Commonwealth Financial Network to launch parallel business for RIAs

Firm wants to help brokers shifting to fee-only business, and compete with custodians such as Schwab in technology and practice management

Nov 13, 2018 @ 2:35 pm

By Bruce Kelly

Commonwealth Financial Network, already a major independent broker-dealer, intends to broaden its business by setting up a parallel business for registered investment advisers.

Commonwealth has already seen at least 75 of its 1,800 reps shift their business totally to fee-only from either commissions or a mix of commissisons and fees. To stay ahead of those brokers, the firm intends to launch within a year a separately branded business for RIAs and compete with heavyweight custodians such as Schwab Advisor Services and TD Ameritrade Institutional, said John Rooney, managing principal. The firm would not custody financial assets.

Mr. Rooney said Commonwealth also sees an opportunity to appeal to RIAs that are not currently affiliated with the firm.

"The big opportunity is not just to talk to advisers moving in the broker-dealer space or industry, but to advisers working directly with Schwab and TD who switch and have to figure out their own support platforms and [who] are looking for a turnkey solution," Mr. Rooney said.

He added that Commonwealth would be the first IBD to launch such a parallel RIA business for brokers leaving the commission side of the business entirely.

Commonwealth has recently been dedicating support staff in its various service lines to work with its advisers who are fee-only, Mr. Rooney said.

"It's mainly an issue of getting branding and marketing materials together," he said. "I think we need to make it a distinct, new brand. The RIA-only advisers look at broker-dealers as a broken system and don't want to have anything to do with them."

The firm would continue to offer an array of services such as technology, planning and practice management to brokers switching to a fee-only practice, Mr. Rooney said.

The move by Commonwealth is significant. It was one of the first IBDs in the 1990s to stress a fee-based business model for brokers, who until then overwhelmingly charged commissions and worked under an "eat what you kill" mentality. The firm has thrived since. At the end of last year, Commonwealth Financial had $156 billion in assets under management and $1.24 billion in total revenue. Sixty-four percent of the firm's revenues last year came from fees, according to InvestmentNews data.

In the past, Commonwealth would see three to five brokers per year tear up their broker registrations to work as advisers who charge only fees. That has accelerated significantly, Mr. Rooney said. Now, that many brokers are making the change each month.

And the brokers exiting the brokerage business are younger and control more assets, Mr. Rooney said.

The firm's advisers are among the most productive, and profitable, in the securities industry.

At Commonwealth Financial, a dual, or hybrid, adviser is 54 years old, has about $91 million in assets under management and produces $698,000 in revenue on average. A typical fee-only Commonwealth adviser is almost a decade younger, has $160 million in AUM and produces, on average, $779,000 in annual revenues.

"It's a little cheaper to be RIA-only for advisers, but they have other expense like their own for ADV with the SEC, and they typically do their own client contracts instead of the broker-dealer controlling the contract," Mr. Rooney said.

Other firms, including Cambridge Investment Research Inc., are seeing a surge in brokers and advisers looking to move their businesses to focus solely on fees.

"Over the last year or so, Cambridge has experienced increased interest in our fee-only solutions, and we've been focused on this expanding growth area in serving independent financial professionals," said Cindy Schaus, a spokesperson for Cambridge.

She declined to comment when asked if Cambridge was planning a similar strategy as Commonwealth Financial Network.


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