More Advisers, More Assets Under Management in 2017
2017, at least so far, has been a good year for the investment adviser profession. There are more investment advisers, more registered assets under management and continued job growth.
That’s according to the 17th Annual Evolution/Revolution study, released August 1 by the Investment Adviser Association and National Regulatory Services. The information in the report, which was taken from Form ADV, Part 1 data filed by all SEC-registered advisers as of April 10, 2017, shows that the trend in adviser, RAUM and job growth begun in recent years is still underway.
The 2017 "typical" SEC-registered adviser, according to the study, meets the following characteristics:
Twenty-six to 100 clients, with 108 accounts,
Most clients are individuals,
Highly likely to have at least one pension/profit-sharing plan as a client,
RAUM of $333 million,
Exercises discretionary authority over most accounts,
U.S.-based limited liability company headquartered in one of the following states: New York, California, Texas, Massachusetts, Illinois, Florida, Pennsylvania, Connecticut, New Jersey or Ohio; and
Does not have actual physical custody of client assets or securities.
"This year’s findings demonstrate that the investment advisory industry remains robust and continues to expand, providing high-quality jobs to our economy," said IAA president and chief executive officer Karen Barr. "More importantly, they demonstrate that our industry is flexible and resilient, adapting successfully to the rapid pace of change in the financial services ecosystem."
IAA assistant general counsel Laura Grossman said that the growth is remarkable "considering the challenges the industry has faced in the past year with new regulations, the Department of Labor’s Fiduciary Rule and changes in the SEC. The industry has nonetheless continued to grow and prosper."
"Advisory firms can use the report as a rough benchmark of their activities and operations compared to other firms as well as viewing the big picture of the entire profession," said Ropes & Gray counsel David Tittsworth. He noted that, since all of the data in the report are required by the SEC, "it is likely the most accurate overall summary of the advisory profession."
The number of SEC-registered investment advisers continued its growth trend, but more slowly than in recent years, the report shows. The number of such advisers grew to 12,172 this year, representing an increase of 2.7 percent. While that continues a trend that began in 2014, it is also the slowest increase in the growth in the number of advisory firms since that year, when the number of firms grew by 3.4 percent, followed by 5.3 percent in 2015, and 3.3 percent in 2016.
On the other hand, there are about 1,600 more advisory firms now than there were in 2012, when there were 10,511, the report shows.
Within these numbers are other findings, such as:
More than half of all SEC-registered advisers have RAUM between $100 million and $1 billion. Advisers managing this range of assets also saw the largest total increase in the number of advisers increasing by 201 or 3 percent, the report says. At the same time, advisers with RAUM between $1 and $25 million showed the largest percentage increase.
The number of Internet advisers increased by 20 since 2016, rising to 146, a 15.9 percent increase. "While the growth of Internet advisers continued at a brisk pace, ostensibly due to the ongoing interest in robo-advisers and robo-technology, it did not eclipse the previous year’s growth rate of 59.5 percent," the study said.
More assets to manage
The 2017 report found that the amount of aggregate RAUM managed by SEC-registered advisers "remains substantial" at $70.7 trillion, which is up from last year and a record high. "RAUM managed by advisers grew a healthy 5.8 percent from $66.8 trillion in 2016," it says, attributing the increase primarily to the strong stock market in the past year.
The $70.7 trillion RAUM figure "is more than three times 2001 AUM levels," according to the study. The methodology used to calculate RAUM "changed significantly" in 2012 from the previous methodology, which was used to track AUM.
"The total industry aggregate AUM/RAUM has grown 220 percent since 2001 – a compound annual growth rate of 8.1 percent," the study says, noting that, by comparison during the same period, the S&P 500 and the U.S. gross domestic produced, respectively, had growth rates of 4.6 percent and 3.8 percent.
Job growth and more
Following are some other results from the report:
Job growth remains strong but flat. Advisers registered with the SEC reported a total of 778,002 non-clerical employees, which the report says is "relatively flat" since 2016. "Of these employees, however, 400,163 provide investment advisory services (including research) – a healthy increase of 13,621 since 2016."
More private funds and private fund advisers. "The number of private funds and registered private fund advisers is growing," according to the study. The numbers jumped from 4,448 private fund advisers advising 32,445 funds with $10.5 trillion in total gross assets in 2016 to 4,574 advisers advising 34,409 private funds with total gross asset value of $11.5 trillion in 2017. In addition, it seems that private equity funds are surpassing hedge funds. The report notes that while the percentage of hedge funds and private equity funds was exactly equal last year, "there is now a divergence, with private equity funds making gains while hedge fund growth is stagnant." The study adds that this development "is not surprising, given recent reports within the past year of hedge fund performance issues and closures." Hedge funds now comprise 33.8 percent of all private funds, while private equity funds comprise 37.2 percent.
Most SEC-registered advisers are small businesses. "Small businesses are the core of the investment advisory industry," the report says. In 2017, it states, 56.8 percent, or 6,911 advisory firms, reported that they employed 10 or fewer non-clerical employees, while 87.4 percent, or 10,641 advisory firms, reported employing 50 or fewer employees. Nine employees is the nationwide norm.
Individual clients are tops. The report found that individuals comprise the largest category of advisory clients, with pension funds coming in second. "Almost 61 percent of advisers serve either high-net worth individuals, non-high-net worth individuals or both, while 45.6 percent reported at least one client is a pension fund or profit sharing plan (not including plan participants or state or local pension plans)," the report says. "We estimate that these clients represent $8.9 trillion and $6.2 trillion, respectively, of the total $70.7 trillion RAUM."
One type of client is typically the case. "Most investment advisers focus their services on one category of client," the study says. More than 87 percent of advisory firms, it notes, report that the majority of their clients come from a single category. As an example, the report says, 51 percent of advisers report that half of their clients are individuals, while 29 percent of all advisors report that most of their clients are pooled investment vehicles.
"The report illuminates the challenge of the SEC to keep up with a growing and dynamic industry, as well as the need of advisers to pay attention to their legal, regulatory, and compliance obligations," said Tittsworth. "It will be interesting to see how SEC chairman Jay Clayton’s investment management agenda will affect current and future regulations in the coming months."