1

Conformed to Federal Register version

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 275 

[Release No. IA-4839; File No. S7-05-17]

RIN 3235-AM02

Exemptions from Investment Adviser Registration for Advisers to Small Business 

Investment Companies

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: We are adopting amendments to the rule that defines a venture capital fund (rule 

203(l)-1) and the rule that implements the private fund adviser exemption (rule 203(m)-1) under 

the Investment Advisers Act of 1940 (the “Advisers Act”) in order to reflect changes made by

title LXXIV, sections 74001 and 74002 of the Fixing America’s Surface Transportation Act of 

2015 (the “FAST Act”), which amended sections 203(l) and 203(m) of the Advisers Act. Title 

LXXIV, section 74001 of the FAST Act amended the exemption from investment adviser 

registration for any adviser solely to one or more “venture capital funds” in Advisers Act section 

203(l) by deeming “small business investment companies” to be “venture capital funds” for 

purposes of the exemption. Accordingly, we are amending the definition of a venture capital 

fund to include “small business investment companies.” Title LXXIV, section 74002 of the 

FAST Act amended the exemption from investment adviser registration for any adviser solely to 

“private funds” with less than $150 million in assets under management in Advisers Act section 

203(m) by excluding the assets of “small business investment companies” when calculating 
 2

“private fund assets” towards the registration threshold of $150 million. Accordingly, we are

amending the definition of “assets under management” in the rule that implements the private 

fund adviser exemption to exclude the assets of “small business investment companies.” 

DATES: Effective March 12, 2018. 

FOR FURTHER INFORMATION CONTACT: Jennifer Songer, Senior Counsel, or Sara 

Cortes, Assistant Director, at (202) 551-6787 or IArules@sec.gov, Investment Adviser 

Regulation Office, Division of Investment Management, Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549-8549. 

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to rules 

203(l)-1 [17 CFR 275.203(l)-1] and 203(m)-1 [17 CFR 275.203(m)-1] under the Investment 

Advisers Act of 1940 [15 U.S.C. 80b].1 

Table of Contents 

I. BACKGROUND .................................................................................................................................. 3

II. DISCUSSION ....................................................................................................................................... 6

A. Amendment to Rule 203(l)-1 ............................................................................................................ 6

B. Amendment to Rule 203(m)-1 .......................................................................................................... 8

III. EFFECTIVE DATE ............................................................................................................................ 10

IV. ECONOMIC ANALYSIS .................................................................................................................. 10

A. Introduction and Economic Justification ........................................................................................ 10

B. Costs and Benefits ........................................................................................................................... 15

C. Efficiency, Competition, and Capital Formation ............................................................................ 19

V. PAPERWORK REDUCTION ACT ANALYSIS .............................................................................. 21

1 Unless otherwise noted, when we refer to the Advisers Act, or any paragraph of the Advisers Act, we are 

referring to 15 U.S.C. 80b of the United States Code [15 U.S.C. 80b], at which the Advisers Act is codified, 

and when we refer to Advisers Act rules, or any paragraph of these rules, we are referring to title 17, part 

275 of the Code of Federal Regulations [17 CFR part 275], in which these rules are published.
3

VI. REGULATORY FLEXIBILITY ACT CERTIFICATION................................................................22

VII. STATUTORY AUTHORITY ............................................................................................................23

TEXT OF RULE AMENDMENTS............................................................................................................24

I. BACKGROUND 

Prior to the enactment of the Fixing America’s Surface Transportation Act of 2015 (the 

“FAST Act”),

2 we believe that investment advisers to small business investment companies 

(“SBICs”)3 primarily relied upon an exemption from investment adviser registration under the 

Investment Advisers Act of 1940 (the “Advisers Act”)4 for advisers solely to SBICs (the “SBIC 

adviser exemption”).5 The FAST Act expanded the applicability of two additional exemptions 

from investment adviser registration for investment advisers to SBICs: (1) the exemption for any 

adviser solely to one or more “venture capital funds” in Advisers Act section 203(l) (the “venture 

capital fund adviser exemption”), and (2) the exemption for any adviser solely to “private funds” 

with less than $150 million in assets under management in Advisers Act section 203(m) (the 

“private fund adviser exemption”). This had the effect of permitting investment advisers to 

 2 Pub. L. No. 114-94, 129 Stat. 1312 (Dec. 4, 2015).

3 An SBIC is (other than an entity that has elected to be regulated or is regulated as a business development 

company pursuant to section 54 of the Investment Company Act of 1940): (A) a small business investment 

company that is licensed under the Small Business Investment Act of 1958 (“SBIA”), (B) an entity that has 

received from the Small Business Administration notice to proceed to qualify for a license as a small 

business investment company under the SBIA, which notice or license has not been revoked, or (C) an 

applicant that is affiliated with 1 or more licensed small business investment companies described in 

subparagraph (A) and that has applied for another license under the SBIA, which application remains 

pending. Advisers Act section 203(b)(7).

4 15 U.S.C. 80b.

5 Advisers Act section 203(b)(7). Although we believe that most, if not all, SBICs are private funds, we 

believe that very few advisers to SBICs have private fund assets under management in the United States of 

less than $150 million. Therefore, very few advisers to SBICs are likely to qualify for the private fund 

adviser exemption. See SBIC Program Overview, Small Business Administration, Office of Investment 

and Innovation, Data Management Branch, September 30, 2016, available at: 

https://www.sba.gov/sbic/general-information/program-overview (“SBIC Program Overview”). 
4

SBICs to advise both SBICs and other types of private funds without being required to register as 

investment advisers with the Commission. 

