The RIA business continues to expand while the brokerage industrycontracts.
According to the latest Evolution
Revolution report produced jointly by
the Investment Adviser Association and
National Regulatory Services, the number of SEC-registered investment advisory firms grew 3.3% over the past year
to 12,933 while the number of broker-dealers fell 2.8% to 3,607.
RIA employment grew at an even
faster rate, up 3.7% to 835,124, with
over half (52%) of employees providing
investment advisory services, including
research. Their numbers rose 20,000
over the past year to 436,256.
The number of RIA clients increased at
a much higher rate on a percentage basis.
SEC-registered advisory firms reported a
26% jump in clients to 43 million, boosted
in part by digital advice platforms.
Regulatory assets under management
(RAUM) by RIAs also grew, to $83.7
trillion, almost four times the AUM
reached in 2001. That figure, however,
overstates assets because more than one
advisor and fund subadvisors can claim
the same assets, according to the report.
The compound annual growth rate
(CAGR) of assets since 2001 is 8.2%, far
more than the 4.7% CAGR in the S&P
500, indicating that a good share of asset
growth likely came from new clients in
addition to gains in smaller cap stocks
and other asset classes.
The typical RIA firm in 2019 has $341
million in AUM, nine employees and 141
accounts, according to the 2019 Evolution
Revolution report. The firm is more than
likely a limited liability company, located
in one of 10 states: New York, California,
Texas, Massachusetts, Illinois, Florida,
RIA LESSONS & LEADERS
By Bernice Napach
RIA Business Is Changing in a Big Way
SEC-registered advisory firms reported a 26% jump in clients to 43 million,
boosted in part by digital advice platforms.
2012 2013 2014 2015 2016 2017 2018 2019
Source: 2019 Evolution Revolution, IAA and NRS
Gap Between the Number of RIA Firms and BDs Widens
Pennsylvania, Connecticut, New Jersey
and Ohio, listed in declining order of the
number of firms.
The 5.7% growth in the number of
firms in the western U.S. is almost three
times the growth rate of the number of
firms in the east. A little more than one-third of firms have more than one office.
Despite the increasing number of
firms, just 148, equivalent to only 1.1% of
SEC-registered advisors, manage almost
60%, or $50 trillion, of RIA assets. In
contrast, close to 310,000 firms, managing less than $1 billion each, oversee a
cumulative 3.1% of total RIA firm assets.
More than 82% of firm clients are
non-high net worth individuals, which
the report defines as individuals with
less than $1 million in assets under management with an advisor or whose net
worth is $2.1 million or less, excluding
the value of a primary residence.
One key area where RIA firms have shown
little change in recent years is the fees they
charge. Just over 95% of individual advi-
sors were compensated as a percentage
of AUM in 2017, 2018 and 2019, though a
slightly smaller percentage collected com-
missions — 3.2% in 2019 compared to 3.6%
and 4.1% in 2018 and 2017, respectively.
The Evolution Revolution report sug-
gests that the decline in commission-based
compensation was likely due to expecta-
tions of the Labor Department fiduciary
rule, which was eventually vacated.
Slightly fewer advisors are collecting
performance-based compensation in 2019
compared with the two preceding years —
37.1% versus 37.4% and 38.2%. But slightly
more individual advisors are paid with
fixed fees — 44% in 2019 versus 43.3%
and 42.3%. A slightly higher percentage of
individual advisors are collecting hourly
fees: 29.6% versus 29% and 28.5%, in each
of the preceding two years. The report
suggests the recent increase reflects a
preference among younger investors.
The findings of the Evolution
Revolution report are based on Form
ADV, Part 1 filed by all SEC-registered
investment advisors as of April 10.
Bernice Napach can be reached at