In Practice September 7, 2018

Western Region Sees Strongest Adviser Growth

Of the 805,623 non-clerical employees of SEC-registered firms, more than half spend the bulk of their time providing investment advisory services or research.

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The Investment Adviser Association (IAA) and National Regulatory Services (NRS) released their 18th annual “Evolution Revolution” report, highlighting robust growth in the investment advisory industry.

According to the report, the universe of Securities and Exchange Commission (SEC) registered investment advisers continues to grow at a steady pace, creating a record number of investment advisory positions.

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“In 2018, SEC registered advisers reported a total of 805,623 non-clerical employees,” the report explains. “This is up 3.6% since 2017. Of these employees, more than half (415,971) provide investment advisory services (including research), a healthy increase of over 15,000 since 2017.”

When considered on a regional basis, the report shows all regions in the U.S. experienced an increase in advisers, led by a 5.4% year-over-year increase in the West. Although the Eastern U.S. did experience growth, its 1.8% rate of increase was about half that of the Midwest at 3.9% and the South at 4.4%, “perhaps foreshadowing the impending transition away from the longstanding numerical dominance of East Coast-based advisers.”

According to the report, assets managed by advisers grew 16.7% from $70.7 trillion in 2017 to $82.5 trillion this year. Important to note, this growth is “likely primarily a function of strong stock market performance in the past year.”

“While all SEC-registered advisers are fiduciaries providing investment advice to clients, the industry is highly diverse in size and type of firms, services offered and clients served,” the report explains. “The vast majority of SEC-registered investment advisers are small businesses. Small businesses are the core of the investment adviser industry.”

As the report lays out, in 2018, more than half (56.8%) of advisory firms reported that they employ 10 or fewer non-clerical employees, and 87.5% reported employing 50 or fewer individuals. At the opposite end of the spectrum, the largest 108 firms employ 52.5% of all non-clerical employees in the entire industry.

According to IAA and NRS, registered investment companies ($29.0 trillion) and private investment vehicles ($19.9 trillion) together represent $48.9 trillion, or nearly 60%, of the total assets under advisement. There is some evidence that private equity funds are becoming more prevalent that hedge funds.

Also notably, the report shows nearly three-quarters of advisers have assets attributable to separately managed accounts, but relatively few advisers engage in borrowing or derivative transactions in these separate accounts.

“It is more common for smaller advisers to invest 100% of their clients’ separately managed account assets in a single asset type than it is for larger advisers,” the report explains.

The full 2018 Evolution Revolution report is available on the IAA website  and on the NRS website.

Products September 7, 2018

New Non-Qualified Plan Provider Aims to Drive Substantive Change

CapAcuity has entered the non-qualified retirement plan provider market.

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Founded earlier this year by retirement services entrepreneur Peter S. Cahall, founder of The Newport Group, and staffed by a team of industry experts, CapAcuity is a non-qualified benefit provider that Cahall says is responding proactively to recent disruptive trends in executive benefits.

“Over the past several years, the landscape has changed significantly in the non-qualified space,” Cahall notes. “Recent corporate tax legislation has impacted the effectiveness of many popular funding vehicles. We’ve seen dramatic reductions in investment product costs. And there is a strong move toward heightened transparency and competitiveness in vendor pricing.

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He adds, “We have recognized the macro trends affecting these programs. Cahall says CapAcuity brings a level of experience and expertise to the non-qualified retirement plan space and has the “ability to drive substantive change on behalf of plan sponsors.”

Every executive benefit plan has what Cahall has called a “supply chain,” comprised of plan administrators, brokers, trust and custody providers, mutual fund families, investment consultants, and insurance companies. “Because of our experience, we are able to take an in-depth view of each of these links in the supply chain, and based on each client’s objectives we implement enhancements that can materially lower costs and increase corporate earnings.”

He adds, “Because plan sponsors typically don’t have access to data regarding competitive provider costs, we have built a database that ensures the vendors providing these services are competitive in their pricing. We have also built proprietary financial models to analyze and optimize the ‘cost/benefit’ of any funding or hedging strategy that clients may use.”

Cahall says CapAcuity also provides ongoing fiduciary oversight of plans and their supply chain.

“By showing sponsors how all the components of their executive benefit plans work, we’re in a unique position to help companies take advantage of the new landscape,” adds CapAcuity Chief Operating Officer Bryant Kirk. “This can translate to substantially improved financial results for plan sponsors, and enhanced retirement outcomes for plan participants.”

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