Page 22 - Investment Advisor October 2022

Cover Story

“RIAs had historically
ment services for individuals, the report said.
While nearly 88% of the SEC-registered advi- grown faster after a crisis
sors had under $5 billion in AUM, 92.5% of
industry assets were managed by firms with because they take care of
AUM over $5 billion, according to the report. their clients better than
Asset growth has been strongest for advisors with
over $100 billion in AUM. any model out there.”
“The industry is dynamic, with significant” advi-
sor turnover, particularly among advisors with under $1 —David DeVoe
billion in assets, the report explained. “Mergers and other
types of reorganizations have been a significant contributor to EDGE conference in Hollywood, Florida, in late June.
this turnover.” RIAs had historically grown faster after a crisis “because they
In each of the past eight years, the number of SEC-registered take care of their clients better than any model out there,” he
advisors has increased, while the number of brokerage firms has explained. “And once that crisis is over,” those clients will talk
declined, the report noted. “The results of the 2022 Snapshot with their family and friends and say how their advisor helped
confirm investors recognize the value of fiduciary advice in them, and at least some of those they speak to will realize their
helping them meet their financial goals, whether planning for wirehouse rep didn’t do such a great job of helping them, he noted.
retirement, saving for homeownership or funding an educa- That leads to more referrals, and “more than 40% of growth
tion,” according to Karen Barr, IAA CEO and president. comes from client referrals,” DeVoe pointed out. “So during a
“With the vast majority of firms employing 50 or fewer peo- crisis where RIAs really shine, we’ve typically seen an uncoil-
ple, it’s clear small businesses serving individual investors are ing spring after that,” he said. Although that hasn’t happened
the backbone of the investment adviser community,” she added. quite yet, he told attendees: “I’d like to think that the spring
Other highlights of the report included: will actually uncoil next year.” Based on what he’s seen so far,
• The nearly 15,000 SEC-registered advisors employed over DeVoe said the “good news is 72% of advisors will say that
928,000 non-clerical employees. their growth is higher” than it was a year ago.
• Asset growth was highest for the largest advisors. Advisors Why is growth so important for an RIA firm? For one thing,
with over $100 billion in assets saw compound annual growth its “valuation will increase, but there’s a variety of other ele-
in assets of close to 15% over the past four years, far ahead of ments as well,” according to DeVoe. A company that is grow-
advisors with $100 million to $5 billion in AUM, who saw ing is also “really in a position to improve what your company
compound growth of about 6% over the same period. does.” He explained: “As you achieve your scale specialization,
• The number of private funds grew by 15.2% in 2021. as you get bigger, you can add more services or capabilities or
Growth was in the double digits for all types of private even products, you can get into deeper financial planning or
funds, except hedge funds and liquidity funds. alternative investments [and] a whole variety of things.”
“This year’s report underscores the diverse nature of the A growing RIA has to put more processes in place, but it’s
industry and its tremendous growth, most notably in terms of the “becoming a more industrial-strength company, and you miti-
number of individuals and the number of private funds,” accord- gate a lot of risk for the company,” he said. “So it’s really good
ing to John Gebauer, NRS president. “These trends are clearly for the company.”
having an impact on the SEC’s focus areas for examinations and DeVoe also explained: “It’s also good for your clients
rulemaking, as evidenced by the proposals made earlier this year [because] the bigger you get, the better you’re able to serve cli-
which aim to increase protections for private fund investors.” ents. You have more and more staff, junior and senior. You can
tailor your services more. You can be more responsive to what
Why Growth Matters their needs are. And … you can have a greater set of products
Growth, whether organically or through mergers and acquisi- and capabilities that you can offer them.”
tions, is crucial for RIA firms, and it’s not only good for its own- If the owner of an RIA firm just dwells on the growth in and
ers but also its advisors and other staff, as well as its clients, of itself, he warned that their engagement level may not be very
according to David DeVoe, CEO and founder of the RIA con- high. It’s much smarter to say something like: “Hey, you know
sulting firm DeVoe & Co. Since the start of the pandemic, RIAs what? We’re doing something really, really good for the U.S.
have been “doing a much better job than other parts of the investors overall. ... We’re taking care of our friends to help them
industry,” including hybrid RIAs and wirehouses, he said at the manage their money better. And frankly, this is a good thing.”

20 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com