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Dodd-Frank Has ‘Profound Effect’ on Advisory Industry Makeup, Study Finds

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Assets under management and state-registration among RIAs are up this year, with Dodd-Frank Act requirements resulting in a major industry shift.

Total regulatory assets under management reported by all investment advisors as of April 2013 grew to $54.8 trillion from $49.4 trillion in July 2012, according to new research by the Investment Adviser Association and National Regulatory Services. While the total number of SEC-registered investment advisors increased only slightly, from 10,511 in July 2012 to 10,533 in April 2013, the big shift occured among advisors switching to state registration. 


More than 2,000 SEC-registered advisors transitioned to state registration and regulation.

According to the report, this big shift reflects the so-called “switch” in the Dodd-Frank Act -- increasing the dividing line between SEC-registered and state-registered advisors from $25 million to $100 million AUM.

Provisions of the Dodd-Frank Act requiring the registration of certain “private fund advisors” under the Investment Advisers Act have also resulted in the addition of more than 1,500 newly registered investment advisory firms, the research showed.

“Our report underscores the fact that the Dodd-Frank Act has had a profound effect on the composition of the investment advisory profession,” David Tittsworth, executive director of the IAA, said in a statement. “The law has shifted regulatory responsibility for hundreds of smaller firms to the states, while requiring larger private fund advisors to register with the SEC. These dramatic shifts have yielded a net decrease in the number of SEC-registered investment advisory firms. However, many of the core characteristics of the advisory profession remain fairly constant.”


Other key findings of the report include that:

  • Private funds: More than one-third of all SEC-registered advisors (38.1%) reported that they manage at least one private fund, with a total of 26,752 private funds with collective regulatory assets under management of $8.5 trillion – up from $8.1 trillion in July 2012.
  • Hedge Funds:  Of all reported private funds, hedge funds make up 40.8%, while private equity funds account for 32.5%.
  • Client assets: 4,530 SEC-registered investment advisers (43%) reported that they or a related person had custody of client assets.
  • Custodian status: Less than 1% of advisors reported acting as a qualified custodian in connection with their advisory services.


Similar to previous years, most SEC-registered investment advisors are small businesses, the report showed. In 2013, more than half of all advisors (57.8%) reported having ten or fewer full-time and part-time non-clerical employees and 88% reported having fewer than 50 such employees. According to Tittsworth, “Despite the migration of hundreds of smaller advisory businesses to the states, it is still clear that the U.S. investment advisory profession is an engine of small business creation and growth.”

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