The study also found that most investment advisors are either independent or work for small firms, are compensated based on assets under management and have fewer retail clients.
Among other things, the study by the National Regulatory Services and the Investment Counsel Association of America, examined how investment managers are compensated, finding that
- a large majority, 95% receive a portion of their income based on a percentage of assets under management,
- over a third derive their compensation from fixed-fee arrangements,
- some 30% are compensated on an hourly basis,
- just 12% were compensated based on commissions,
- while, 23% have performance-based fee arrangements with at least some clients
The report also included analysis of data from electronic filings by investment advisers registered with the Securities and Exchange Commission (SEC) via the Investment Adviser Registration Depository (IARD). This data showed that 23% of advisory firms recommend securities in which they or a related entity has an interest.
In addition, the data showed that
- almost 47% of advisory firms have one to five employees,
- while 19.5% employ between six and 10 workers,
- almost 4% have more than 250 people on their payroll,
- while only a little over 1% employ more than 1,000 workers
Jack of All Trades
The report also notes that:
- almost 10% of investment advisers are dually registered as broker-dealers,
- some 12% are also insurance brokers, and
- almost a quarter sell products or provide services other than investment advice to their clients.
In terms of affiliation,
- just over 5% of advisers are affiliated with broker-dealers,
- over a third are affiliated with other investment advisers,
- almost 15% are linked to banks or thrifts,
- one-fifth is affiliated with insurance companies,
- some 12% are linked with sponsors or syndicators of limited partnerships, and
- almost 40% are independent
According to the report, 38% of advisers don’t service retail clients, or individuals with less than $750,000 managed by the adviser, or less than $1.5 million in net worth. However,
- almost 30% of advisers reported having 26 to 100 clients,
- while 9% service more than 500.