aggregate or cumulative impact of compliance costs on 

the balance sheet health of small advisers/funds, economic analysis done in a vacuum has 

limited utility. While economic analysis on a rule-by-rule basis is necessary, it is insufficient to 

provide the Commission (and public commenters) the picture necessary to be fully informed in 

considering and commenting on rulemaking initiatives.
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◦ Specific Areas Where Regulatory Action may be Lagging or Disconnected from Market 

Realities19: The regulatory regime seems either to be lagging market needs, and/or disconnected 

from market realities in the following specific areas where those realities may also be 

disproportionately impacting small firms (e.g., firms with “typical,” but limited, resources):

◦ Bond Market Access: There is growing “inaccessibility” (for both small advisers/funds

and retail investors) to “new issues” in the Bond market, that has been exacerbated by 

other market developments, such as the expansion of the private debt markets (e.g., 

144A offerings not being available to individual investors and the typical registered 

advisory firm/small fund). Because bond issuers have economic incentives to 

collaborate with institutional investors (who also have heightened access to the private 

markets), as the public market for “new issues” retracts, there is not a level playing field 

for individual investors or the typical investment adviser or fund to gain access to quality 

“new issues” in the bond market. It does not appear that sufficient action is being taken

to facilitate and promote continued growth of the public market for quality new issues 

in the bond market.20

◦ Full Conversion to E-Delivery / E-Signatures: E-delivery for notices, disclosures, 

approvals and signatures are still not permitted as the “default.” While universally 

accepted by regulators of other industries (including banking regulators), electronic 

delivery and electronic signatures still are not permitted as the “default” for advisers 

and funds. 

◦ Data Security Legal Regime: The legal regime for data protection, data security, and 

customer notice/remediation protocols remains balkanized. There remains a disparate 

array of data security regulations existing in 50 states, as well as those promulgated by a 

variety of federal regulators (as well as foreign regimes). The disparity in approaches 

 19 See id.

20 Even in the public markets, the largest firms, largest funds, and institutional investors (pension funds, 

large endowments, etc.) have established “channels” needed for obtaining “new issues” in the investment grade 

corporate and municipal bond market ahead of small firms and retail investors. Small firms cannot simply rely on 

the bond fund market to fulfill their client needs. Many small firms believe it is in their clients’ best interest to build 

a ladder of individual bonds, rather than seek exposure to the fixed income markets through bond funds. The 

intent is often to hold bonds to maturity as a method of supporting client income needs in retirement, not to 

actively “trade” bonds. Smaller advisers managing separate accounts for individuals or small fund advisers

generally do not have multi-layered business relationships with the lead underwriters, enabling easy access to high 

quality corporate and municipal bond new issues. As a result, even in the public markets, small advisers can find it 

hard to obtain access to the highest quality issuances at the issue price because the institutional market 

participants have positioned themselves to “take down” most of the offering. This leaves individual investors in a 

position of having to overpay for the limited inventory available in the secondary market. Once you add to this the 

reality that the bond offerings are increasingly being issued through private (rather than public) markets, the 

playing field becomes increasingly unfair. 
9

seems to be growing, as each jurisdiction or regulator works to adjust regulations to a 

rapidly changing ecosystem of cyber threats and notice/remediation approaches 

relative to adverse impacts of cyber events.

◦ Cybersecurity: There is a widening gap between regulatory expectations on deployment 

of cybersecurity measures relative to the resources available for small firms/funds.

◦ Liquidity Rule and Derivatives Risk Management: Governance confusion persists

regarding the appropriate delineation of responsibilities between/among the fund 

board, the fund’s adviser, and the derivatives risk manager, as well as how these 

responsibilities relate to similar responsibilities under the liquidity risk management 

program. 

◦ Proxy Voting: There is continuing “disconnect” on use of proxy voting advisory services 

by advisers and funds as a method of fiduciary fulfillment. Recent Commission guidance 

has materially increased the cost of deploying resources necessary by the typical 

adviser/fund, while decreasing the ability of advisers/funds to rely on those resources. 

Furthermore, the focus and emphasis given to the battle between large public issuers 

and activist/institutional investors led the Commission in a direction that left small 

investment advisers and funds (and their clients) as casualties.

◦ CUSIP and Benchmark Index Licensing Fees21: License needs and fees linked to agency 

regulations are a growing problem. The CUSIP license fee regime has far “overreached” 

 21 CUSIPs are nine-digit alphanumeric codes which the US numbering agency assigns to identify US 

equity and fixed-income securities. CUSIP numbering is referenced in SEC rules and is critical to issuing, trading, 

and clearing transactions in US securities, as well as regulatory reporting. CUSIP Global Services also assigns 12-

digit alphanumeric international securities identification codes to the same US securities. The acronym CUSIP 

derives from the Committee on Uniform Security Identification Procedures, a committee of the American Bankers 

