Commonwealth becomes latest IBD to invest in adviser firms

Commonwealth Financial Network will introduce a broad effort in 2023 to buy minority stakes in the firms of financial advisers who currently use its brokerage and registered investment adviser services, joining the ranks of competitors like LPL Financial, Cetera Financial Group and Advisor Group.

The move puts Commonwealth in direct competition with RIA aggregators, often backed by private equity money raised on Wall Street, which have been acquiring wealth management firms at a furious pace for the last several years. Commonwealth Financial Network is capping its investment at 40% of the equity in an adviser's practice and will focus on veteran or more experienced advisers, some of whom have been taking plenty of calls recently from RIA aggregators, Trap Kloman, president and chief operating officer of the firm, said in an interview Monday morning.

For almost 15 years, Commonwealth has been lending advisers money so they can grow their business, but this year it introduced a pilot program to buy equity stakes in its advisers' firms, Kloman said. Commonwealth is targeting closing two such transactions by the end of the year. The program is dubbed the "entrepreneurial capital program" internally, he added.

Commonwealth has about 2,100 financial advisers with a total of $250 billion in client assets.

"We don't like" RIA aggregators, "nor do LPL Financial or Advisor Group," Kloman said. "But our advisers don’t want to move to an aggregator to unlock the capital in their business. We’ll see this as a growing trend across the industry."

Commonwealth Financial Network is the latest independent broker-dealer to dip its toe into the market to buy advisers' firms outright or invest in segments. It is an odd but inevitable position for a segment of the financial advice industry that for decades has preached that its advisers are 100% independent of their broker-dealers.

Earlier this month, LPL Financial Holdings Inc. said it was buying one of its own giant branch offices, Financial Resources Group Investment Services, which houses bank brokers overseeing $40 billion in assets.

In October, Cetera Financial Group said it made a minority investment in Boston-area-based CCR Wealth Management, which manages $2.5 billion and had been affiliated with Cetera and its predecessor firms since 2000. 

And over the summer, Advisor Group said it was investing alongside its owner, Reverence Capital Partners, to acquire a stake in a registered investment adviser, Signature Estate & Investment Advisors, that in the past used an Advisor Group firm as its broker-dealer.

Meanwhile, Commonwealth Financial Network also recently announced to its advisers that it's cutting the annual fees it charges based on clients' assets in custom and adviser-managed portfolio programs, Kloman said. For example, for clients with $500,000 in assets, the annual charge is being reduced from $390 to $225; for clients with $1 million in assets, the annual charge is being cut from $590 to $375.