Broker-dealer CEO sees rapid escalation of brokers abandoning commissions in favor of fees

Commonwealth Financial's Wayne Bloom says brokers are turning in their Finra licenses and going fee-only

Nov 9, 2018 @ 2:24 pm

By Bruce Kelly

The chief executive of a leading independent broker-dealer is seeing a rapid escalation of brokers abandoning commissions in favor of charging clients annual fees.

Wayne Bloom, the CEO of Commonwealth Financial Network, said these brokers are dropping their license with the Financial Industry Regulatory Authority Inc. and formally becoming fee-only advisers.

"As the transition to fee continues to accelerate throughout the industry, I think we're on the front end of a wave of advisers dropping their Finra licenses to become exclusively fee-based," Mr. Bloom said Thursday at Commonwealth's annual conference in Austin, Texas.

"At Commonwealth, 75 advisers have already converted to IAR (investment adviser representative) or RIA (registered investdment adviser) status. Many more are exploring the same.This may not sound like a lot, given our 1,800-plus advisers, but to me it feels a lot like 1996 when [the firm's fee-based platform] was in its infancy, and we [identified] this is where the puck is going."

Brokers and registered reps are licensed through the Financial Industry Regulatory Authority Inc. Registered investment advisers, or RIAs, are registered with the Securities and Exchange Commission or the state their business is based in. Investment advisory reps, or IARs, work for an RIA.

The securities industry's trend toward charging fees rather than commissions goes back more than 20 years. Fees are a more stable source of revenue for brokerage firms than commissions. And advisers who charge fees are also tasked to work as a fiduciary with a higher standard of care, something their clients like.

Commonwealth has set up new service arrangements for fee-only advisers, he said. Such advisers pose unique operational nuances and compliance issues, and the firm is trying to be proactive in how it works with them, Mr. Bloom said.


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