The FAST Act amended sections 203(l) and 203(m) of the Advisers Act regarding the 

registration of investment advisers to SBICs. Title LXXIV, section 74001 of the FAST Act 

amended the venture capital fund adviser exemption by deeming SBICs to be “venture capital 

funds” for purposes of the exemption. Title LXXIV, section 74002 of the FAST Act amended 

the private fund adviser exemption by excluding the assets of SBICs for purposes of calculating 

private fund assets towards the registration threshold of $150 million.6 Accordingly, on May 3, 

2017,7 we proposed to amend (1) the definition of “venture capital funds” in Advisers Act rule 

203(l)-1 to include SBICs and (2) the definition of “assets under management” in Advisers Act 

rule 203(m)-1 to exclude the assets of SBICs. 

Advisers who rely on the SBIC adviser exemption are not subject to reporting or 

recordkeeping provisions under the Advisers Act or examination by our staff.

8

 Advisers who 

rely on the venture capital fund adviser exemption and the private fund adviser exemption are 

exempt from registration under the Advisers Act; however, they are considered “exempt 

 6 The term “private fund” means an issuer that would be an investment company, as defined in section 3 of 

the Investment Company Act of 1940, but for section 3(c)(1) or 3(c)(7) of that Act. Advisers Act section 

202(a)(29). While we believe that most SBICs are private funds, it is possible for an SBIC to be an 

investment company registered with the Commission. See 13 CFR 107.115 (stating that a registered 

investment company is eligible to apply for an SBIC license).

7 See Amendments to Investment Advisers Act Rules to Reflect Changes Made by the FAST Act, Investment 

Advisers Act Release No. 4697 (May 3, 2017) [82 FR 21487 (May 9, 2017)] (“Proposing Release”).

8 Under section 204(a) of the Advisers Act, the Commission has the authority to require an investment 

adviser to maintain records and provide reports, as well as the authority to examine such adviser’s records, 

unless the adviser is specifically exempted from the requirement to register pursuant to Advisers Act 

section 203(b). Advisers Act section 203(b)(7) provides an exemption from registration for advisers solely 

to SBICs. Advisers Act sections 204(a) and 203(b)(7); Exemptions for Advisers to Venture Capital Funds, 

Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private 

Advisers, Investment Advisers Act Release No. 3222 (June 22, 2011) [76 FR 39646 (July 6, 2011)] 

(“Exemptions Release”) at footnote 5 and accompanying text. 
5

reporting advisers” and must maintain such records and submit such reports as the Commission 

determines necessary or appropriate in the public interest or for the protection of investors.9

 

Exempt reporting advisers are required to file a subset of the information requested by Form 

ADV with the Commission but are not subject to many of the other substantive requirements to 

which registered investment advisers are subject.10 

Since the enactment of the FAST Act, advisers to SBICs have been able to rely on the 

following exemptions from investment adviser registration with the Commission: (1) the SBIC 

adviser exemption by advising only SBICs; (2) the venture capital fund adviser exemption by 

advising both SBICs and venture capital funds (as defined in rule 203(l)-1); or (3) the private 

fund adviser exemption by advising both SBICs and non-SBIC private funds, provided those 

non-SBIC private funds account for less than $150 million in assets under management in the 

United States.11 

 9 Under Advisers Act section 204(a), the Commission has the authority to require an investment adviser to 

maintain records and provide reports, as well as the authority to examine such adviser’s records, unless the 

adviser is specifically exempted from the requirement to register pursuant to Advisers Act section 203(b). 

Investment advisers that are exempt from registration in reliance on other sections of the Advisers Act, 

such as sections 203(l) or 203(m), are not specifically exempted from the requirement to register pursuant 

to section 203(b), and thus the Commission has authority under Advisers Act section 204(a) to require 

those advisers to maintain records and provide reports and has authority to examine such advisers’ records. 

Advisers Act sections 203(l)(1) and 203(m)(2). See also Exemptions Release supra footnote 8 at footnote 

5 and accompanying text. Advisers Act rule 204-4 requires an exempt reporting adviser to complete and 

file reports on Form ADV by following the instructions in the Form, which specify the information that an 

exempt reporting adviser must provide. See “Frequently Asked Questions on Form ADV and IARD” 

available at: https://www.sec.gov/divisions/investment/iard/iardfaq.shtml (“Form ADV FAQs”) at section 

entitled: Reporting to the SEC as an Exempt Reporting Adviser; Form ADV: General Instructions available 

at: https://www.sec.gov/about/forms/formadv-instructions.pdf (“General Instructions to Form ADV”) at 

Instruction 3. Further, an adviser electing to be an exempt reporting adviser with the Commission must 

separately evaluate the need to register in any state in which it operates. General Instructions to Form ADV 

at Instruction 14. 

10 In addition to reporting requirements, registered investment advisers are required to comply with Advisers 

Act rules 204-2, 204-3, 204(b)-1, 204A-1, 206(4)-1, 206(4)-2, 206(4)-3, 206(4)-6 and 206(4)-7.

11 See FAST Act supra footnote 2. See generally, FAST Act Changes Affecting Investment Advisers to Small 

Business Investment Companies (March 2016), available at: https://www.sec.gov/investment/im-guidance2016-03.pdf (“Staff Guidance”).
6

As discussed above, we proposed to amend the definition of a “venture capital fund” in 

Advisers Act rule 203(l)-1 to include SBICs and to amend the definition of “assets under 

management” in Advisers Act rule 203(m)-1 to exclude the assets of SBICs.12 We received 

three comment letters,13 none of which specifically addressed the proposed amendments.

