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RIA Report Is Too Broad for You and Me

October 16, 2014

The 2014 edition of the Evolution Revolution study, a metrics-heavy annual report on the RIA space by the Investment Adviser Association and National Regulatory Services, includes a reminder that RIAs are things, not people.

The term properly “refers to an entity that is registered as such with the SEC, based on the definition set forth in the Investment Advisers Act of 1940,” rather than an “individual” employed by one, the authors write in a section called “Explanation of Report Data.” Besides worrying over things (RIAs) getting confused with people (IARs), however, the report’s writers fret about the term “financial advisor” being applied to “registered representatives of a broker-dealer.”

We all pick our definitional battles, but on this score I think the people behind the IAA-NRS study are in a fight lost long ago. Brokers have co-opted the term “advisor,” and that’s that.

Anyway, there’s a bigger problem with Evolution Revolution. At least there is for anyone trying to apply its insights to the retail-advisor realm. In brief, the study doesn’t differentiate between financial advisors and pure-play asset managers.

That’s not an oversight. The study is a gauge of all SEC-registered investment advisors, not subsets, which — thanks to Dodd-Frank — now include private funds and some family offices in addition to money managers and financial planners. “The unifying thread is that all these components have the same rule base to follow,” NRS managing director John Gebauer tells FA-IQ.

The broad categorization is probably useful to some people, but it makes one of the main assertions of this year’s report a point of signal indifference to most FAs. Evolution Revolution notes that “a relatively small number of very large advisors manages a high percentage of” total assets in the RIA space. In sum, firms with $100 billion or more under management make up just 1% of the total number of RIAs but account for 52.6% of RIA assets under management. Meanwhile, entities with less than $1 billion in AUM — 71.5% of the total number — account for just 3.5% of RIA assets.

But there’s little in this contrast for financial advisors. All it really tells us is that RIAs associated with household names like, say, Fidelity, Pimco and Vanguard manage more than retail outfits like — again, just for example — Wiseman & Associates Wealth Management in Winchester, Va.

But the apples-to-oranges nature of the comparison (or maybe it’s apples to raisins) doesn’t stop WealthManagement.com. Jumping in with both feet, it laments “The Great RIA Divide” uncovered by the study as though jarring differences in the underlying business models mean nothing.

By Thomas Coyle