A report specifically looking at investment advisors has found that the total assets they manage shrank 20% last year as a result of the financial crisis, but the number of advisors surprisingly increased.
"The vast majority of advisory firms experienced significant declines in assets under management as a result of the financial crisis of 2008. However, the investment advisory profession continues to be resilient and we expect that assets will increase as the markets rebound," commented David Tittworth, executive director of the Investment Adviser Association, which compiled the report with National Regulatory Services. The report is based on information that registered investment advisors (RIAs) must file annually with the Securities and Exchange Commission.
Total assets under management reported by all firms dropped precipitously to $34 trillion after reaching an all-time high of $42.3 trillion the previous year, said the ninth annual report, Evolution/Revolution, profiling the investment advisory profession. Last year was the first time RIA assets shrank since 2003.
Despite the asset drop, the number of RIAs increased by 2% to 11,257. "The growth in the number of SEC-registered advisors in the current economic climate is particularly remarkable when considering these advisors typically must have at least $25 million in AUM to qualify for SEC registration. The newly SEC-registered advisors arrive with substantial books of business, suggesting that the long-term trend to shift from a transactional to an asset management client service model may have been bolstered by displaced broker-dealer representatives forming new investment advisory businesses or helping existing advisors reach the $25 million threshold," added Robert Stirling, one of NRS' senior consultants.
As reported by the groups in other years, assets under management are highly concentrated with a small number of very large firms. Four percent of SEC-registered investment advisors manage more than 80% of the total assets. Small businesses (those that employ fewer than 50 employees) make up the bulk of the SEC-registered investment advisory universe at 90%.
"The findings of the report reinforce and amplify what we've seen and heard from our clients in the past year," said John Gebauer, managing director at NRS. "Given that the primary form or compensation for advisors is a percent of AUM, many small businesses have been faced with revenue declines of 20% in the fourth quarter of 2008 and another 20% in the first quarter of 2009. Undoubtedly, many small advisors closed up shop, but the vast majority of them remain committed to their clients and the advisory business model."