New York Securities Lawyer Blog
Recently, many investment firms are combining their registered investment adviser (“RIA”) groups with a broker-dealer arm. As a result, the investment firms are generating just as much income from brokers’ commissions, as they are from RIAs’ asset-based fees, thus, making their revenue similar to those of the larger wirehouses. According to a March 12, 2013 report from Aite Group LLC, “[c]ommission-based revenue and recurring [assets under management]-based fee revenue each comprise between 40% and 47% of total revenue for all RIA practices and large wirehouse practices, indicating that their business models are not all that different.” Aite Group LLC conducted an online survey of 534 financial advisers and arranged the financial advisers who responded to the survey into two groups; small firms with assets under management (“AUM”) between $30 and $99 million and large firms with AUM between $100 million and $1 billion. The study concluded that for smaller broker-dealers, 58% of their total revenue was generated from commissions, and for smaller RIAs, commissions accounted for 47% of their total revenue. Further, the study determined that for larger broker-dealers and RIAs, 40% of their revenues were generated from commissions. Aite Group LLC’s report stated, “[t]he roughly even allocation between commission and recurring AUM-based fee revenue for large-practice RIA-affiliated advisors suggests that commission revenue is an important revenue source for RIA practices of all sized.” Bill Butterfield, Aite Group LLC’s research analyst stated to the media, “[t]he reality is that a lot of advisers are dully registered. They’re doing commission-based business and fee-based business, as well. The way that advisers conduct business is not as clear-cut based on channel affiliations as it was 10 or 15 years ago.” Interestingly, the growing trend for RIAs to dully register as brokers has garnered significant attention from industry regulators, including, but not limited to, the Securities and Exchange Commission (“SEC”), which has targeted dully registered RIAs as an examination priority for 2013.
Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters, including regulatory enforcement proceedings, and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.