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June 12, 2012 at 08:25 AM
Back in 1999, Mark Hurley (then founder and CEO of Undiscovered Managers Funds, and now founder and CEO of Fiduciary Network) wrote a highly acclaimed research report about the future of independent financial advice, which he updated in 2005. Both Hurley Reports, as they became known, asserted among other things that the advisory industry would undergo a consolidation which would ultimately result in the creation of 40 to 50 mega-RIA firms, which, with $15 billion to $20 billion or more in client AUM, would dominate the industry. The driving force behind this consolidation, contended Hurley (a former Goldman Sachs investment banker), would be the combination of higher market valuations of larger pools of client assets and a large—and growing—pool of potential clients that could be more readily attracted with larger marketing budgets.
Of course, Mark’s predicted consolidation hasn’t taken place—yet—but we have seen significant industry evolution in that direction: Today, there are more than two dozen advisory firms with over $1 billion in AUM, a figure what was virtually inconceivable a decade or so ago. It’s also fair to say that both the Dot.com crash and the Mortgage Meltdown, followed by the Great Recession, undoubtedly slowed down his timetable. Yet, to my mind, Hurley’s consolidation is about to get a massive HGH injection from an unpredicted source: the reregulation of RIAs.
After last week’s hearing of the House Financial Services Committee, it seems likely that theSpencer Bachus bill, designating FINRA as the regulator of RIAs, taking over those duties from an over-extended and underfunded SEC, will move out of Committee.
And, as it seems equally likely that the Republicans will retain control of the House and maybe gain control of the Senate in November, FINRA has a better than even chance of achieving that long-sought goal (even, as seems likely now, if the Bachus bill doesn’t get to a House Financial Services Committee vote or to the House floor until after the election).