14 We 

are adopting the amendments as proposed. 

II. DISCUSSION

A. Amendment to Rule 203(l)-1

The venture capital fund adviser exemption in section 203(l) of the Advisers Act provides 

an exemption from registration under the Advisers Act for investment advisers that solely advise 

venture capital funds.

15 Advisers who rely on the venture capital fund adviser exemption are 

exempt from registration under the Advisers Act; however, they are considered “exempt 

reporting advisers” and must maintain such records and submit such reports as the Commission 

 12 Proposing Release supra footnote 7. 

13 Comment letters submitted in File No. S7-05-17 are available on the Commission’s website at:

https://www.sec.gov/comments/s7-05-17/s70517.htm. 

14 See Comment Letter of Daphne K. Ross (June 7, 2017) (generally addressing the need for consumer 

protections), Comment Letter of Donald H. Homan (June 5, 2017) (commenting on the impact of 

regulations on the investment advisory industry) and Comment Letter of Thomas Garrett (June 3, 2017) 

(making a request that did not address the rule proposal). 

15 We note, however, that depending on the facts and circumstances, we may view two or more separately 

formed advisory entities, each of which purports to rely on a separate exemption from registration, as a 

single adviser for purposes of assessing the availability of exemptions from registration. For example, an 

adviser may not advise venture capital funds with more than $150 million in assets under management in 

reliance on the venture capital fund adviser exemption and also advise other types of private funds with less 

than $150 million in assets under management in reliance on the private fund adviser exemption. See

Exemptions Release supra footnote 8 at footnote 314, footnote 506 and accompanying text. See also In the 

Matter of TL Ventures Inc., Investment Advisers Act Release No. 3859 (June 20, 2014) (settled action); 

Advisers Act section 208(d) (prohibiting a person from doing indirectly or through or by another person, 

any act or thing which it would be unlawful for such person to do directly).
7

determines necessary or appropriate in the public interest or for the protection of investors.

16 

The FAST Act amended the venture capital fund adviser exemption by deeming SBICs to be 

venture capital funds for purposes of the exemption.

17 

Advisers Act rule 203(l)-1 defines a “venture capital fund” for purposes of the venture 

capital fund adviser exemption.18 While most, if not all, SBICs meet the definition of a “private 

fund” under the Advisers Act,19 they may not meet the rule 203(l)-1 definition of a “venture 

capital fund.” We proposed to amend Advisers Act rule 203(l)-1 to include SBICs in the 

definition of venture capital funds for purposes of the venture capital fund adviser exemption.

20 

We did not receive any comments on the proposed amendment, and we are adopting the 

amendment as proposed.21 Amending the definition of venture capital fund in Advisers Act rule 

203(l)-1 makes it consistent with Advisers Act section 203(l)(2), thereby reflecting in the rule the 

application of the venture capital fund adviser exemption to advisers to SBICs. An adviser to 

 16 Advisers Act section 203(l)(1). See Rules Implementing Amendments to the Investment Advisers Act of 

1940, Investment Advisers Act Release No. 3221 (June 22, 2011) [76 FR 42950 (July 11, 2011)] 

(“Implementing Release”) at section II.B. Advisers Act rule 204-4 requires an exempt reporting adviser to 

complete and file reports on Form ADV by following the instructions in the Form, which specify the 

information that an exempt reporting adviser must provide. See Form ADV FAQs supra footnote 9 at 

section entitled: Reporting to the SEC as an Exempt Reporting Adviser; General Instructions to Form ADV 

supra footnote 9 at Instruction 4. 

17 Advisers Act section 203(l)(2).

18 Advisers Act rule 203(l)-1(a) generally defines a “venture capital fund” as a private fund that: (i) represents 

to investors and potential investors that it pursues a venture capital strategy; (ii) holds no more than 20 

percent of the fund’s capital commitments in assets that are not qualifying investments (other than shortterm holdings); (iii) does not borrow or otherwise incur leverage in excess of 15 percent of the fund’s 

capital commitments, and such borrowing is for a non-renewable term of no longer than 120 days 

(excluding certain guarantees of qualifying portfolio company obligations by the fund from the 120 day 

limit); (iv) does not offer its investors redemption or certain other liquidity rights except in extraordinary 

circumstances; and (v) is not registered under the Investment Company Act and has not elected to be 

treated as a business development company. See also Advisers Act rule 203(l)-1(b) and (c).

19 Advisers Act section 202(a)(29).

20 Proposed amended Advisers Act rule 203(l)-1(a).

21 Amended Advisers Act rule 203(l)-1(a).
8

SBICs who relies on the venture capital fund adviser exemption will be required to submit Form 

ADV reports to the Commission as an exempt reporting adviser, consistent with the current 

requirement for advisers relying on the venture capital fund adviser exemption.

22 

B. Amendment to Rule 203(m)-1

The private fund adviser exemption in Advisers Act section 203(m) directs the 

Commission to provide an exemption from registration to any investment adviser that solely

advises private funds if the adviser has assets under management in the United States of less than 

$150 million.23 Advisers Act rule 203(m)-1 implements the private fund adviser exemption. 

Advisers who rely on the private fund adviser exemption are exempt from registration under the 

Advisers Act; however, they are considered “exempt reporting advisers” and must maintain such 

records and submit such reports as the Commission determines necessary or appropriate in the 

public interest or for the protection of investors.24 The FAST Act amended the private fund 

adviser exemption to require that private fund advisers exclude the assets of their SBICs for 

purposes of calculating private fund assets towards the registration threshold of $150 million.

