Over the past two decades, small independent broker-dealers have become harder to find. FINRA's 2025 Industry Snapshot still counts 2,891 small firms out of 3,249 total1. So the point is not that small firms disappeared. The point is that pressure changes what kind of firm can survive.

Compliance burden is part of that pressure. Most rules have a real investor-protection purpose, and that should not be dismissed. But a rule can be reasonable in the abstract and still land unevenly in practice. A large firm can spread the work across legal, compliance, marketing, and operations teams. A five-person firm has fewer places for the work to go.

Michael Kitces, co-founder of XY Planning Network, recently warned2 that a similar pattern may be forming in the RIA market:

"In theory, it was greater consumer protection, and in the end it's just consolidation, loss of innovation, and reduced competition."

That warning is worth taking seriously because it keeps two ideas together. Compliance is not the enemy. But compliance work that cannot be handled efficiently can change who is able to stay in the business.

The Capacity Problem

SEC Form ADV filings7 show how little slack many SEC-registered advisers have. Among more than 16,600 SEC-registered RIAs:

  • 38% have five or fewer total employees. In firms that small, the same people may be responsible for advising clients, publishing content, handling operations, and keeping records.
  • More than half manage under $500 million in assets. Among those firms, 61% have five or fewer employees.
  • Even among team-based practices, only 28% have dedicated planning or investment staff8.

These are generally the larger advisers, since SEC registration usually requires at least $100 million in assets under management. NASAA reports that state regulators oversee another 16,575 investment advisers with $100 million or less in AUM9. Those firms often have even less room to absorb new process, documentation, and review work.

This is why headcount matters. A new compliance obligation is not just another line in a manual. Someone has to interpret it, apply it, document it, and keep doing that work as the firm publishes new material. Kitces described the pressure bluntly2: "A small firm with three employees would say, 'If we have to increase our headcount by 33% ... that's more than our entire margin ... we'll be forced out of business.'"

The Marketing Rule Is Not Waiting

The SEC Marketing Rule (Rule 206(4)-1) has been in effect since November 2022 and remains part of SEC examination focus3. Most marketing content an SEC-registered RIA publishes, including blog posts, newsletters, LinkedIn posts, and client-facing website pages, can qualify as an "advertisement" under the rule4.

For each advertisement, the adviser has to think about issues such as:

  • Substantiation for material claims
  • Fair and balanced treatment of benefits, risks, and limitations
  • Testimonial and endorsement disclosures
  • Performance advertising requirements
  • Third-party rating disclosure and due-diligence obligations

This is operational work, not just legal theory. Every new article, landing page, LinkedIn post, or testimonial section adds one more place where the firm's actual practice either matches its policies or does not.

Open the Compliance Flag GitHub project to review the Python CLI, sample reports, roadmap, and installation notes.

The Patchwork Makes It Harder

A January 2026 SEC proposal would raise the threshold for classifying an adviser as a "small entity" under the Regulatory Flexibility Act from $25 million to $1 billion in regulatory AUM5. That proposal does not directly change registration thresholds. Current rules still tend to push advisers with under $100 million AUM toward state-level regulation.

That can sound like less oversight. In practice, it may mean a more complicated map. As of mid-2025, roughly 20 to 25 states still had not adopted the SEC Marketing Rule's testimonial provisions6. A state-registered adviser in one of those states may be unable to use client testimonials, while an SEC-registered firm across the street can. Different states also bring different exam cycles, filing expectations, and regulatory interpretations.

One compliance attorney described the practical result this way2: firms could face "five different sets of regulators, five exam cycles, and five sets of paperwork" depending on where their clients live.

For a firm that is already stretched, complexity is not a small thing. It creates more places for a careful person to miss something.

What Small Firms Can Do

The lesson from the broker-dealer side is not that compliance is bad. Advisers handle other people's money, and that carries real obligations. The lesson is more practical: firms need a way to do the work consistently without pretending they have staff they do not have.

Small RIAs may not need a full compliance department. They do need a repeatable way to review public content against the rules that apply to it. The SEC Marketing Rule reaches substantiation, fair balance, testimonial disclosures, performance presentations, third-party ratings, and more. The SEC's December 2025 Risk Alert3 shows that examiners continue to look closely at this area.

A careful scan of a firm's website and recent content will not solve every compliance problem. It can show where marketing language may not line up with the rule before the first person to notice is an examiner.

Citations

  1. FINRA — 2025 Industry Snapshot (PDF). 3,249 FINRA-registered firms at year-end 2024, including 2,891 small firms.
  2. RIABiz — Schwab Advisor Services Bravely Offers Its Chin to SEC on Behalf of Small RIAs (Mar. 2026). Commentary from Michael Kitces and industry compliance attorneys.
  3. SEC Division of Examinations — Risk Alert: Marketing Rule (Dec. 2025).
  4. SEC — Investment Adviser Marketing Compliance Guide. Rule 206(4)-1 definition, exclusions, and requirements.
  5. SEC — Proposes Amendments to Small Entity Definitions (Jan. 2026). Raises RFA small-entity threshold from $25M to $1B RAUM; does not change registration thresholds.
  6. InvestmentNews — NASAA Moves to Let State RIAs Use Client Testimonials (Jul. 2025). Reported ~25 states had not yet adopted testimonial provisions.
  7. SEC — Information About Registered Investment Advisers and Exempt Reporting Advisers (Mar. 2026). Form ADV Items 5A (total employees) and 5F(2)(c) (regulatory AUM) for 16,606 SEC-registered investment advisers.
  8. Cerulli Associates — Team-Based Advisor Practices Outperform Solo Practices. 28% figure specific to team-based practices.
  9. NASAA — Annual Report on State-Registered Investment Advisers (2025). 16,575 advisers with $100M or less in AUM under state oversight.