RIAs Grow in Numbers and AUM

The number of federally registered investment advisors and the assets they manage continues to jump, with the number of SEC-registered advisors reaching 12,578, an increase of 406 advisors (or 3.3%) since last year, according to a the latest poll by Investment Adviser Association.

SEC-registered advisors’ AUM now stands at $82.5 trillion, a 16.7% increase from $70.7 trillion in 2017, the largest percentage increase since 2014, according to the “2018 Evolution Revolution” report, written by IAA and National Regulatory Services and provides a snapshot of the SEC-registered advisor universe.

“This year’s data demonstrates dramatically that the investment advisor profession remains dynamic, robust and critically important to investors and the capital markets,” said Karen Barr, IAA’s president and CEO, in releasing the report. “And investment advisors remain a powerful provider of high-quality jobs to the economy, including in small businesses.”

The report highlights the following characteristics for the “typical” SEC-registered investment adviser:

• Works with a team of nine employees;
• Serves individual clients, not institutions;
• Has $359 million in regulatory assets under management;
• Manages 124 client accounts;
• Has at least one pension/profit-sharing plan as a client;
• Exercises discretionary authority over most accounts;
• Does not have actual physical custody of client assets or securities; and
• Works via a U.S.-based limited liability company headquartered in California, Connecticut, Florida, Illinois, Massachusetts, New Jersey, New York, Ohio, Pennsylvania or Texas.

The RIA industry is made up of small businesses, with 56.8% (7,147) of advisory firms reporting in 2018 that they employ 10 or fewer non-clerical employees, and 87.5% (11,011) reporting employing 50 or fewer individuals.

Individual clients represent 94.1% of the client population, with non-high-net-worth individuals making up the majority of clients, at 81.8%.

The report found that investment advisors managing more than $100 billion in regulatory assets under management grew at a faster pace than smaller advisors in terms of both number of firms and AUM.

Asset-based fees continue to dominate, with 95.3% of RIAs indicating that they are compensated based on a percentage of their assets under management.

The number of firms charging commissions dropped to 3.6% of all advisors in 2018, down from 4.1% and 4.5% in 2017 and 2016, respectively — likely due to the demise of the Labor Department’s fiduciary rule, the report states.

“Another, perhaps related, trend is the increase in the number of advisors reporting charging fixed fees,” the report said. The number of RIAs taking fixed fees jumped to 5,445 (or 43.3%) in 2018 versus 4,992 (or 42.1%) in 2016.

“Many factors are potentially contributing to this increase in fixed fees, including generational turnover as younger investors may prefer a subscription-like model when paying for financial advice,” the report added.

Private equity funds make up 38.5% of all reported private funds while hedge funds represent 31.7%. In 2018, advisors reported “1,104 additional private equity funds but a loss of 200 reported hedge funds,” the report notes.

The report also includes new Form ADV reporting stats on RIAs’ business practices, including how they invest separately managed accounts and their use of leverage and derivatives, which firms were required to report starting on Oct. 1, 2017.

Form ADV data showed 69.1% of reporting advisors have assets for separately managed accounts while only 12.2% of advisors engage in derivative transactions on behalf of any of the SMA clients.

Based on disciplinary disclosure information provided in Form ADV, Part 1, the report found that 10,863 RIAs (86.4%) reported no disciplinary history at all, the same percentage of advisors reporting no disciplinary history last year.

Washington Bureau Chief Melanie Waddell can be reached at mwaddell@alm.com.