25

 22 Advisers Act section 203(l)(1). See Implementing Release supra footnote 16 at section II.B. 

23 Supra footnote 15.

24 Advisers Act section 203(m)(2). See Implementing Release supra footnote 16 at section II.B. Advisers 

Act rule 204-4 requires an exempt reporting adviser to complete and file reports on Form ADV by 

following the instructions in the Form, which specify the information that an exempt reporting adviser must 

provide. See Form ADV FAQs supra footnote 9 at section entitled: Reporting to the SEC as an Exempt 

Reporting Adviser; General Instructions to Form ADV supra footnote 9 at Instruction 3. 

25 Advisers Act section 203(m)(3).
9

Advisers Act rule 203(m)-1(d)(1) defines “assets under management” for purposes of the 

private fund adviser exemption.

26 The rule 203(m)-1(d)(1) definition of assets under 

management includes an adviser’s regulatory assets under management attributable to SBICs. 

We proposed to amend Advisers Act rule 203(m)-1(d)(1) to exclude an adviser’s regulatory 

assets under management attributable to SBICs from the definition of assets under management 

for purposes of the private fund adviser exemption.27 We did not receive any comments on our 

proposed amendment, and we are adopting the amendment as proposed.

28 Amending the 

definition of assets under management in Advisers Act rule 203(m)-1 to make it consistent with 

Advisers Act section 203(m)(3) will reflect that advisers to both private funds and SBICs can

rely on the private fund adviser exemption without regard to the SBIC assets that they advise. 

An adviser to SBICs who relies on the private fund adviser exemption will be required to submit 

reports to the Commission as an exempt reporting adviser and to include the SBICs that it

advises on its Form ADV, consistent with the current requirement for advisers relying on the

private fund adviser exemption.

29 

 26 For purpose of Advisers Act section 203(m), assets under management means the regulatory assets under 

management as determined under Item 5.F of Form ADV. Advisers Act rule 203(m)-1(d)(1). Instruction 

5.b. to Part 1A of Form ADV explains how to calculate regulatory assets under management for purposes 

of Item 5.F of Part 1A of Form ADV. In general, it states that an adviser should include the securities 

portfolios for which it provides continuous and regular supervisory or management services. In the case of 

a private fund, advisers are instructed to determine the current market value (or fair value) of the private 

fund’s assets and the contractual amount of any uncalled commitment pursuant to which a person is 

obligated to acquire an interest in, or make a capital contribution to, the private fund. See Form ADV: 

Instructions for Part 1A available at: https://www.sec.gov/about/forms/formadv-instructions.pdf at 

Instruction 5.b.4.

27 Proposed amended Advisers Act rule 203(m)-1(d)(1). 

28 Amended Advisers Act rule 203(m)-1(d)(1).

29 Advisers Act section 203(m)(2). See Implementing Release supra footnote 16 at section II.B. 
 10

III. EFFECTIVE DATE

The effective date of the amendments to rules 203(l)-1 and 203(m)-1 is March 12, 2018. 

IV. ECONOMIC ANALYSIS

A. Introduction and Economic Justification

The Commission is sensitive to the potential economic effects of the amendments to 

Advisers Act rules 203(l)-1 and 203(m)-1 we are adopting today. These effects include the 

benefits and costs to investment advisers, their funds, and the investors in their funds as well as 

the amendments’ implications for efficiency, competition, and capital formation. We discussed 

these effects in our economic analysis of the proposed amendments to Advisers Act rules 203(l)-1 

and 203(m)-1 and we did not receive any comments on this analysis.30 The economic baseline 

estimates have been revised to reflect updates to industry figures that were utilized in the 

Proposing Release. However, these changes are only marginally different from the proposal and, 

accordingly, the analysis of the amendments’ economic effects remains unchanged. 

The amendments to Advisers Act rules 203(l)-1 and 203(m)-1 reflect changes made by 

title LXXIV, sections 74001 and 74002 of the FAST Act to the Advisers Act. While the FAST 

Act does not expressly require the Commission to amend the Advisers Act rules, the amendments 

eliminate any confusion that might otherwise exist if Advisers Act rules 203(l)-1 and 203(m)-1 

were not amended. As adopted, Advisers Act rule 203(l)-1 reflects that advisers to venture 

capital funds and SBICs qualify for the venture capital fund adviser exemption from 

30 See supra footnotes 13 and 14. 
11

registration. As adopted, Advisers Act rule 203(m)-1 reflects that advisers to SBIC and nonSBIC private funds with less than $150 million in non-SBIC private fund assets under 

management in the United States qualify for the private fund adviser exemption from 

registration. 

Economic Baseline

To establish a baseline useful for evaluating the economic effects of the amendments, we 

briefly describe the nature of SBICs and then define the different classes of advisers that could 

be affected by the amendments. 

