Biggest RIA firms see discretionary assets jump 16% in 2Q

The 50 largest registered investment advisory firms managed a total of $127.2 billion in discretionary assets as of the end of the second quarter, up an impressive 16% from a year earlier.

In addition, the top 50 RIA firms averaged close to 3,600 total accounts per firm, more than double the number of accounts that the top firms managed a year earlier, ac-cording to research conducted on an exclusive basis by RIA Database.

Thirty-nine of the top RIA firms from 2009’s second quarter re-mained on the list this year. Those firms saw discretionary assets jump 27% year-over-year. (See the full set of RIA rankings here.)

The S&P 500 returned 14.4% during the same period.

The growth among the top 50 RIA firms demonstrates that in the wake of the market downturn of 2008, more high-net-worth investors are turning to RIAs, particularly family offices, observers said.

“A lot of people were looking for change in the wake of 2008,” said Dennis Gallant, president of Gallant Distribution Consulting. “RIAs always weather down markets really well.”

While the 39 firms that appeared on both years’ lists added only a net average of 47 accounts, that is still significant, Mr. Gallant said.

“You will find many wealth managers with less than 100 clients,” he said. “They are being very selective about who they take on.”

Ninety-two percent of advisers surveyed by The Charles Schwab Corp. in July said that they had seen new assets come in over the previous six months.

Despite this growth, however, many of the RIA firms on the list are cautious about the future. As a result, they are looking for investments that aren’t correlated with the equity markets.

“We aren’t overly optimistic about the second half of the year,” said Rob Skinner, a partner and one of the founders of Luminous Capital LLC, which had $2.8 billion in discretionary assets as of June 30, up from $2 billion a year earlier. “We aren’t seeing a double dip, but we do anticipate some bumps.”

Luminous Capital, No. 13 on this year’s list, was formed in May 2008 by five Merrill Lynch & Co. Inc. brokers. The firm had 1,417 total accounts as of June 30, up from 1,232 a year earlier, according to RIA Database.

Luminous Capital has maintained a very low allocation to straight equities. Instead, the firm is overweight in illiquid distressed credit such as business loans and industrial loans.

The firm’s portfolio also is heavily weighted in long-short equities, and it is investing in farmland.

“Global food consumption is only growing,” Mr. Skinner said. “If you look at the returns over 40 years, they range from 1.8% to 11.5%. We believe that farmland prices will perform quite well over the next five to 10 years.”

GenSpring Family Offices LLC, which holds the No. 1 spot on the list of largest RIA firms, also is maintaining a cautious approach to the equity markets.

In the past, GenSpring gained many of its clients after a liquidity event, such as a stock offering or an inheritance, but the firm is now gaining more clients who have switched from other advisers, said senior partner John Elmes.

Like Luminous Capital, GenSpring is heavy on long-short equity and likes “dynamic managers” who can “maneuver more easily to help manage the risk in the underlying portfolio positions,” according to a July client letter from chief investment officer Andrew Mehalko. The firm also likes gold as a hedge against currency devaluation and inflation, and recommends an overweight position in emerging markets.

Veritable LP also has a heavy weighting in emerging markets. The firm, which ranked second on this year’s list with $8.9 billion in discretionary AUM, recommends that emerging markets represent 20% of clients’ international equity portfolios, said chief executive Michael Stolper.

Veritable relies on 60 active managers, many of whom specialize in long-short strategies, he said.

Geller Family Office Services LLC is another RIA that has increasingly turned to outside managers to help it manage money. Over the past few years, Geller has increased the number of managers it uses to increase the diversification of its client assets, spokesman Mark Semer said.

STEEP SLIDE

Geller, which had $3.7 billion in discretionary AUM as of June 30, 2009, had $1.7 billion as of the end of the second quarter this year. That decline dropped the firm from seventh to 25th place on the list.

“The decline is attributable to a strategy to diversify clients’ assets, utilizing other managers to manage portions of their portfolios, while Geller maintains overall oversight of the assets,” Mr. Semer said.

In March, chief executive James “Jamie” McLaughlin left the firm after just seven months.

In the 12-month period through June, Geller increased the number of clients and didn’t experience a decrease in the amount of capital it oversees for clients, Mr. Semer said.

But though the top RIAs had a good year in terms of metrics, many are finding that clients are taking longer to come on board, said Scott Slater, managing director for business consulting for Schwab Advisor Services.

“Clients are doing a lot more due diligence and are slower to move money to a new adviser,” he said, noting the increased difficulty of wooing prospects. “Whereas in the past, it may have taken a couple of meetings, now it may take four or five meetings.”

E-mail Jessica Toonkel at [email protected].