Association (“ABA”). S&P Capital IQ operates CUSIP Global Services under a contract with the ABA, which owns the 

intellectual property rights to CUSIPs. Issuers of securities pay CUSIP Global Services to assign them CUSIPs for 

their securities, which is logical to the AMAC and the market at large. CUSIP Global Services also charges the same 

issuers to use the CUSIPs in final official statements, tax forms filed with the Internal Revenue Service and any 

letters of representation needed to register securities in book-entry form with Depository Trust Company (“DTC”), 

the US national securities depository. This is also understandable to the AMAC. What offends the advisory/fund 

industry (especially the small adviser/fund community), however, is that all firms which trade and process 

transactions in securities identified by CUSIPs must pay separate licensing fees to store the CUSIPs internally in 

securities master files and other databases as well as use them for client-facing, recordkeeping and regulatory 

needs, such as trade confirmations, account statements and regulatory reporting. The licensing fees charged by 

CUSIP Global Services to small advisory firms depends upon the number of CUSIPs stored, the number of business 

lines using the CUSIPs, and the regions in which the CUSIPs are used. CUSIP Global Services appears to have a 

monopoly on the securities identification system and the advisory/fund industry (particularly small advisers/funds) 

currently has no reasonable alternatives. Furthermore, CUSIP Global Services has used its leverage with the entire 

market of FinTech firms to have the FinTech firms contractually require advisory firms and funds to agree to pay 

such licensing fees as a condition of contracting with the FinTech firms (with whom small advisers/funds have no 

leverage to negotiate). Even if an adviser/fund does not need access to the CUSIP itself, in many cases (such as 

where research is shared through typical mediums, such as FactSet) the CUSIPs cannot be stripped from the 
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in the imposition of fees on advisers and funds, especially when advisers/funds only use 

the CUSIP numbers for internal recordkeeping and client reporting. Similar issues exist in 

the licensing regime for securities index providers. European regulators have been much 

more proactive with policy positions and regulatory actions that seek to curtail the 

overreach, including actions limiting the manner and amount of fees charged for 

securities identifiers used by market participants for internal maintenance and 

reconciliation of master securities files.

There is, of course, a universal desire (by both the small firm advisory and fund community and 

the Commission) to navigate these challenges in a manner that promotes investor protection and also 

provides a balanced regulatory approach that allows for growth of small businesses. That said, finding 

that balance requires the genuine desire to appreciate the challenges of the community of small 

advisers and funds. 

III. AMAC Recommendations to the SEC on Matters Impacting Small Business Registrants in 

the Asset Management Industry (Small Advisers and Small Funds) 

1. Modernize the definitions of “Small Business,” “Small Organization,” and “Small Entity” utilized 

by the SEC in conducting economic analysis in connection with rulemaking: The AMAC 

recommends that the Commission modernize the definition of “small entities” for Regulatory 

Flexibility Act considerations. The AMAC also recommends that the Commission modernize 

other definitions (such as “small organization” and “small business”) relevant to the universe of 

firms captured in assessing economic analysis and impact on investment advisers and funds 

operating as small businesses in the context of SEC rulemaking. The AMAC recommends that the 

Commission acknowledge that AUM is an ineffective measure, particularly when applied 

exclusively, in identifying “small businesses.” Consideration of human and financial resources 

available to operate a business has much greater utility. As applied to advisers, for example, we 

believe the Commission should consider defining “small business,” “small entity,” and “small 

organization” to mean any registrant with fewer than 50 employees or annual revenue of less 

than $25M.22 As applied to investment companies (funds), we believe the Commission should 

consider defining “small business,” “small entity,” and “small organization” to capture any fund 

with a principal adviser to a fund that has fewer than 50 employees or annual revenue less than 

$25M.23

 

research and license fees are demanded by FinTech provider (on behalf of CUSIP). These practices, in addition to 

being fundamentally unfair, would seem to violate legitimate public policy considerations.

22 We appreciate that Form ADV does not currently collect information on revenue of registered investment 

advisers; however, we believe it would be simple enough to incorporate a question that asks firm’s to simply 

identify whether the firm had less than $25 Million in revenue for the annual reporting period. 

23 Once again, we realize that Investment Company Act filings do not currently collect information on 

revenue of the principal investment advisers to investment companies; however, we believe it would be simple 

enough to incorporate a question that simply identifies whether the principal adviser to the fund had less than $25 

Million in revenue for the annual reporting period (as well as soliciting whether the principal adviser to the fund 

has fewer than 50 employees). 

 
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2. Modernize Economic Analysis and Reporting: The AMAC recommends that the Commission, 

through the Division of Economic & Risk Analysis, conduct periodic assessments and make 

periodic reporting on the cumulative impacts of regulation on small advisers and funds 

(conducted every 5 years). The AMAC recommends that the Commission engage in public 

reporting on the cumulative impacts of regulation on small advisers and small funds.

3. Bond Market Study: The AMAC recommends that the Commission convene a Roundtable to 

study the drivers of the growing “inaccessibility” (for both small advisers/funds and retail 

investors) to “new issues” in the bond market, that has been exacerbated by other market 

developments, such as the expansion of the private debt markets (e.g., 144A offerings), which 

are less accessible to individual investors and the typical registered advisory firm/small fund). 