According to the Small Business Administration (the “SBA”), SBICs are investment 

funds that make equity and debt investments in qualifying small businesses and are licensed and 

regulated by the SBA.31 SBICs have access to low-cost capital because of a guarantee by the 

SBA. According to the SBA, this funding subsidy is intended to promote the SBIC program’s 

purpose of bridging the gap between the small business community’s need for capital and 

traditional sources of financing that might otherwise be more expensive.32 

Advisers to SBICs may also advise non-SBIC private funds, including venture capital 

funds. Depending on the amount and type of assets they advise, SBIC advisers belong to one of 

three categories: (1) registered investment advisers; (2) exempt reporting advisers; or (3) advisers

exempt from registration and reporting requirements. Registered investment advisers are 

required to file Form ADV and are also subject to other substantive requirements including the 

 31 SBIC Program Overview supra footnote 5.

32 Id.
12

establishment of a compliance program and a Code of Ethics.33 Exempt reporting advisers are 

required to file a subset of the information requested by Form ADV with the Commission but are 

not subject to many of the other substantive requirements to which registered investment 

advisers are subject. Finally, any adviser that solely advises SBICs is exempt from registering 

with the Commission under section 203(b)(7) of the Advisers Act and does not have an 

obligation to report information to the Commission.

34

Prior to the enactment of the FAST Act, an adviser to both SBICs and other non-SBIC 

private funds qualified for the private fund adviser exemption under Advisers Act rule 203(m)-1 

if the adviser had assets under management in the United States, including assets of the SBICs it 

advised, of less than $150 million. Advisers to SBICs and other non-SBIC private funds that did 

not qualify for the private fund adviser exemption were required to register with the 

Commission. In addition, advisers to both venture capital funds and SBICs were required to 

register with the Commission unless they qualified for the private fund adviser exemption.

In establishing a baseline for the amendments, two additional classes of investment 

advisers that did not advise SBICs prior to the FAST Act are relevant: (1) advisers solely to 

venture capital funds that rely on the venture capital fund adviser exemption from registration 

and are considered exempt reporting advisers; and (2) advisers solely to private funds with less 

than $150 million in assets under management in the United States that rely on the private fund 

adviser exemption from registration and are considered exempt reporting advisers. Prior to the 

FAST Act, advisers relying on the venture capital fund adviser exemption were required to 

 33 Supra footnote 10.

34 See supra footnote 8.
13

register with the Commission if they added SBIC clients unless their total assets under 

management remained under $150 million, in which case they could instead rely on the private 

fund adviser exemption. In addition, prior to the FAST Act, advisers relying on the private fund 

adviser exemption were required to register with the Commission if they added SBIC clients that 

caused their total assets under management in the United States to equal or exceed $150 million.

The FAST Act provided the classes of advisers discussed above with several options. 

First, registered investment advisers to SBICs and non-SBIC private funds can withdraw from 

registration and report to the Commission as exempt reporting advisers if their non-SBIC private 

fund assets under management in the United States are less than $150 million. Second, 

registered investment advisers to SBICs and venture capital funds can withdraw from registration

and report to the Commission as exempt reporting advisers. Finally, advisers that relied on

either the venture capital fund adviser or private fund adviser exemption prior to the FAST Act 

can begin advising SBICs without changing their registration status independent of the amount 

of assets attributable to SBICs. 

 For those advisers that benefit from any of the above options, it would have been in 

their best economic interest to exercise such options following the passage of the FAST Act, 

particularly after the Commission’s Division of Investment Management issued a guidance 

update regarding the application of the FAST Act. 35 That guidance update indicated that the 

Commission’s Division of Investment Management would not object to advisers who exclude 

the assets of the SBICs they advise when determining whether they qualify for the private fund 

adviser exemption or advisers who consider SBICs to be venture capital funds for the purposes 

 35 See Staff Guidance supra footnote 11.
14

of the venture capital fund adviser exemption.36 We believe, therefore, that it is likely that 

advisers have already exercised these options if doing so was in their economic interest. 

However, inconsistencies in the definitions of venture capital funds and assets under 

management that exist between the Advisers Act rules and the FAST Act may be discouraging

some advisers from exercising these options. Similarly, these inconsistencies may result in

assets under management being calculated differently by advisers for purposes of the private 

fund adviser exemption, which could lead to similarly-situated advisers reaching different 

conclusions as to their reporting status.

As of June 30, 2017, there were approximately 12,474 registered investment advisers 

reporting a total of approximately $70.1 trillion in regulatory assets under management.37 In 

addition, there were 3,332 exempt reporting advisers, of whom 623 relied on the venture capital 

fund adviser exemption,38 2,401 relied on the private fund adviser exemption,39 and 308 

qualified for both exemptions. For exempt reporting advisers that relied on the private fund 

adviser exemption, total private fund assets under management were approximately $235 

billion.40 Registered investment advisers advise approximately 34,343 private funds, while 

 36 Id. 

37 We calculate these estimates using the last Form ADV filing for each adviser in the 15 months prior to July 

1, 2017. This allows us to exclude advisers that are technically still registered with the Commission but 

have not filed a Form ADV for their most recent fiscal year. We use the same approach in calculating 

statistics for exempt reporting advisers. Our estimate of assets under management excludes filings that did 

not report this value so it should be considered a lower bound.

38 Form ADV, Part 1A, Item 2.B.(1).

39 Form ADV, Part 1A, Item 2.B.(2). 

40 Form ADV, Schedule D, Section 2.B. We exclude filings that did not report this value from our calculation 

so it should be considered a lower bound. Advisers relying on the venture capital fund adviser exemption 

are not required to answer this question.
15

exempt reporting advisers advise approximately 12,562 private funds. As of June 30, 2017, there 

were 315 SBICs licensed by the SBA managing approximately $30 billion in assets.41 We are 

unable to identify which of those 315 SBICs are managed by advisers solely to SBICs compared 

to advisers that also advise other funds because section 203(b)(7) of the Advisers Act exempts 

advisers solely to SBICs from registration and reporting, and filers of Form ADV are not 

required to explicitly indicate whether they advise SBICs. Because filers of Form ADV are not 

required to explicitly indicate whether they advise SBICs, we are not able to estimate the number 

of advisers that have already taken advantage of the exemptions afforded to them by the FAST 

Act compared to the number of advisers who have not done so due to any inconsistencies 

between the Advisers Act rules and the FAST Act. 

