RIA Asset Growth Accelerates
The registered investment advisor (RIA) industry has undergone an incredible shift over the last 14 years, with a spike in professionalization and significant private equity engagement propelling the industry to new heights. A swarm of statistics recently released by the Securities and Exchange Commission (SEC) supports this trend.
The SEC’s Investment Advisor Statistics report focuses on the expansion of the RIA industry. The effort seeks to provide a thorough perspective of the sector by examining data submitted by investment advisors via Form ADV.
The data, updated annually, addresses topics such as company activity, customer demographics, and the types of funds managed by advisors.
“Providing accessible, usable, aggregated data to the public is a critical part of the SEC’s role,” said SEC Chair Gary Gensler. “This new report will give the public a clearer view into the investment advisory industry. Such SEC-published data help the public better understand how our economy and securities markets function.”
According to the research, the number of SEC-registered RIA businesses increased 35% to 15441 from 11,458 from 2009 to 2023. Meanwhile, the number of SEC-Exempt Reporting Advisors (ERAs) increased 186% during the 14-year span, reaching 21,203.
In private funds, which include hedge funds, real estate funds, private equity funds, and venture capital funds, among others, aggregate gross funds advised by an RIA or ERA increased to $27.9 trillion in 2023, up from $9.4 trillion in 2012. In terms of number of funds, private equity investments topped the list, with 32,290 in 2023 compared to 10,719 in 2012.
The significant increase in assets under management reflects the phenomenal growth. In 2009, RIAs managed $39.4 trillion in customer assets. By the end of 2023, the amount had climbed to $128.8 trillion, a nearly 227% increase.
Despite significant increases in assets under management, most RIA firms remain relatively small in comparison to the larger firms. The Form ADV filings show that by the end of 2023, 90% of RIA businesses had fewer than 1,000 clients, while less than 2% had 10,000 or more.
Although most RIA firms have fewer clients, the larger firms handle a sizable and growing portion of the industry’s assets. In 2023, firms with more than 10,000 clients managed $39.3 trillion, or roughly 33% of the industry’s assets, compared to $6.6 trillion in 2009.
Furthermore, the number of RIAs reporting regulatory assets under management of more than $1 billion per client increased to $36.9 trillion in 2023, up from $9.7 trillion in 2009.
These developments represent larger firms’ increasing dominance and competitive power, which is fueled by their capacity to leverage economies of scale, provide complete services, and attract significant private equity investments.
Connect Money has widely covered mergers and acquisitions in the RIA space, as larger firms, particularly those backed by private equity firms, continue to swallow up their competitors.
The trend is predicted to continue, whether it is smaller firms concerned about who can internally acquire their business or larger firms trying to expand their pool of talent.
A recent report from DeVoe & Co. supports this trend. According to the consulting firm and investment bank, private equity investments increased in the first quarter, as did smaller firm sales, while larger RIA sellers, those with $1 billion to $5 billion in assets under management, accounted for only 18% of the deals year-to-date, down from 24% in 2023.
“As the shifting competitive landscape and value propositions of major buyers continue to draw more RIAs into discussions about selling, DeVoe & Co. expects that deal activity in 2024 will exceed 2023,” the firm noted. “Ongoing succession challenges and consolidation at the top of the industry are expected to drive increasing transaction volume for the next five or more years.”
Over the past month, we have seen mega firms such as RBC Wealth Management, Edelman Financial Engines, and Wealth Enhancement Group, among others, acquire smaller RIAS who collectively manage over $2.5 billion.
The market’s future will most certainly be supported by sustained investments from private equity firms and industry consolidators, allowing these organizations to seize acquisition opportunities among growth-challenged competitors with comparable processes, staff, and clients.
