Advisory firms hit record high count in 2023 as total AUM rebounds

June 21, 2024 7:16 PM

Senior Couple Meeting With Female Financial Advisor In Office

The number of federally registered investment advisors is growing at a record-breaking rate despite a fickle market in recent years, greater demand for digital services and shifting fee structures.

The number of investment advisors registered with the U.S. Securities and Exchange Commission (SEC) reached an all-time high of 15,396 in 2023, according to a report jointly released June 20 by industry and lobbying group the Investment Adviser Association (IAA) and compliance firm COMPLY.

Those advisors also represented more than 56 million clients and managed $128.4 trillion in assets in 2023 — a 12.5% growth from 2022 that brings the AUM level back to the historical high reached in 2021. Part of that asset growth is driven by a more bullish market since 2023. But the annual "snapshot" report suggested that the increase in advisor numbers over the past five years, as well as a return to smaller firms holding more managed assets, may indicate the industry is stabilizing.

"There's been a lot of market volatility the last several years and I think more and more people are looking for some help managing their money," said Tom Graff, chief investment officer at Facet, an online platform that matches prospective clients to a fee-only fiduciary advisor. "There was something of a stagnation in 2021 and 2022, perhaps because some people found success investing on their own during the booming 2021 market. But now I think we're returning to a more normal pattern of slow but steady growth."

Scroll down for a look at how the report showed the industry has evolved the past decade in terms of firm size, client demands and social media engagement, as well as changes to fee structure and managed asset services.

An industry overview

"The past year again illustrates the important role that the investment adviser industry plays, both by providing crucial advice to investors and as an essential contributor to the markets and the economy," IAA President and CEO Karen Barr, said in the release for the snapshot report. "Individual investors increasingly recognize the value of fiduciary advice as they seek to save and invest for retirement, homeownership, education and other goals."

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Advisors are on the rise, but at smaller firms

The investment advisor industry added 34,984 jobs in 2023, marking another record high and seven consecutive years of growth. Here's the breakdown:

Nonclerical employment surpassed 1 million employees for the first time in history, growing 3.6% for the year.
The largest employment growth for 2023 alone, at 7.2%, was at firms with less than $100 million in assets under management.
However, over a span of 10 years, the largest firms (more than $100 billion AUM) still have the greatest annual employment rate, at 6.7%.

Clients on the rise, but most are not ultrawealthy

The total number of RIA clients increased by 3.5% to 64.1 million in 2023, marking an average annual jump of 8.5% over the past six years. Key findings include:

Individuals are the largest client base at 53.8 million, next to institutions (2 million) and pooled vehicles (128,000).
More than 85% of clients were non-high net worth individuals, generally with less than $1.1 million in AUM with an advisor.
However, 64.3% of the assets managed for all individual clients came from 14.7% of high net worth individuals.

"While research (J.D. Power) shows we still have a long way to go as an industry on the full promise of financial advice, there is a subset of advisors that are delivering a more valuable offering and are consistently attracting new clients," said Tom Rieman, CEO and founding partner at Practice Intel, via email. "We think the growth in new clients can be attributed to those advisors and their compelling value proposition compared to the rest."

More advisors are using social media to connect with clients

The number of advisors using multiple websites or social media platforms to communicate with clients rose to 65.2% of respondents in 2023, up from 49.1% in 2018. Among the most common social media platforms:

LinkedIn was most likely to be used by advisors, at 59.1%;
Facebook, 26.1%;
X, formerly known as Twitter, 22%;
YouTube, 10.8%; and
Instagram, 10.1%.

Also, only 9% of advisors reported having no online presence in 2023, compared to 11.6% in 2018.

Asset management services are shifting

While the total of asset management clients jumped to new highs, the report noted there was a sizable decline in non-asset management clients:

The number of asset management clients rose 4.4% to a record high of 56.7 million.
The number of non-asset management clients dropped 3.6% to 7.4 million, falling for the second consecutive year.

That decline is partly due to advisors "refining their criteria for including accounts in this category" — for example, if advisors started requiring individuals with an online account to pay fees before being considered a client, the report said.

Fee structures are evolving

The study found that more advisors are shifting to fixed and hourly fee structures, while commissions and performance fees have declined. In looking at the past 10 years, survey results showed:

Fixed fees are up by 3.7% as a percentage of advisors.
Hourly fees rose by 1.1%.
About half of advisors (49.8%) and more than 85% of advisors offering financial planning services received either a fixed fee, an hourly fee or both.
Meanwhile, commissions dropped 2.9%, and performance fees fell 2.3%.

"While performance fees are almost universally offered by SEC registered advisers to private funds (over 85% offered one in 2023), they have become less popular with other advisers," the report said.