Corporate & Securities Law

Andrew Donohue, the Director of the Division of Investment Management, recently spoke before the 9th Annual IA Compliance Fall Conference.  Among other interesting comments, he discussed the pressures he sees on advisers.  They're coming from several different areas.

First, he talked about pressures on advisers as asset values declined and the advisory landscape adjusts to the new market environment.  He said the downturn in the markets over the past year impacted the SEC-registered investment adviser community in many ways.  First, the number of registered investment advisers was virtually unchanged and, at around the beginning of 2009, the number of advisers was actually decreasing.  Furthermore, the Commission experienced approximately 20 percent more withdrawals from registration than usual (about 100 more) with about half of this increase (about 50) resulting from advisers switching from being federally registered to state registration.  Seeing this trend, he said, it appears that smaller advisers with 10 or fewer clients were among the hardest hit and affected by the market events.

Second, he discussed that assets under management by SEC-registered investment advisers drop $9.4 trillion or 22 percent.  The median assets under management reported dropped from $126 million to $97 million.  However, the top 10 percent of advisers that have the most assets under management still manage 92 percent of all assets under management.  This has not changed, he said, over the last year, but these 1,140 advisers did report a 22 percent, or $8.5 trillion, reduction in assets under management.  The other 90 percent of advisers with less assets under management reported a higher reduction of 27 percent in the assets under management.  Again, he said, it appears that smaller advisers were impacted the most.

Finally, as over 95 percent of advisers did and still do charge at least some of their clients fees based on a percentage of assets under management, the income for the majority of advisers has declined in correlation with the market downturn.  He said that he has seen reports that advisory fee rates are also under increasing pressure.

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Source:  SEC