The Investment Adviser Association and National Regulatory Services released on Monday their 15th annual “Evolution Revolution” study, which found that the number of advisory firms grew over 5% since the 2014 report, the largest increase in four years.
A typical Securities and Exchange Commission-registered RIA in 2015, according to the analysis, is a limited liability company in the United States with a median $332 million in regulatory assets under management. It has eight employees, serves between 26 and 100 clients and manages a median 100 accounts.
The report is based on data from Forms ADV Part 1 filed by advisors with the SEC as of April 2015. The report noted that since the 2014 report, 576 advisors withdrew their registration, while 1,154 new advisors registered with the SEC for a total of 11,473 firms.
The report noted that since the last of the Dodd-Frank related rules went into effect in June 2012, the number of SEC-registered advisors has increased more than 9%. Half of those advisors registered with the SEC in the last year.
Under Dodd-Frank, private fund advisors were required to register with the SEC, and midsize advisors, those with $25 million to $100 million in assets, switched from SEC to state registration. Smaller RIAs are registered with the states.
The total number of clients served by the industry is now nearly 30 million, a 6.8% increase since 2014, and advisors are managing a total of $66.7 trillion in aggregate regulatory assets under management. Discretionary assets increased by over $4 trillion from 2014, and nondiscretionary assets increased by just under $1 trillion.
The paper noted that industry RAUM comes with a caveat. “The industry’s aggregate RAUM overstates actual RAUM because more than one investment advisor can ‘claim’ the same assets. For example, an advisor that allocates assets among mutual funds on a discretionary basis will report a subset of the same assets that are reported by the advisors to these funds. Similarly, a sub-advisor to a fund may count the same RAUM as the primary manager of the fund. In addition, we note that the RAUM figure includes assets in addition to those actually currently invested for clients. For example, RAUM includes uncalled capital commitments, proprietary assets, cash and cash equivalents.”
The report added that since the SEC started requiring firms to report their RAUM instead of AUM, it has increased almost 35%.
While the largest firms manage over half of those assets, they make up only 1% of all firms. Most firms are managing between $100 million and $1 billion. That group also experienced the most growth in terms of number of firms, adding 295.
Most advisors have fewer than 100 clients, the report found. Over a quarter have between one and 10 clients, and 16% have between 26 and 100. Interestingly, over 3% said they had zero clients. Thirteen percent of firms reported having 500 or more clients.
The report found that almost two-thirds of advisors get most of their RAUM from one type of client. Most of those were serving individual clients, and 23% of advisors reported getting more than 75% of their RAUM from pooled investment vehicles. Thirty-six percent of advisors said no single category represented more than 75% of their RAUM.
Asset-based fees are the most common way advisors are compensated, the report found — 95% of advisors reported such compensation.
Other compensation categories were remarkably stable. Fixed fees (41.5%), performance-based fees (38.5%) and hourly charges (28.1%) were unchanged since the 2014 report. Commissions showed the biggest drop—from 5% to 4.6%.
Firms increased their nonclerical positions by over 4% for a total of 750,795 employees. The report found more than 10,000 firms have fewer than 50 nonclerical employees, and of those, 6,576 have fewer than 10.
A breakdown of employees by their primary activities shows most of them are performing investment advisory functions—over 376,509 compared with 359,862 who are registered reps at a broker-dealer.
The report acknowledged the limitations of disciplinary information provided on Form ADV Part 1: questions are broad, and ask about information over the past 10 years, including incidents with employees, officers, directors and affiliates before they were associated with the firm.
However, the report did find that the percentage of firms reporting no disciplinary information increased slightly to 86.6%.
Less than 1% of firms reported that they or an affiliate had been charged with a felony; of those, half (0.4% of all advisors) reported being convicted or pleading guilty or no contest to the charges.