August 30, 2011

Number of RIAs Dwindles as AUM Hits All-Time High

Dramatic shifts will occur in the advisory profession when certain provisions of Dodd-Frank are implemented in 2012, IAA's Tittsworth says

The number of SEC-registered investment advisors declined from 11,643 in 2010 to 11,539 in 2011, but total assets under management reported by all RIAs hit a record $43.8 trillion, a report released Tuesday says.

The AUM total was a 13.7% increase from the $38.6 trillion in AUM reported in 2010, according to the annual report of the Investment Adviser Association (IAA) and National Regulatory Services.

The two group’s 11th annual Evolution/Revolution report, which is based on information on file with the Securities and Exchange Commission as of May 1, 2011, found that consistent with previous years, a relatively small number of large investment advisory firms manage a high percentage of total AUM.

The 78 largest advisors--those that manage $100 billion AUM or more—managed over half (50.9%) of total AUM. Similarly, the report notes that the 565 advisors with $10 billion AUM or more reported managing 84.4% of all assets.

The report also points out that the vast majority of SEC-registered investment advisors are small businesses.

In 2011, 81.2% of advisors reported managing less than $1 billion AUM, and 41.3% reported managing less than $100 million AUM. Almost half of all advisors (49.8%) reported fewer than five full and part-time, nonclerical employees. More than two-thirds of all advisors (68.8%) employed fewer than 10 full and part-time, nonclerical staff, and more than nine in 10 (90.6%) employed fewer than 50.

The number of investment advisors that specialize in hedge funds has declined in recent years, the report states. In 2011, 1,200 investment advisors (10.4%) reported that more than 75% of their clients are hedge funds or other pooled investment vehicles, compared with 1,661 (16.1%) in 2006.

With the registration of private fund advisors required by the Dodd-Frank Act, the number of hedge fund advisors will increase. The report notes that the SEC estimates that an additional 700 private fund advisors will register with the commission under the Investment Advisers Act when the requirements are implemented in 2012.

“There will be dramatic shifts in the profile of the investment advisory profession when certain provisions of the Dodd-Frank Act are implemented next year,” said David Tittsworth, executive director of IAA, in a statement.

“It is estimated that about 3,200 smaller investment advisers will switch from SEC to state registration. With the addition of about 700 private fund advisers, we expect that the universe of SEC-registered advisers will shrink to about 9,000, representing a 17% decrease.”

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