2025 Report: Small Advisers Making Big Impact in Changing Regulations

gistered firms are small, with 76% of them having two or fewer employees. Finally, these state-registered firms are largely serving retail investors and/or high-net-worth individuals.

The report includes a section summarizing the work of the various “project groups” that comprise the Investment Adviser Section. A common thread running through the summaries is the efforts regulators are making to understand developing technologies, provide appropriate support to the investment adviser community with respect to those technologies, and tailor enforcement practices to address circumstances when the technologies are abused or misused. Unsurprisingly, the report specifically refers to digital assets, fintech services, and artificial intelligence.

The report concludes with a brief summary of state securities regulator enforcement actions, noting that the top reasons underlying enforcement matters include failure to register, fees, undisclosed conflicts of interest, and fraud.

One area the report does not expressly discuss is the extent to which state-level enforcement has already, or may soon, address enforcement gaps created by the shifting priorities of federal regulators. The focus of the SEC’s enforcement program on fraud, market manipulation, and securities violations that cause substantial investor harm may necessitate a shift from standalone operational compliance violations. Therefore, state and local regulators have been increasing enforcement efforts to compensate for areas deprioritized by the federal government. For example, NASAA recently announced the establishment of a new Broker-Dealer Inspections & Compliance project group aimed at enhancing multi-state collaboration in identifying new areas of investigation of broker-dealers. Given the changing priorities of the SEC and the fact that many SEC compliance regulations do not apply to state-registered advisers, it is foreseeable that a similar enforcement initiative will be undertaken in the state-registered investment advisers space.

To stay ahead, state-registered advisers should stay abreast of NASAA developments and regularly review and update compliance programs to address common enforcement triggers and emerging technological advancements. Being proactive in compliance measures can help mitigate any potential regulatory issues.

In conclusion, the NASAA’s Investment Adviser Section 2025 Annual Report sheds light on the state-registered segment of the investment advisory industry, highlighting the growth in assets under management despite a decrease in the number of firms. The report emphasizes the small size of most state-registered firms and their focus on serving retail investors and high-net-worth individuals. It also underscores the efforts of state regulators to adapt to technological advancements and enhance enforcement practices to combat misuse or abuse of these technologies. With a focus on digital assets, fintech services, and artificial intelligence, the report outlines the evolving landscape of the investment advisory industry at the state level. State-registered advisers must stay informed and proactive to navigate the changing regulatory landscape effectively.