Ranks of advisers thin out for first time in a decade

Number of RIAs down 1%, but AUM rose 13.7% in 12 months

By Mark Schoeff Jr.

Sep 4, 2011 @ 12:01 am (Updated 9:15 am) EST

The number of investment advisers registered with the Securities and Exchange Commission has fallen for the first time in 10 years, while the assets that they manage have increased sharply, according to a report released last week.

As of May 1, there were 11,539 registered advisers, a decline of 104, or 1%, over the preceding 12-month period. The total value of their assets under management, however, shot up to $43.8 trillion, from $38.6 trillion last year, a 13.7% increase.

The statistics were compiled from ADV reports by the Investment Adviser Association and National Regulatory Services.

The 2011 Evolution Revolution report cited two possible explanations for the drop in the number of registered investment advisers.

First, financial advisers with less than $30 million in assets under management already may have started to transition to state regulation. Under the Dodd-Frank financial reform law, advisers with less than $100 million must switch to state oversight by June 2012.

A second reason for the decrease in registered advisers may be “increased consolidation among small advisers,” according to the report.

This year's report demonstrated a continuing trend of asset concentration.

The 78 largest advisers — those with more than $100 billion under management — controlled 50.9% of all reported assets. The 565 advisers with $10 billion or more in assets under management managed 84.4% of all assets.

Although they handle large amounts of money, advisory firms tend to be small businesses, with 81.2% managing less than $1 billion in AUM and 41.3% managing less than $100 million, according to the report.

'TYPICAL ADVISER'

The “typical adviser is a U.S.-based limited liability company or corporation with discretionary authority over most of its 133 accounts,” according to the report. “It manages $136.3 million in assets for 26 to 100 clients with one to five full- and part-time non-clerical staff.”

The report demonstrates that advisers are an increasingly important player in the financial services industry, according to one of the report's sponsors.

“When one considers the volatility experienced in the markets over the past few years in combination with the impressive growth in assets managed by investment advisers, it seems that investors are increasingly relying on the services offered by investment advisers and that advisers play a critically important role in the financial health of nearly 20 million clients,” NRS managing director John Gebauer said in a statement.

The Dodd-Frank registration rule changes, however, will dramatically alter the mix of advisers who fall under the SEC's aegis. About 3,200 smaller advisers will switch to state registration, while the SEC adds about 700 private fund advisers.

The adjustment will leave the SEC with about 9,000 registered advisers next year, a decrease of 17%, according to the report.

“There will be dramatic shifts in the profile of the investment advisory profession when certain provisions of the Dodd-Frank Act are implemented next year,” IAA executive director David Tittsworth said in a statement.

Email Mark Schoeff at mschoeff@investmentnews.com

  @IN Wire

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