IAA snapshot portrays a thriving RIA sector

Registered investment advisers continue to thrive, with more of them managing more assets than ever, according to a report released Thursday.

The study, Investment Adviser Industry Snapshot 2022, shows there were a total of 14,806 investment advisory firms registered with the Securities and Exchange Commission at the end of 2021, a 6.7% increase from 13,880 at the end of 2020.

The firms served a record 64.7 million clients, a 6.4% increase. Assets managed by the firms reached a record $128.4 trillion in 2021, a surge of 16.7% from $110 trillion in 2020.

“Again this year, the report paints a picture of a vibrant industry,” according to the report, which was written by the Investment Adviser Association and the consulting firm National Regulatory Services. “Growth was especially strong in 2021, reflecting the economic rebound driven by the post-pandemic reopening and the stock market surge. The number of SEC-registered advisers, the number of clients they serve, the assets they manage, and the number of people they employ all reached record highs in 2021.”

The vast majority of investment advisers — 87.9% — have less than $5 billion in assets under management, but most industry assets — 92.5% — are managed by firms with more than $5 billion in AUM, according to the report.

“Asset growth has been strongest for advisers with more than $100 billion in assets under management,” the report states.

The investment advice sector continues to be made up mostly of small businesses. The report found that more than 88% of advisory firms employ 50 or fewer people.  

The findings are based on advisory firms’ Form ADV Part 1A filings with the SEC. The study is the second snapshot that the IAA and NRS have produced, following last year’s report. Previously, they released an annual study called Evolution Revolution.  The RIA snapshot is a counterpart of sorts to Finra’s industry snapshot, which profiles the brokerage industry.

IAA CEO Karen Barr attributed the continuing strong growth of the RIA sector in part to the standard of care RIAs must meet. They are held to a fiduciary duty, which requires them to act in the best interests of their clients. Brokers must adhere to Regulation Best Interest, which was implemented by the SEC in 2020.

“The results of the 2022 Snapshot confirm investors recognize the value of fiduciary advice in helping them meet their financial goals, whether planning for retirement, saving for homeownership or funding an education,” Barr said in a statement. “With the vast majority of firms employing 50 or fewer people, it’s clear small businesses serving individual investors are the backbone of the investment adviser community.”

The type of work advisers are doing continues to evolve. The number of private funds managed by RIAs grew by 15.2%.

“This year’s report underscores the diverse nature of the industry and its tremendous growth, most notably in terms of the number of individuals and the number of private funds,” NRS President John Gebauer said in a statement. “These trends are clearly having an impact on the SEC’s focus areas for examinations and rulemaking, as evidenced by the proposals made earlier this year which aim to increase protections for private fund investors.”  

The RIA geography also is changing, with the most growth occurring in the South.

“Florida has seen the strongest gains in number of advisers, while the number of advisers in New York has fallen,” the report states.