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RIA Assets Jumped 12.6% in 2014: IAA/NRS Study

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Regulatory assets held by advisors registered with the Securities and Exchange Commission increased by $6.9 trillion (12.6%) in 2014 to $61.7 trillion from the $54.8 trillion held last year, with the top 1% of advisors managing more than 52% of that total, according to the Investment Adviser Association and National Regulatory Services’ Evolution/Revolution report, released Tuesday.

In their 14th annual report based on Form ADV, Part 1 data filed by all SEC-registered advisors as of April 7, IAA and NRS also found that the total number of SEC-registered advisors increased from 10,533 in April 2013 to 10,895 in April 2014.

While these advisors employ more than 700,000 persons and serve almost 28 million clients, the majority of advisory firms are small businesses. In 2014, more than half of all advisors (6,216 or 57.1%) reported having 10 or fewer full-time and part-time nonclerical employees, and 9,581 (87.9%) reported having 50 or fewer such employees. Similarly, 5,768 (52.9%) firms reported having five or fewer employees engaged specifically in investment advisory functions (including research) and 7,980 (73.2%) reported having 10 or fewer.

While small advisors “constitute the largest market segment,” noted John Gebauer, NRS’ managing director, in a statement, the largest advisory firms manage the bulk of the assets.

In 2014, the 112 largest advisors (those reporting $100 billion or more in RAUM), collectively accounted for more than half (52.6%) of all reported RAUM — a 1.7% net increase from last year — while only accounting for 1% of the total number of SEC-registered advisors, the report states.

On the other hand, advisors with less than $1 billion RAUM — which account for 71.5% of all advisors — collectively managed only 3.5% of all reported RAUM.

The report also notes that the 9,380 registered investment advisors (86.1%) reported no disciplinary history at all, which is comparable to last year, when 9,063 advisors (86.0%) reported no disciplinary history.

As to how they’re compensated, the percentage of RIAs reporting compensation based on hourly charges fell significantly from 36.5% in 2011 to 28.1% in 2014 (and was virtually flat year over year in 2012 and 2013), the report found. The initial significant decrease from 2011 to 2012 was likely the result of many smaller advisors switching to state registration under the Dodd-Frank Act; those firms are more likely to charge hourly fees, the report states.

Advisors reporting performance-based compensation fees increased from 27% in 2011 to 38.5% in 2014 (but decreased slightly from 38.9% in 2013). The report attributes the initial increase from 2011 to 2012 in the number of advisors receiving performance-based compensation to the Dodd-Frank Act’s provisions requiring the registration of certain private fund advisors, the majority of which are paid for performance.

The report also found that the number of dual-registered advisors (those entities registered both as SEC investment advisors and SEC/FINRA broker-dealers) has decreased slightly, from 480 in 2012 and 477 in 2013 to 456 in 2014.

Jon Henschen of the BD recruiting firm Henschen & Associates says the decrease in dually registered advisors is likely attributed to the fact that “fewer broker-dealers are allowing reps to have outside RIAs because it is harder to track and less profitable for broker dealers vs. advisory done through their clearing firm where they make money off of the administrative fees and ticket charges.” 

Regulators, he added, have also “been drilling down on broker-dealer supervision of outside RIAs.”

Other key findings of the report include:

  • Advisors with less than $1 billion RAUM account for 71.5% of all SEC-registered advisors but manage only 3.5% of all reported RAUM;

  • The number of clients that advisors serve increased by 9.3% year over year; 

  • Individuals continue to comprise the largest categories of clients of SEC-registered advisors. In 2014, 6,484 (59.5%) advisors reported having at least some high-net-worth clients and 5,601 (51.4%) reported having at least some non-high-net worth clients;

  • More than one-third of all SEC-registered advisors (36.2%) reported that they manage at least one private fund. Private fund advisors reported a total of 28,429 private funds with collective RAUM of $9.5 trillion – up 11.8% from 2013;

  • In 2014, 3,518 (32.3%) of investment advisors reported having custody of client cash, bank accounts and/or securities. An additional 242 advisors joined the ranks of being deemed to have custody, a 7.4% increase from the 3,276 advisors in 2013. Overall, there has been a steady increase in the number of advisors reporting custody of assets since the adoption of the revised Custody Rule in 2009; and

  • Hedge funds comprise 40% of all reported private funds while private equity funds comprise approximately 33%.

Check out LPL’s Robert Moore: RIAs Are Where the Growth Is on ThinkAdvisor.


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