The number of registered investment advisors as well as the assets they manage continues to grow, with SEC-registered advisors jumping to 12,172 in 2017, a net increase of 2.7%, and their aggregate assets under management hitting a record high of $70.7 trillion, according to the Investment Adviser Association’s annual snapshot of the industry.
The 17th edition of the report, 2017 Evolution Revolution, the joint study by IAA and National Regulatory Services, released Monday, is derived from Form ADV, Part 1 data filed by all investment advisors registered with the Securities and Exchange Commission as of April 10. (As the report points out, advisors are bracing for major reporting changes regarding Form ADV that kick in on Oct. 1).
The report found that assets managed by advisors grew a healthy 5.8%, up from $66.8 trillion in 2016, which IAA and NRS attribute to strong stock market performance over the past year.
“This year’s findings demonstrate that the investment advisor industry remains robust and continues to expand, providing high-quality jobs to our economy,” said Karen Barr, IAA’s president and CEO, in releasing the report. “More importantly, they demonstrate that our industry is flexible and resilient, adapting successfully to the rapid pace of change in the financial services ecosystem.”
Another finding: As the number of advisors has risen, the number of broker-dealers has dropped.
As of March, the number of securities registered reps has “reversed its five-year growth trend, dropping slightly from 635,902 in 2016 to 633,822,” the report says.
More than half of these reps (approximately 60%) are employed by SEC-registered investment advisors (SEC-registered advisors reported employing 386,413 registered reps in 2017), the report points out.
“This signifies a 1.5% increase in the number of registered representatives employed by registered investment advisors (380,853 in 2016).”
Internet advisors are also growing, with the number of such firms increasing by 20 since last year’s report, to 146 — a 15.9% increase.
“While the growth of internet advisors continued at a brisk pace, ostensibly due to the ongoing interest in robo-advisors and robo-technology, it did not eclipse the previous year’s growth rate of 59.5%,” the report said.
Certain internet advisors, the report said, “have a website but do not appear to be actually doing business — they are essentially shelf registrations. As the robo-tech industry has evolved, many advisors have evolved into hybrid, or ‘bionic’ advisors, and have incorporated human advice alongside robo-advisory solutions.”
Selection of the “bionic option precludes registration as an internet advisor, which limits non-electronic advice to a maximum of 15 clients in a 12-month period,” the report adds.
NRS President John Gebauer added in the statement that “technological advancement and automation in the investment advisor industry is both a response to client needs and expectations and a driver that is expanding the client base for financial advice. This report shows that advisors have evolved and specialized their practices to reach their clients.”
Next year’s Evolution Revolution report will likely be chock-full of data and analysis on the Form ADV Part 1 changes that hit on Oct. 1, which will require RIAs to report additional data about separately managed accounts.
The enhanced data collected will include information on the types of assets owned by SMA clients, and certain advisors will be required to provide information on borrowings and the use of derivatives, including gross notional exposure of derivatives in the aggregate held in client SMAs.
Advisors will also be asked to disclose more information about their advisory business, including data on clients, social media, branch offices, custodians and outsourced chief compliance officers, the report points out.
A single registration for certain groups of private fund advisors operating as a single advisory business will also be allowed.
Yet another finding of the report is that asset-based fees continue to dominate in the investment advisory profession.
“Consistent with our prior reports, 95% of advisors indicate that they are compensated based on a percentage of their assets under management.”
The slight decrease in the number of firms charging commissions likely reflects the decrease in the number of dual registrants, the report adds. “It is possible that this decrease may become more pronounced next year in response to the Department of Labor’s fiduciary rule.”
— Check out How Edelman Keeps Its Clients Happy (Without Cutting Fees) on ThinkAdvisor.