The amendments may affect the classes of investment advisers mentioned above, the 

funds they advise, and the investors in those funds. We discuss the potential economic effects of 

the amendments on these parties in the next two sections.

B. Costs and Benefits

In this section, we discuss the costs and benefits that may result from the amendments for 

each affected party. The economic effects discussed in this section only apply to the extent that 

advisers have not already exercised the exemption options provided to them under the baseline

due to any inconsistencies between the FAST Act and the Advisers Act rules. As discussed 

above, we believe that it is likely that advisers have already exercised any exemption options 

provided to them by the FAST Act under the baseline if it were in their interest to do so; thus, we 

 41 See the SBIC Quarterly Report as of March, 31 2017, available at:

https://www.sba.gov/sites/default/files/articles/Quarterly_Data_as_of_June_30_2017.pdf. 
16

do not expect the magnitude of these effects to be significant. We discuss the amendments’ 

likely impact on efficiency, competition, and capital formation in the next section.

As discussed in the Economic Baseline Section, advisers solely to SBICs are exempt 

from registering as investment advisers with the Commission. To the extent that any 

inconsistencies between the FAST Act and Advisers Act rules 203(l)-1 and 203(m)-1 have 

discouraged advisers solely to SBICs from taking advantage of the venture capital fund adviser 

or private fund adviser exemptions, the amendments could lead these advisers to take on 

additional venture capital or private fund clients. Such advisers can weigh the additional fee 

revenue associated with advising non-SBIC private funds against the costs of reporting to the 

Commission as exempt reporting advisers when determining whether to rely on either of the 

exemptions. We estimate that the annual cost of filing Form ADV for an exempt reporting 

adviser is $916.42 In addition, advisers that switch from exempt to exempt reporting status may 

incur indirect costs if the information they disclose on Form ADV, such as any disciplinary 

history, reduces investor demand for their advisory services. We are unable to estimate how 

many advisers solely to SBICs would choose to take on non-SBIC private funds as a result of the 

amendments because we do not have information on the demand for their advisory services from 

non-SBIC private funds or whether any additional business generated would offset these 

reporting costs. Furthermore, we cannot estimate the extent to which advisers solely to SBICs 

have been deterred from exercising their option to rely on the venture capital fund adviser and 

 42 Form ADV under the Investment Advisers Act of 1940 (Office of Management and Budget “OMB” Control 

No. 3235-0049) Supporting Statement at footnotes 37-42 and accompanying text. The total aggregate 

annual monetized burden for exempt reporting advisers is estimated to be $2,976,632 assuming there are 

3,248 such advisers, resulting in an estimated cost of approximately $916 per exempt reporting adviser. 

Similarly, the total aggregate annual monetized burden for registered investment advisers is estimated to be 

$89,427,727 assuming there are 12,024 such advisers, resulting in an estimated cost of approximately 

$7,437 per registered investment adviser.
17

private fund adviser exemptions due to any inconsistencies between the FAST Act and the 

Advisers Act rules under the baseline.

The amendments provide registered advisers to SBICs and non-SBIC private funds that 

have not taken advantage of the venture capital fund adviser and private fund adviser exemptions 

due to inconsistencies between the FAST Act and the Advisers Act rules with clarification on the

option to switch from registered investment adviser to exempt reporting adviser status. This 

option is difficult to value, but its value is broadly determined by the cost reductions associated 

with the change in registration status compared to the explicit and implicit costs of withdrawing 

from registration. Advisers that elect to change from registered to exempt reporting adviser 

status should expect to face reduced ongoing costs associated with filing Form ADV because, as 

exempt reporting advisers, they would only be required to complete certain portions of Form 

ADV.43 We estimate the annual cost savings associated with filing Form ADV as an exempt 

reporting adviser instead of as a registered investment adviser to be $6,521.44 Furthermore, such 

advisers would no longer bear the costs associated with the substantive requirements of being an 

adviser registered with the Commission.45 Such advisers would incur the one-time cost of filing 

a Form ADV-W withdrawal, which we estimate to be $119 per full withdrawal and $13 per 

 43 Exempt reporting advisers that are not also registering with any state securities authority must complete 

only the following Items of Form ADV, Part 1A: 1, 2, 3, 6, 7, 10, and 11, as well as corresponding 

schedules. Exempt reporting advisers that are registering with any state securities authority must complete 

all of Form ADV. See Form ADV FAQs supra footnote 9 at section entitled: Reporting to the SEC as an 

Exempt Reporting Adviser; General Instructions to Form ADV supra footnote 9 at Instruction 3. 

44 See supra footnote 42. The estimated annual cost of filing Form ADV as a registered investment adviser is 

approximately $7,437 and the estimated cost for an exempt reporting adviser is approximately $916.

45 See supra footnote 10 for a more detailed list of these requirements. 
18

partial withdrawal.

46 They may also incur one-time operational costs associated with switching 

from registered to exempt reporting status, such as those associated with adapting information 

technology systems to a new reporting regime. Finally, to the extent that advisers benefit from 

marketing themselves as registered investment advisers to client funds and investors, they will 

forgo this benefit by withdrawing from registration. Because advisers are not required to rely on 

either of the exemptions in Advisers Act rules 203(l)-1 or 203(m)-1 even though they may 

qualify for them, we expect only those registered investment advisers that would experience a 

net benefit by relying on these exemptions and have not already done so following the FAST Act 

and subsequent Staff Guidance to withdraw from registration.

