More RIAs, and Assets

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Despite the continuing poor performance of the stock market over the past year, the number of registered investment advisory firms has grown, and so have their assets under management--to the tune of $1.7 trillion, according to a newly released report by the Investment Counsel Association of America (ICAA) and National Regulatory Services (NRS).

This is the second year that the ICAA and NRS have performed a survey based on data culled from electronic filings of Form ADV, Part 1. The Securities and Exchange Commission began requiring last year that those advisory firms with $25 million or more in assets under management register with the SEC by filing Form ADV, Part 1, via the Investment Adviser Registration Depository (IARD).

This year's survey revealed that as of May 15, 7,581 SEC-registered advisors had filed Form ADV, a substantial increase from the 6,649 firms that filed last year. David Tittsworth, executive director of the Investment Counsel Association of America, says the two firms chose May to compile the Form ADV data because advisors are required to submit Form ADV, Part 1, within 120 days of the end of their fiscal year. "But the vast majority of advisors have calendar years, so at the end of April we figured we'd capture the newest information from most advisors."

One likely reason there was a jump in the number of advisory firms this year, Tittsworth explains, is that firms that should have filed last year didn't. The ICAA and NRS reported last year that 673 firms may have set up IARD accounts without filing Form ADV. Nonetheless, Tittsworth says growth in SEC-registered advisors is strong, and more advisory firms are likely reaching the $25 million-under-assets threshold. And new advisors are also entering the market. "One of the things that continues to amaze me is that there are very low barriers to entry into this profession, and there are people setting up shops all the time."

Discretionary assets under management by SEC-registered advisors as of May 15 of this year totaled $19.7 trillion, which compares to nearly $18 trillion a year ago. Tittsworth says such growth is likely due to positive investment returns, new entrants, and growth in new clients and accounts. Growth of $1.7 trillion in assets under management "in a year when all the major markets are going down, that's pretty amazing," he says, adding the increase is also a reflection of more investors looking for advice.

It is important to note, however, that the assets-under-management numbers may not be entirely accurate, as more than one advisor may report the same client assets. "There are more subadvisor agreements than ever, and more advisors are getting into wrap programs than they were two years ago. Maybe that's a situation where they're all claiming that there's a wrap program with Merrill Lynch and then all these different advisors are claiming the same assets." Tittsworth says the "double counting" could be avoided if the SEC's questions on Form ADV were more succinct.

The report also notes that that majority of firms continue to be small, with most employing only one to five employees.

The full report, "A Profile of the U.S. Investment Advisory Profession," is available in PDF format through the ICAA Web site (http://www.icaa.org/public/evolution-revolution_2002.pdf)

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