The goal should be to facilitate a level playing field for individual investors (and the typical 

investment advisory firm/fund) to gain greater access to quality “new issues” in the bond 

market and to determine what action can be taken to promote continued growth of the public

market for quality “new issues” in the bond market.

4. E-delivery and E-Signatures: The AMAC recommends that the Commission move swiftly to make 

it legally acceptable for investment advisers and funds to utilize an electronic delivery regime for 

delivery of all notices, disclosures, and information as the default method of delivery of required 

information, with the right of any investor to opt out and continue to receive paper (e.g. no 

affirmative consent required for e-delivery). We also recommend that the Commission move 

swiftly to make it legally acceptable for investment advisers and funds to utilize electronic 

signatures for all client contracts, consents, and approvals of any nature; once again, as the 

default practice (with an opt-out opportunity, but no affirmative consent required for the 

default).

5. Regulatory Coordination on Data Security and Privacy: We recommend that the Commission’s 

Office of Legislative Affairs take an advocacy role in encouraging Congress to establish a data 

security and privacy law regime applicable to the financial services sector, centralized at the 

federal level. 

6. Calibrate Guidance on Cybersecurity, Business Continuity, and Disaster Recovery: We 

recommend that the Staff or Commission consider issuing guidance on “best practices” in these 

three important areas that is tailored separately to large enterprises and small businesses. 

7. Proxy Voting by Small Advisers and Small Funds: The AMAC recommends that the Commission 

and Staff consider their work on the use/reliance of/on proxy voting advisory firms as 

unfinished. We recommend that Commission and Staff fully consider the extent to which 

reliance on the issuer diligence and recommendations performed/made by proxy voting 

advisory firms enhances (rather than detracts from) the ability of small advisers and funds to 

fulfill their fiduciary duty in the context of proxy voting. 
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8. Liquidity Rule and Derivatives Risk Management Program: There continues to be confusion on 

the balance of governance and oversight by the fund board (relative to the role of the 

investment adviser to the fund and the derivatives risk manager) in the context of the 

Derivatives Risk Management Program, as well as how these responsibilities relate to similar 

responsibilities under the liquidity risk management program. While, under the rule, the fund’s 

investment adviser is not eligible to serve as the derivative risk manager, fund boards report 

interest in more guidance in relation to the role of the fund’s investment adviser relative to the 

derivatives risk manager and the delineation of duties between the fund board, fund adviser, 

and derivatives risk manager. The AMAC recommends that the Commission or Staff issue further 

guidance in this area that merges an “activity-based” approach with a “risk based” and 

“resource-based” approach. 

9. CUSIP and Index License Fee Regime: The AMAC recommends that the Commission study 

whether to remove specific reference to “CUSIP” relative to securities identifiers in its rules and 

regulations.24 We also recommend that the Commission study whether it has legal jurisdiction 

to regulate CUSIP and securities index licensing fee practices as they pertain specifically to fee 

imposition on investment advisers and funds. If statutory authority exists, we recommend the 

Commission take regulatory action to limit the licensing fees charged to the issuers of the 

securities identified by the CUSIP number and, with respect to securities indices, limit licensing 

fees to circumstances where an adviser or fund is using reference to the index in an 

advertisement or in the name of a fund or strategy (and not in connection with regulatory and 

client reporting, or internal purposes).25 Even if the Commission determines that there are 

statutory or jurisdictional limitations on its ability to act on this, the Commission should take a 

formal public policy position and coordinate with the FTC in exploring the impact of current 

monopolies that may exist, as the European regulators have done. This is an issue of material 

import to the typical registrant.

IV. Conclusion

AMAC’s recommendations focus exclusively on matters directly germane to the Commission’s 

mission, which includes investor protection, market fairness, and encouragement of a market 

environment that is worthy of public trust. We approached this work with dedication to serving the 

investing public, the industry, the Commission, and advancement of the integrity of U.S. capital markets.

As provided at the outset, the focus of the AMAC in this area has been the study of how the 

evolution of industry market structures and regulatory priorities have impacted the economic and 

operational challenges of small advisers and funds and to identify areas where agency study, refined 

policy positions, guidance, and/or regulatory action(s) by the Commission or the Commission Staff may 

 24 The Commission could consider use of other standard identifiers created by the Commission (preferably)

or the exchanges; although currently, no alternative and widely accepted identification system exists. We do note 

that making a change in securities identification systems would impose costs on firms to modify their systems, so 

study of the issue first would be important.
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further advance fair competition and growth of small and diverse businesses in the asset management 

industry, while also supporting core investor protections. Small advisers provide a bridge to prosperity 

as they engage on a daily basis with retail investors in communities across the country (including 

communities that have historically been on the sidelines of participation in the capital markets). The 

AMAC believes the importance of encouraging the growth of small firms and lowering barriers to entry 

and continued existence is consistent with the Commission’s mission. The AMAC believes the 

recommendations contained in this report, if acted upon, would further these important goals, without 

weakening investor protection.