47

Investors in private funds, including venture capital funds and SBICs, may experience 

costs and benefits as a result of the amendments. If investors face fixed costs in transacting with 

a given adviser, for example in performing any necessary due diligence, they may benefit if the 

amendments encourage more advisers to advise both SBIC and non-SBIC private funds, 

allowing investors to consolidate different types of investments with a single adviser. We cannot 

quantify the extent to which investors prefer to use a single adviser or the number of advisers 

who will expand into either SBICs or non-SBIC private funds because we do not have the 

information needed to assess investors’ latent demand for consolidated advice services or the 

 46 Rule 203-2 and Form ADV-W under the Investment Advisers Act of 1940 (OMB Control No. 3235-0313) 

Supporting Statement at footnotes 7 and 9 and accompanying text. An adviser would file full withdrawal if 

it was only registered with the Commission. An adviser would file a partial withdrawal if it was required to 

remain registered with one or more States. See Form ADV FAQs supra footnote 9 at section entitled: 

Form ADV-W.

47 An adviser that qualifies for one of these exemptions can still choose to register with the Commission if it 

has sufficient assets under management. See Exemptions Release supra footnote 8 at footnote 24 and 

accompanying text.
19

number of advisers that have been deterred from expanding their client bases under the baseline. 

We therefore cannot estimate the magnitude of this potential cost reduction for investors.

In addition, to the extent that the amendments result in advisers changing their status 

from registered to exempt reporting, it may impose costs on investors. If investors value the 

transparency provided by complete Form ADV reporting and the safeguards associated with the 

other substantive requirements of being a registered investment adviser, then the amendments 

could impose costs on investors if they result in advisers changing their status from registered to 

exempt reporting. However, such investors have the option of moving their investments to 

advisers that are registered and, as noted above, we expect that advisers will weigh the benefits

and costs associated with remaining registered in connection with any change in reporting status. 

The amendments could also impose costs on investors if any reduction in transparency or the 

other substantive requirements associated with registration reduce the ability of the Commission 

to protect investors from potentially fraudulent investment advisory schemes.

C. Efficiency, Competition, and Capital Formation

As discussed above, because the amendments potentially reduce the reporting 

requirements for advisers to both SBICs and non-SBIC private funds, they could result in an 

increased number of advisers in both markets. Advisers solely to SBICs may enter the market 

for venture capital or other private fund advisory services, and current advisers to non-SBIC 

private funds may enter the market for SBIC advisory services. In this section, we discuss the 

potential effects of these changes on efficiency, competition, and capital formation. As was the

case above, the economic effects discussed in this section only apply to the extent that advisers 

have not already exercised the exemption options provided to them under the baseline due to any 
20

inconsistencies between the FAST Act and the Advisers Act rules, and we do not expect the 

magnitude of these effects to be significant.

Changes in the costs of advising both SBIC and non-SBIC private funds, as described 

above, could have several competitive effects. First, to the extent that non-SBIC private fund 

advisers find it profitable to enter the market for SBICs under the amendments, the amendments

might increase competition in that market, resulting in reduced profits for SBIC advisers and

lower advisory fees for their SBICs and their investors. Similarly, to the extent that SBIC 

advisers find it profitable to enter the non-SBIC private fund advisory market, the amendments 

might increase competition in that market, resulting in reduced profits for non-SBIC private fund 

advisers and lower advisory fees for their non-SBIC private funds and their investors. Whether 

the amendments result in such a reallocation of advisory services depends on whether advisers 

find it profitable to expand operations into new markets and whether they can do so without 

changing the quality or quantity of services in current markets. While we cannot precisely 

estimate the relative likelihood of the above competitive effects, the fact that the market for 

SBIC advisers is an order of magnitude smaller than the market for non-SBIC private fund 

advisers suggests that non-SBIC private fund advisers are more likely to have benefitted from 

expanding into the SBIC market following the FAST Act’s enactment, thereby increasing the 

amount of competition in that market. As discussed above, it is likely that most advisers would 

have already exercised this option under the baseline if it was in their economic interest to do so. 

Therefore, the competitive effects of the amendments are not likely to be significant.

Any relative shift of advisory talent from one segment of the market to another could also 

have effects on efficiency and capital formation. To the extent that advisers who expand into 
21

new markets as a result of the amendments possess skill in identifying investment opportunities, 

an increase in the supply of advisers in the SBIC or non-SBIC private fund markets, or both,

could result in more efficient investment decisions and market prices that more accurately reflect 

the fundamental value of assets where applicable. Also, any increase in the number of advisers 

in the SBIC market could make more capital available to small businesses if the increased supply 

of SBIC advisers attracts more capital to that market. In addition, to the extent that there are 

economies of scale in the provision of advisory services, advisory services may be provided at 

lower aggregate cost if the amendments result in an expansion of advisers in either the SBIC or 

non-SBIC private fund market. To the extent that the amendments result in reduced 

transparency into advisers because they opt to switch from registered to exempt reporting status, 

and to the extent that investors rely on that transparency when making investment decisions, the 

amendments might cause a reduction in the efficiency of investor allocations to these advisers. 

