What fees and services are state RIAs offering?

A new report from the North American Securities Administrators Association reveals an updated picture of how state-registered investment advisors are incorporating different fee models and service offerings into their practices.

The report published Tuesday provides a comprehensive profile of the industry, with snapshot data capturing roughly 17,000 firms as of December 31, 2023. Collectively, the firms reportedly had 838,648 clients, around four-fifths of whom were retail investors and roughly one-fifth being high-net-worth clients.

"The report shows continued growth in the number of state-registered investment advisers in communities large and small across the U.S.," NASAA president Claire McHenry said in a statement. 

From an asset perspective, NASAA's annual report on investment advisors found state-registered IAs ended last year with roughly $362 billion in collective AUM, a nearly $60 billion decline from the 2022-2023 reporting period.

The report found asset-based models are still very much the favorite, with 84 percent of firms saying they charge clients based on a percentage of AUM. Fixed fees and hourly billing were practically tied for second at 51 percent, with fixed fees ahead by just a fraction of a percentage point.

Nearly one in 10 firms said they put skin in the game with performance-based fees. Commissions and subscription-based pricing saw marginal adoption, with just 2.8 percent and 1.6 percent of firms using them, respectively.

When it comes to services, portfolio management for individuals emerged as a bread-and-butter offering used by 84 percent of firms in NASAA's 2023 census. Financial planning was a strong second, reported by two-thirds (64 percent) of state RIAs.

One in four firms said they were involved in selecting other advisors, while roughly 17 percent said they offer pension consulting services. A slightly smaller cohort, a little over 15 percent, said they do portfolio management for business and institutional clients, while 4.4 percent said they manage portfolios for pooled investment vehicles.

NASAA also recapped its members' enforcement actions last year, with examinations that uncovered and resolved "major deficiencies and violations of securities laws and rules."

According to NASAA's report, the top 10 causes of enforcement action for 2023 were:

• Failure to register as an investment adviser
• Failure to register as an investment adviser representative
• Fraud
• Failure to maintain adequate compliance policies and procedures
• Breach of fiduciary duty and failure to disclose conflicts of interest (tie)
• Fees
• Violating adviser’s existing policies and procedures.
• Suitability violations.

Equities, ETFs, and private placements also emerged as top issues involved in formal and informal actions against state RIAs and investment advisor reps, NASAA noted, along with failures to disclose disciplinary actions.