One of the interesting, and perhaps overlooked, findings coming out of the Securities and Exchange Commission's Study on Enhancing Investment Adviser Examinations is the data on projected growth in the number of registered investment advisors (RIAs).
In what's become known as the SRO Study, SEC staff projects that SEC-regulated RIAs will grow to 13,908 in 10 years (from 11,888 in 2010). This projection only counts the number of RIAs with $100 million or more in assets under management (AUM) that would be under SEC supervision, not those with $100 million or less that would be supervised by states instead of the SEC, as mandated in the Dodd-Frank Act.
SEC and State Oversight of RIAs
The Dodd-Frank Act's Title IV, the Private Fund Investment Advisers Registration Act, changes provisions in the Investment Advisers Act of 1940 by prohibiting most RIAs with AUM of under $100 million to register with the SEC. They would register with states instead. It also repeals a broad exemption from Advisers Act registration that had enabled scads of "private fund advisers and non-U.S. advisers" to remain without SEC registration, and Title IV also narrowed the exemptions from SEC registration under the Investment Advisers Act of 1940, according to the report.
So, under Title IV, the number of SEC-registered RIAs would drop from 11,888 in 2010 to a projected 8,538 for 2011, a 28.2% decrease. The difference, 3,350 RIA firms with $100 million or less in AUM, would be forced to register for supervision by their states.
Something similar happened in 1996, when the number of RIAs had grown too big relative to SEC resources for the SEC to properly regulate and examine. The National Securities Markets Improvement Act of 1996 (NSMIA) compelled RIAs with less than $25 million in AUM to register with states instead of the SEC. That cut the number of SEC-registered RIAs to 6,650 from 22,400—a 70% decrease in SEC-registered RIAs.
