Investment advisory firms have reached record levels in their numbers, employment and assets under management, according to a study released Tuesday.
In its annual Evolution Revolution report, the Investment Adviser Association said a total of 13,494 advisory firms were registered with the Securities and Exchange Commission at the end of 2019. That’s an increase of 3.9% since the organization’s survey last year based on 2018 SEC statistics.
Total employment in the advisory sector was 871,971, a 4.4% increase over 2018, and total assets under management were $97.2 trillion, a 16.2% jump from 2018.
The IAA said the advisory sector set records in each category. The study, which was conducted by IAA and National Regulatory Services, is based on an analysis of data reported to the SEC by advisory firms.
“In every key metric — from industry size to assets under management to high quality jobs created — the investment adviser profession showed solid growth, underscoring our critical value to investors, to the economy and to our capital markets,” IAA chief executive Karen Barr said in a statement. “Investors continue to recognize the value of fiduciary advice, turning to investment advisers to help them achieve their goals and navigate their financial futures.”
The report is based on data culled before the new broker investment advice standard, Regulation Best Interest, was implemented in June. The SEC is continuing to regulate separately investment advisers, who are fiduciaries to clients, and brokers, who are governed by Reg BI.
Fiduciary advocates assert the standard better protects investors from conflicts of interest than Reg BI does. That may contribute to further advisory sector growth, according to the report.
“While it remains to be seen how the SEC will implement and enforce Regulation Best Interest and whether the package will ameliorate investor confusion, this significant development may continue to accelerate the secular trend, as documented in this report over the years, of an increase in the number of advisory firms, clients, employees, and investment advisory representatives, and a reduction in the number of registered broker-dealers and registered representatives,” Barr and NRS president John Gebauer wrote in a letter accompanying the report.
In its advocacy for RIAs, the IAA always stresses that most firms are small businesses. The report shows that more than half — 57.4% — of advisory firms employ 10 or fewer non-clerical employees, while 87.6% employ 50 or fewer.
Individual investors comprise 95% of RIAs’ more than 42 million clients, and about 87.7% are non-high net worth, the report states.
The study notes the growth of online investment advice.
“Two of the top five advisers as measured by number of non-high net worth individual clients served are digital advice platforms, representing 7.5 million clients, an increase of 2.7 million clients from our 2019 report,” the study states.
The study also indicates that more investment advisers are working with private equity funds. It says 4,840 advisers reported advising 40,742 private funds with a total gross asset value of $19.1 trillion, up from 4,520 advisers and 37,873 private funds and up from $14.9 trillion gross asset value in 2018.
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