Any reduction in transparency could also reduce the aggregate amount of capital managed by 

investment advisers if investors cannot find suitable registered investment advisers as 

replacements and these investors value transparency more than any benefits, such as potentially

lower advisory fees, of the amendments. Finally, if the amendments increase the supply of 

investment advisers to SBICs and non-SBIC private funds, and these advisers attract assets that 

were not already invested in other markets, they may increase the aggregate amount of capital 

investment.

V. PAPERWORK REDUCTION ACT ANALYSIS

As discussed in the Proposing Release, we do not believe that the amendments to reflect 

changes made by the FAST Act make any substantive modifications to any existing collection of 
22

information requirements or impose any new substantive recordkeeping or information collection 

requirements within the meaning of the Paperwork Reduction Act of 1995.48

The amendments to reflect the changes made by the FAST Act as described in Section II 

above may shift the number of advisers between each class of advisers as well as include 

advisers solely to SBICs that take on additional non-SBIC venture capital fund or private fund 

clients and therefore would become exempt reporting advisers.

We believe that the current burden and cost estimates for the existing collection of 

information requirements remain appropriate.49 Thus, we believe that the amendments should 

not impose substantive new burdens on the overall population of respondents or affect the 

current overall burden estimates for the affected forms.50 Accordingly, we are not revising any 

burden and cost estimates in connection with these amendments.

VI. REGULATORY FLEXIBILITY ACT CERTIFICATION

The Commission certified, pursuant to section 605(b) of the Regulatory Flexibility Act of 

198051 that the proposed amendments to Advisers Act rules 203(l)-1 and 203(m)-1, if adopted, 

 48 44 U.S.C. 3501 et seq.

49 The most recent Paperwork Reduction Act analysis for Form ADV is based upon the number of registered 

advisers and exempt reporting advisers as of May 1, 2016. Because approximately five months had passed 

between the signing of the FAST Act and May 1, 2016, we believe that most of the advisers who wanted to 

change their registration status as a result of the FAST Act, did so in that five month period and are 

therefore included in the most recent Paperwork Reduction Act analysis for Form ADV. Form ADV under 

the Investment Advisers Act of 1940 (OMB Control No. 3235-0049). 

50 See Section IV above. In the Proposing Release, we requested comment on whether our belief that the 

amendments would not impose substantive new burdens on the overall population of respondents or affect 

the current over all burden estimates for the affected forms was correct. We did not receive any responses 

to our request for comment. 

51 5 U.S.C. 603(b). 
23

would not have a significant economic impact on a substantial number of small entities.52 We 

included this certification in Section V of the Proposing Release. Although we encouraged 

written comments regarding this certification, no commenters responded to this request.

VII. STATUTORY AUTHORITY 

The Commission is amending rule 203(l)-1 under the authority set forth in sections 

211(a) and 203(l) of the Advisers Act, (15 U.S.C. 80b-11(a) and 80b-3(l), respectively). The 

Commission is amending rule 203(m)-1 under the authority set forth in sections 211(a) and 

203(m) of the Advisers Act (15 U.S.C. 80b-11(a) and 80b-3(m), respectively).

List of Subjects in 17 CFR Part 275 

Reporting and recordkeeping requirements, Securities.

 52 Under Commission rules, for the purposes of the Advisers Act and the Regulatory Flexibility Act, an 

investment adviser generally is a small entity if it: (i) has assets under management having a total value of 

less than $25 million; (ii) did not have total assets of $5 million or more on the last day of its most recent 

fiscal year; and (iii) does not control, is not controlled by, and is not under common control with another 

investment adviser that has assets under management of $25 million or more, or any person (other than a 

natural person) that had total assets of $5 million or more on the last day of its most recent fiscal year. Rule 

0-7(a) (17 CFR 275.0-7(a)).
24

TEXT OF RULE AMENDMENTS

For the reasons set forth in the preamble, the Commission amends title 17, chapter II of 

the Code of Federal Regulations as follows. 

PART 275 – RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

1. The authority citation for part 275 continues to read, in part, as follows: 

Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-2(a)(17), 80b-3, 80b-4, 

80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless otherwise noted.

* * * * *

2. Amend § 275.203(l)-1 by revising the introductory text to paragraph (a) to read as 

follows:

§275.203(l)-1 Venture capital fund defined.

(a) Venture capital fund defined. For purposes of section 203(l) of the Act (15. U.S.C. 

80b-3(l)), a venture capital fund is any entity described in subparagraph (A), (B), or (C) of 

section 203(b)(7) of the Act (15 U.S.C. 80b-3(b)(7)) (other than an entity that has elected to be 

regulated or is regulated as a business development company pursuant to section 54 of the 

Investment Company Act of 1940 (15 U.S.C. 80a-53)) or any private fund that:

* * * * *

3. Amend § 275.203(m)-1 by revising paragraph (d)(1) to read as follows:

§275.203(m)-1 Private fund adviser exemption.

* * * * *

(d) * * *

(1) Assets under management means the regulatory assets under management as 

determined under Item 5.F of Form ADV (§ 279.1 of this chapter) except that the 
25

regulatory assets under management attributable to a private fund that is an entity 

described in subparagraph (A), (B), or (C) of section 203(b)(7) of the Act (15 U.S.C. 80b3(b)(7)) (other than an entity that has elected to be regulated or is regulated as a business 

development company pursuant to section 54 of the Investment Company Act of 1940 

(15 U.S.C. 80a-53)) shall be excluded from the definition of assets under management for 

purposes of this section.

* * * * *

By the Commission. 

Dated: January 5, 2018.

Brent J. Fields,

Secretary.