The Investment Adviser Association ("IAA") and National Regulatory Services, a Reed Elsevier company and part of Accuity, published a significant analysis of the state of the investment adviser industry.

The IAA explained that the data is derived from Form ADV, Part 1, filed by all SEC-registered investment advisers as of April 8, 2016. The 2016 Evolution Revolution report determined that:

  • the number of SEC-registered investment advisers continues to increase;
  • the industry continues to experience strong across-the-board job growth while, simultaneously, the number of advisers who provide advice only through an interactive website increased substantially – up by nearly 60 percent to 126 (although remaining insignificant in terms of total number of advisers);
  • small businesses are the core of the federally registered investment adviser industry;
  • Aggregate Regulatory Assets Under Management ("RAUM") managed by SEC-registered advisers remains substantial, but is flat relative to last year;
  • the largest firms manage more than half the assets, but smaller firms are growing at a faster pace;
  • SEC-registered investment advisers now serve more than 36.4 million clients – up substantially from last year, a 22.4% increase;
  • individuals comprise the largest categories of advisory clients, with pension plans coming in second. Almost 61 percent of advisers serve high net worth individuals, non-high net worth individuals, or both, while 46.6 percent reported that at least one of their clients is a pension or profit-sharing plan (not including plan participants or state or local pension plans);
  • most advisers focus on one category of client. More than 87 percent of advisers report that the majority of their clients can be attributed to a single category of client; and
  • the number of private funds and registered private fund advisers is growing. 4,448 advisers reported advising 32,445 private funds with a total gross asset value of $10.5 trillion (up from 4,350 advisers, 30,342 private funds, and $10.4 trillion in total gross asset values respectively in 2015). Hedge funds and private equity funds are equally represented (35.8 percent each) in this space.

IAA President and CEO Karen Barr remarked that:

This year's findings demonstrate that the investment adviser industry remains robust and continues to expand, serving significantly more clients than ever before and contributing to substantial job growth. The trend toward automated advice for retirement plan participants, and the growth in new and existing "robo-platforms" and other web- and app-based investing tools, are major themes in this year's report.

Commentary / Steven Lofchie

While this report may be of primary interest to those providing services to investment advisers, it should be valuable for regulators as well. The report offers a realistic understanding of the industry that they are regulating. The report demonstrates that most of the regulation of investment advisers is, as a practical matter, the regulation of small businesses, and, therefore, the requirements that fall on the majority of advisers should be tailored towards small businesses. Perhaps the SEC should consider devising a simplified regulatory regime responsible for the oversight of investment advisers that manage only the accounts of individual investors and whose assets under management fall below a specified amount.

In addition, the report reflects how much information can be obtained from the data that advisers already report. Rather than imposing additional requirements, regulators should be consolidating various existing reporting requirements and doing a better job of coordinating their demands for information from market participants so that each regulator is not creating its own expensive (and eccentric) set of data requests.

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