RIA Growth: Up and to the Right
The number of Securities and Exchange Commission-(SEC) registered investment advisors appear to be surging by all metrics despite a volatile market, increased demand for digital services, and changing fee structures.
In 2023, the number of RIAs increased by 282, reaching a new high of 15,396, representing growth of around 1.9%. This marked the 12th consecutive year of increasing advisor numbers.
Furthermore, it was the first time that the number of non-clerical employees at advisories exceeded 1 million individuals, representing a 3.6% increase compared to 2022, according to the 2024 Investment Adviser Industry Snapshot by industry and lobbying group Investment Adviser Association (IAA) and compliance firm Comply.
Of the 15,396 firms, approximately 88% had assets worth $5 billion or less, marginally lower than the 88.5% recorded in 2023. The data is mostly derived from Form ADV Part 1A filings. In 2023, approximately 69.3% of respondents reported managing less than $1 billion, which is a decrease from 70.2% the previous year.
Moreover, assets managed by RIAs grew 12.6% year-over-year in 2023, reaching a record high of $128.4 trillion, which was previously achieved in 2021. That largely attributed to a 3.7% increase in total clients by investment advisors in the year.
“Individual investors increasingly recognize the value of fiduciary advice as they seek to save and invest for retirement, home ownership, education, and other goals,” IAA President and CEO Karen Barr said.
The number of clients serviced by registered firms experienced a significant increase of 3.5%, reaching 64.1 million. This gain occurred despite a decline in non-asset management clients for the second consecutive year. The IAA ascribed this decline to the rise of digital platforms that provide non-asset management services.
However, the number of clients in asset management reached a new peak of 56.7 million in 2023, reflecting a 4.4% increase compared to the previous year. Most clients, accounting for more than 85%, had a net worth below $2.2 million or assets under management less than $1.1 million. A significant portion of the total managed assets, amounting to 64.3%, came from 14.7% of clients with a high net worth.
A portion of the increase in assets can be attributed to a positive market trend in place since 2023. However, the survey indicated that the rise in the number of advisors in the last five years, along with a shift towards smaller businesses managing larger assets, could be a sign of the industry’s stabilization.
“There’s been a lot of market volatility the last several years and I think more and more people are looking for some help managing their money,” said Tom Graff, CIO at Facet, an online platform that matches prospective clients to a fee-only fiduciary advisor.
“There was something of a stagnation in 2021 and 2022, perhaps because some people found success investing on their own during the booming 2021 market. But now I think we’re returning to a more normal pattern of slow but steady growth.”
The research acknowledged the dynamic nature of the sector, with a substantial number of advisors joining and leaving the industry annually. However, this trend is primarily observed among advisors who manage less than $1 billion in client assets.
According to IAA and Comply, there has been a 12.8% annual growth rate in the number of people seeking the services of an investment advisor, resulting in over 24 million additional individuals engaging with such advisors in the past six years.
The research also observed the number of advisors who are not required to register with the SEC. In 2023, the regulator received 5,390 Form ADV filings from exempt reporting advisors, while state authorities received 3,940 Form ADV filings from exempt reporting advisors. These advisors collectively oversaw more than $6 trillion in gross assets of private funds.
The study highlighted regulatory choices, which the IAA is actively trying to influence through continuing lobbying efforts, could impact the future growth of RIAs in 2024 and beyond. The association criticized the safeguarding proposal, asserting that it will unjustly impose stricter custody obligations on smaller advisors.
“The 2024 Snapshot highlights just how significant of a segment SEC private fund advisors, and closely related exempt reporting advisors, represent in today’s market, with a whopping combined $29 trillion in regulatory assets under management,” said COMPLY CRO John Gebauer. “With such influential market impact, it is understandable that the SEC has perceived a regulatory gap and targeted these firms with rulemaking in the last few years.”
“Given the recent ruling that vacated the Private Funds Reforms rule, it will be interesting to see how the SEC responds. It is clear, though, that private funds have broad appeal in today’s market, and they will likely continue to grow faster than the industry average.”
