Reflecting on a new industry snapshot research report published by her membership and advocacy organization, Karen Barr, president and CEO of the Investment Adviser Association (IAA), says the advisory industry has demonstrated remarkable flexibility over the past year.
“We are proud of the responsiveness and resilience shown by the investment adviser community as they guided clients through unprecedented challenges,” Barr says. “As the industry’s consistent growth demonstrates, investors recognize the value of fiduciary advice in helping them meet their financial objectives—whether planning for retirement, saving for homeownership or funding an education.”
According to the IAA’s detailed report, which stretches to nearly 90 pages, the investment adviser industry continued to experience record-breaking growth over the past 12 months, with close to 14,000 Securities and Exchange Commission (SEC) registered Investment advisers (RIAs) now in operation, managing $110 trillion in assets for nearly 61 million clients. These data points show the number of SEC-registered advisers, the number of clients they served, the assets they managed and the number of people they employed all have reached new record highs.
“The data in this year’s report confirmed what we’ve known all along—that demand for services provided by advisers continues to increase, even as supply rises,” says John Gebauer, president of National Regulatory Services, which contributed to the report. “Advisory services are increasingly viewed as an indispensable and ubiquitous necessity for financial well-being for ever-greater portions of the population, the demand for which has been less sensitive to economic cycles than many other services. If this pattern continues to hold, the industry will experience continued and robust growth, further demonstrating its crucial role in the lives of investors. It’s an exciting time to be an investment adviser.”
The IAA report suggests individual investor demand for advice is surging. While all client segments have grown over the past three years, growth in both the number and assets of individual clients has been “exceptionally strong,” with the number of individual investors growing by 38% over the past two years.
In a finding likely unsurprising to advisers focused on the defined contribution (DC) plan industry, which continues to experience substantial consolidation, growth has been strongest for the largest advisers. The IAA data shows advisers with more than $100 billion in assets have experienced gains in assets of at least 14% annually over the past five years, far ahead of smaller advisers.
As detailed in the report, SEC registered firms range in size from local boutiques to multinational corporations. In 2020, 88.5% of advisers had less than $5 billion in assets under management (AUM), with the majority having between $100 million and $1 billion. More than eight in 10 advisers are small businesses employing fewer than 50 people, but over the past three years, the number of advisers has increased in all size categories except advisers with less than $100 million in AUM. Growth was strongest among firms with over $100 billion in AUM.
Zooming into the operation of these firms, IAA finds, compensation structures have become increasingly flexible. Broadly, advisers have become more likely to offer fixed fees and hourly fees in addition to asset-based fees than they were in the past.
In terms of client deliverables, the primary service investment advisers offer is portfolio management. In 2020, 97% of advisers offered portfolio management services to one or more groups of clients. At the same time, 61% of advisers offered other advisory services to their clients as well. The most common of these services was financial planning. In 2020, 42.3% of advisers provided financial planning services, serving approximately 4.6 million clients. After financial planning, the most common additional services were providing advice on the selection of other advisers (perhaps as part of a sub-adviser relationship) and retirement plan/pension consulting services, which were offered by more than 20% of advisers in 2020.