RIA Growth Could Stall in 2025: Report

Most notable, Cruz continued, are "a change in regulatory posture" at the SEC "that will likely reverse the increase in penalties and order increase of last year, the impact of accelerated adoption of artificial intelligence in the delivery of investment advisory services, as well as the deteriorating financial market conditions brought on by economic policy uncertainties.

"Keeping up with these regulatory, technology and economic dynamics have emerged as the primary concern for firms as we approach the end of the first half of 2025," according to Cruz.

Financial regulators are now "pro-industry and focused on capital formation (in particular related to crypto and AI) and are encouraging firm innovation and away from the pace of 'regulation by enforcement' we witnessed under the previous administration,” he said.

The latest IAA-COMPLY report "proves that growth in asset management continues while regulation may slow and SEC oversight may decrease," agreed Amy Lynch, president and founder of FrontLine Compliance.

"This is a disaster for compliance as firms take on more risk. CCOs need to be on heightened alert and on top of their game now more than ever," she added. "Compliance departments need to stay vigilant."

Off-Channel Communication Fines

Headlining disciplinary actions in 2024 were violations related to off-channel communications, with 38 SEC enforcement cases being brought involving such recordkeeping violations.

The report notes, however, that most SEC-registered advisors do not report having "any disciplinary matters on record."

Lynch and Cruz agree that the off-channel communications sweep is over under SEC Chairman Paul Atkins. "The SEC made its point with these cases, and the industry has responded by adopting technological solutions to the problem," Lynch said.

For Cruz, “All indicators are that this [off-channel communications sweep] will not continue in 2025."

Atkins "sees the SEC enforcement 'returning to normal' and focusing on activities that harm investors, potentially disrupt the financial system, and that are not the product of undue regulatory burden placed on firms by the previous leadership of the SEC," Cruz said.

Off-channel enforcement "is likely to fall into this 'technical violation' category, unless the activity ties directly to a financial crime," Cruz continued. Atkins has gone farther "by testifying in front of Congress this month that the enforcement efforts of the SEC may be hampered by staffing shortages as roughly 15% of staff took advantage of severance programs or have left voluntarily."

State-Registered Advisors

In 2024, there were 16,046 advisors registered with state authorities (rather than the SEC) and 4,437 state-exempt reporting advisors that filed a Form ADV.

The number of state-registered advisors declined by 1.6% in 2024, the report states, which "appears to be at least partly the result of advisers transferring their registration to the SEC with the strong market environment making it easier for advisers to meet the minimum assets required for SEC registration."

As it stands now, advisors with at least $100 million in assets under management must register with the SEC, while smaller advisors register with the states.

SEC Commissioner Mark Uyeda said in early April, while serving as acting chairman, that he'd asked agency staff to consider raising the $100 million threshold as the number of large advisory firms continues to grow. The move comes as the agency is grappling with the departures of about 10% of its staff.

"In my view, it is time to reexamine the midsize adviser regulatory split and consider whether it should be adjusted," Uyeda said.

Other Key Stats

• At the end of 2024, $144.6 trillion in assets were managed by 15,870 SEC registered advisors, the report states.
• The number of clients served by those advisors increased by 6.8% to 68.4 million. "Reflecting strong market conditions, assets under management gained 12.6% from $128.4 trillion to $144.6 trillion, while non-clerical employment grew 2.6% to reach 1,032,455 employees."
• Most SEC-registered advisors are small businesses: In 2024, 92.7% had 100 or fewer non-clerical employees, while 68.5% managed less than $1 billion in assets.
• Advisors are also less likely to be dually registered as or affiliated with a brokerage firm — with only 15.8% of firms being dually registered in 2024 versus 37.6% in 2001.
• The report also found that advisors are increasingly likely to offer financial planning services — 45.2% in 2024 versus 32.6% in the year 2000.
• Social media use is also up "dramatically," the report states, with 61.5% of advisors having a LinkedIn account in 2024 versus 32.7% in 2016.
• Growth has shifted to the South and the West from the East. From 2014 to 2024, advisors in the South and West accounted for two-thirds of the increase in the number of advisors. In contrast, from 2001 to 2014, advisors in the East accounted for over half of the increase in the number of advisors.)
• Advisor offices are more likely to be located in private residences (17.3% of offices in 2024 versus 8.0% in 2018)
• Merger and acquisition activity has increased. In 2024, 29.3% of terminations of SEC registrations (as reported on Form ADV-W) were the result of transactions, compared with 14.5% in 2014.