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Despite uncertainty surrounding new regulatory reform, registered investment advisors are reinvesting in their firms, especially in their staff, according to a recent survey conducted by TD Ameritrade Institutional. The boost in spending stems from RIAs’ increased optimism toward the markets as well as growth in their businesses, said Skip Schweiss, TD Ameritrade Institutional managing director, advisor advocacy and industry affairs.
“Business is more secure than 18 months ago,” said Barry Glassman, president and founder of RIA Glassman Wealth Services in McLean, Va. “Layoffs due to shrinking business have come to a halt, and overall markets have helped with that.”

According to the quarterly sentiment survey of 500 RIAs, 33 percent of those surveyed have increased spending in the last three months, up from 19 percent in 2009. Fifty-four percent said spending has remained the same, while only 13 percent have decreased spending, the lowest it has been in the six quarters since TD Ameritrade Institutional started the survey.

Forty-six percent said they are optimistic about the direction of the economy, up 30 percent from last quarter. The markets are growing, and “that’s translating to their firms,” Schweiss said. “When markets are rising, their revenue’s rising,” as RIAs are paid as a percentage of their assets.
Major areas of reinvestment include staffing, with 59 percent more RIAs increasing spending in 2010; professional development, with an additional 41 percent boosting spending; and employee benefits, with 41 percent more increasing this budget. The number of RIAs increasing spending on salaries and bonuses was up 8 percent.

When the downturn hit, advisors had to cut back on spending. “We really tightened our belt during that time,” said Diane Pearson, an advisor with Pittsburgh-based Legend Financial Advisors.

Now that the dust has settled, Legend is ramping up spending. According to Pearson, the firm recently hired two interns as full-time back-office staffers. Legend also invested in new computers and a renewed office lease.
RIAs are also putting money back into their businesses as a result of their own growth; 70 percent reported taking on new clients in the last six months, up 15 percent from last year. The majority of this new business (64 percent) is coming from broker/dealers and wirehouses, with clients dissatisfied with the service provided by these firms, TD Ameritrade said. Clients were also drawn to RIAs because they liked the fiduciary model.

“The RIA channel continues to be extremely attractive to clients,” Glassman said, especially those who wanted to be part of the big brokers in the past. “Families are looking beyond the big brands and considering the wealth management boutiques.”

At Glassman, assets under management have grown 30 percent over the last year.Balasa Dinverno Foltz, an RIA in Itasca, Ill., has seen a 17 percent boost in assets since the beginning of 2010, according to Armond Dinverno, president.

Looming Uncertainty
Despite the growth, advisors are still uncertain about the impacts of regulatory reform on their business, with nearly half of them knowing little to nothing about how the Dodd-Frank Act will affect them. Their top concern with the pending regulatory reform is that they may have to spend more time and money to meet new compliance requirements, with 59 percent responding.

“We can’t know the impact yet, and it will be some time before we know the full impact,” said Glassman.

Glassman does know that it will involve additional time and resources, in the form of hiring more people, using an outside auditor or spending money. “How much? We just don’t know at this point.”

The SEC has revamped Form ADV, the disclosure document that advisors file with the SEC. Under Dodd-Frank, smaller advisors may be fall under state oversight, and not the SEC; that will likely bring different paperwork and more frequent examinations. The legislation also aims to establish a self-regulatory agency for RIAs, which FINRA has expressed interest in running.
With all the pending changes, advisors don’t know how to position themselves because the reform is still so up in the air, Schweiss said. “It just kicked a whole bunch of rulemaking to the regulators.”