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RIAs rebounding, but regulatory uncertainty looms large

Most registered investment advisers had a solid 2010 — expanding their businesses, adding clients and even bumping up…

Most registered investment advisers had a solid 2010 — expanding their businesses, adding clients and even bumping up their budgets a bit. Their expectations for the future, however, are not quite as optimistic.

In a recent survey of roughly 500 RIAs conducted by TD Ameritrade Institutional, close to 85% of respondents said they will have to spend more time on compliance, eating away at time they could be spending with clients.

About half of these advisers surveyed also admitted that they know little about how the Dodd-Frank Act will affect their business.

“That’s just an absolute stunner,” said Skip Schweiss, managing director of advisor advocacy and industry affairs at TD Ameritrade Institutional. “I understand that there’s a lot of uncertainty on Dodd-Frank and that it set in motion regulatory studies and rulemaking, but I would hope advisers would have a sense for the critical points.”

Among the issues of most concern to advisers:

• The SEC’s mandated study of the fiduciary standard of care. The Securities and Exchange Commission is due to submit a report to Congress this month about the gaps in regulatory oversight between investment advisers and broker-dealers, and whether a universal fiduciary standard should be imposed on everyone who provides retail financial advice.

• The increase in the assets-under-management threshold that governs whether firms will be overseen by the SEC or state regulators.

• The new “narrative” Form ADV Part 2, which requires firms to describe for public disclosure the services their advisers offer, what conflicts of interest may exist and other details about their business practices.

Advisers are dealing with the new requirements with varying degrees of comfort, said Mr. Schweiss, who also is president of TD Ameritrade Trust Co.

“I heard an adviser and chief compliance officer tell me the other day, “I don’t understand the big deal; I wrote my firm’s new ADV in four hours,’” Mr. Schweiss said. “But others will say they’re paying $20,000 to a law firm to rewrite the ADV.”

On the positive side, 75% of the RIAs polled by TD Ameritrade said that their firms have grown in the last six months, compared with 15% during the year-earlier period. Sixty-four percent of the polled advisers said the bulk of that growth is coming from broker-dealers’ and wirehouses’ lost business, compared with 7% a year earlier.

The growth has resulted in increased spending at the firms. RIAs raised budgets on professional development and employee benefits by an average of 41% over last year; they stepped up budgets on staffing by 59%.

E-mail Darla Mercado at [email protected].