Handful of advisers control the majority of client assets

IAA study shows that the top 1% of firms manage more than half of all assets

Oct 14, 2014 @ 1:34 pm

By Mark Schoeff Jr.

As the demand for investment advice increases, only a handful of advisers control the majority of client assets, according to a study by a leading adviser group released Tuesday.

The 112 largest investment advisers (the top 1%), or those with more than $100 billion in regulatory assets under management, claim 52.6% of the asset pie, according to a report by the Investment Adviser Association and National Regulatory Services. Advisers with less than $1 billion in assets, or 71.5%, control 3.5% of total assets.

The study, Evolution Revolution, is based on adviser registration documents on file at the Securities and Exchange Commission as of April 7. Regulatory assets under management, or RAUM, include uncalled capital commitments and proprietary assets as well as client assets.

The total amount of RAUM has risen by 12.6% since last year, from $54.8 trillion to $61.7 trillion.

“By any measure — even acknowledging that this number includes some amount of double-counting of client assets — this is a staggering number,” the report states. “It underscores the critical role played by the investment advisory profession in the financial lives of both individuals and institutions.”

The total number of clients of investment advisers grew by 9.3% over the year from April 2013 to April 2014, from 25.5 million to 27.8 million.

The study attributed the growth in clients and assets to “rising equity markets, organic growth and the enhanced value investors may perceive in professional investment advice.”

(More insight: The real reason behind advisory firms' big gains in AUM)

As the financial markets recover and investing becomes more complex, people are turning to advisers, said Karen Barr, IAA general counsel.

“This industry is really growing and thriving and clients are demanding more investment advice,” said Ms. Barr, who will replace David Tittsworth as IAA president and chief executive in November. “Folks are getting a little less inclined to keep their money under their pillow the last couple of years. This is a great opportunity for advisers to provide value to clients.”

Most advisory firms are small operations, with 52.9%, or 5,768, saying they have five or fewer employees who conduct investment-advice functions, and 73.2%, or 7,980, saying they have 10 or fewer.

The report illustrates that the “typical SEC-registered investment adviser” has $331.2 million in RAUM, nine employees, between 26 and 100 clients and 100 accounts. All of those figures represent the median of each category.

The number of advisers who retain custody of client assets increased from 4,530 in 2013 to 4,703 in 2014. The number of advisers reporting that they advise private funds rose to 4,156 (38.1%) in 2014 from 3,811 (36.2%) in 2013.

The total number of advisers registered with the SEC rose 362 to 10,895 in 2014. Prior to 2013, the SEC had more than 11,000 registered advisers. The number decreased because smaller advisers with less than $100 million in RAUM moved from the SEC to state oversight under the Dodd-Frank financial reform law. That measure also required the SEC to take on about 1,500 private fund advisers.

After the shift in its registrant makeup, the SEC still has nearly 11,000 advisers under its aegis and their RAUM has become more complex with the influx of private advisers.

The IAA is pressing Congress to increase the SEC's funding for adviser regulation. Ms. Barr said the SEC also should conduct an “internal reallocation of resources to better focus on investment advisers.” That effort could include moving SEC broker-dealer and credit-rating-agency examiners to adviser oversight.

The huge concentration of assets with large advisers could help the SEC target its exam resources, Ms. Barr said.

“The SEC has the ability to cover most of the assets,” Ms. Barr said. “They could also try to figure out ways to touch the huge number of smaller advisers.”


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