The investment advisor industry continued to experience record growth through 2019, with both the number of registered advisors and assets under management soaring, according to the newly released 2020 Evolution Revolution Report.

The number of SEC-registered investment advisors hit an all-time high of 13,494 advisory firms, a net increase of 3.9% over the previous year with assets increasing 16.2% to $97.2 trillion. The growth came despite the fact that more than 87% of firms are small businesses, according to the annual report co-sponsored by the Investment Adviser Association and National Regulatory Services.

Entering its 20th year of publication, Evolution Revolution’s findings are based on data reported by advisory firms to the SEC.

“In every key metric—from industry size to assets under management to high quality jobs created—the investment adviser profession showed solid growth, underscoring our critical value to investors, to the economy and to our capital markets,” IAA president and CEO Karen Barr said. “Investors continue to recognize the value of fiduciary advice, turning to investment advisers to help them achieve their goals and navigate their financial futures.”

Key findings of the report include:

• SEC-registered investment advisors served more than 42 million clients, with Individuals comprising the largest category of advisory clients (95% of total clients). Non-high-net-worth individuals (83.3% of total clients and 87.7% of individual clients) comprise the vast majority of clients by a wide margin. High-net-worth individuals make up 11.7% of total clients. Investment advisors manage $12.8 trillion on behalf of individuals, the report found.

• The industry continues record-breaking job growth, creating 15,000 investment advisory positions since the 2019 report. As per the Form ADVs filed earlier this year, SEC-registered advisors reported a total of 871,971 nonclerical employees—up 4.4% over the prior year. Of these employees, more than half (451,536) provide investment advisory services (including research).

• The vast majority of SEC-registered investment advisors are small businesses, with 57.4% (7,749) of advisory firms reporting they employ 10 or fewer non-clerical employees, and 87.6% (11,819) reporting employing 50 or fewer non-clerical individuals. At the opposite end of the spectrum, the largest 116 firms employ 53.7% of all non-clerical employees.

• The “typical” RIA had $341 million in assets, 141 clients, 8 employees, exercises discretionary control over clients’ investments and operates as a limited liability company, the report found.

• The bulk of industry regulatory assets under management, or RAUM, resides in pooled vehicles. Registered investment companies ($33.3 trillion) and private pooled investment vehicles ($26.0 trillion) together represent $59.4 trillion, or 61.1% of the total $97.2 trillion RAUM. The number of private pooled investment vehicle clients is up by 4.9%.

• Separately managed accounts are soaring. Nearly three-quarters of advisors have RAUM attributable to SMAs, and 9,878 advisors (73.2%) have RAUM attributable to SMA clients.

• Private equity funds are beating hedge funds in popularity, with 4,840 advisors reporting they advise 40,742 private funds with a total gross asset value of $19.1 trillion, up from 4,520 advisors and 37,873 private funds and an increase from $14.9 trillion gross asset value in 2019. While the percentage of hedge funds and private equity funds was exactly equal four years ago, private equity funds now make up over 41.2% of privately offered funds and hedge funds represent less than 28.3% in the private fund space.

• Digital advice platforms are expanding the market for advice. Two of the top five advisors as measured by number of non-high-net-worth individual clients served are digital advice platforms, representing 7.5 million clients, an increase of 2.7 million clients from the 2019 report. These clients tend to have lower—and in some cases zero—account balances.

Digital advice, “is driving the latest evolutions in operations and accessibility, which have led to the industry now serving over 42 million clients.” NRS President John Gebauer said.

This year’s report is based on data obtained before Covid-19 was declared a global pandemic in March.

“As a result of the dramatic shift in firms operating from many more physical locations and related changes in their operational structures, advisers will need to continue to devote more resources to technology and continued operational resilience measures,” the report said.

On the regulatory front, the SEC’s Standards of Conduct rulemaking package (Regulation Best Interest) became effective in June 2020 and is likely to continue to shape industry trends for years to come.

“While it remains to be seen how the SEC will implement and enforce Regulation Best Interest and whether the package will ameliorate investor confusion, this significant development may continue to accelerate the secular trend, as documented in this report over the years, of an increase in the number of advisory firms, clients, employees, and investment advisors,” the report said.