RIAs rebounding, but regulatory uncertainty looming large

Most registered investment advisers had a solid 2010 — they expanded their businesses, added clients and were even able to bump up their budgets a bit. Their feelings for the future, however, are not quite as fond. According to a recent survey of roughly 500 RIAs conducted by TD Ameritrade Institutional, close to 85% of advisers said they will have to spend more time on compliance — which will eat away time they otherwise could be spending with clients. About half of these advisers 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 that would come into fruition, but I would hope advisers would have a sense for the critical points.” A top focal point for advisers is the Securities and Exchange Commission’s mandated study of the fiduciary standard of care. Further, Dodd-Frank raised the assets-under-management limit needed for firms to be overseen by the SEC to $100 million, from $25 million, requiring some 4,200 RIAs to switch from SEC to state oversight. Also, advisers have been handling their new “narrative” Form ADV Part II with varying degrees of comfort, Mr. Schweiss said. This new ADV form publicly describes the services advisers offer and provides details on their business practices and conflicts of interest. “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 said that their firms have grown in the last six months, compared with 15% during the year-earlier period. Meanwhile, 64% 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. That growth has resulted in increased spending at the firms, mostly on professional development and beefing up their staff, according to the survey. RIAs raised budgets on professional development and employee benefits by 41% each, compared with last year, and they stepped up budgets on staffing by 59%.