MassMutual B-D gooses advisors with new bonus

The registered investment advisor arms of independent broker-dealers are showing their cards this spring as they continue to chase clients' advisory assets, and demonstrate their willingness to reward financial advisors as part of that pursuit.

MML Investors Services, the IBD unit of Massachusetts Mutual Life Insurance Co., is introducing a new bonus to its 7,300 financial advisors this year, according to the firm's Form ADV, which was filed last Thursday with the Securities and Exchange Commission. The firm has $72.8 billion in RIA assets.

Form ADVs are updated at the end of March each year by RIAs, which are registered with the SEC. Firms are required to discuss any potential conflicts in the disclosure.

According to the filing, this year, the firm's investment advisor reps can earn an "advisor growth bonus" that rewards an increase in net assets. Details about the bonus, such as potential dollar amounts or the amount of assets required, are not disclosed in the filing.

But MML Investors Services is looking for advisors to increase revenue in four areas, according to the filing: advisory programs for which the firm serves as the broker-dealer and which are held in custody with Fidelity's National Financial Services, including Envestnet programs; the firm's branded fee-based annuities; in-house brokerage accounts; and trust company accounts.

MML Investors Services provides flexibility to advisors, a MassMutual spokesperson wrote in an email. "This new program recognizes new non-proprietary business on our open-architecture platform and is one of many ways that MassMutual is investing in its wealth management business."

For the past 10 to 20 years, large broker-dealers like MML Investors Services have tried to shift financial advisors' method of doing business away from commissions, which are one-time hits to revenue, to advisory fees, which are charged to clients on an annual basis. With the fevered market to acquire RIAs, broker-dealers are looking for ways to change advisors' behavior, including bonuses, industry observers noted.

InvestmentNews reported Wednesday that Cambridge Investment Research Inc.'s RIA also revealed recently that it is willing to pay potential financial advisor recruits a better deal if they move client assets to the firm’s in-house money management system, WealthPort.

"All the B-Ds want to grow advisory assets because they are stickier and have a higher value than brokerage," said one senior industry executive, who spoke anonymously to InvestmentNews. "But you have to pay attention to any potential conflict with clients.

"Is the firm paying the advisor more for advisory assets?" the executive asked. "If so, it would be a natural tendency for an advisor to say to a client, 'Hey, you need to open an advisory account.'"

"Bonuses like this are encouraging financial advisors to grow assets, but the fear is they grow only in certain areas," said another senior executive who also asked to speak confidentially. "Some firms have moved away from that to avoid any conflict of interest."

MML Investors Services discloses that conflict in the updated Form ADV.

"The growth bonus creates an incentive for IA-Reps to recommend eligible products and services over third-party advisory programs and other similar types of accounts offered by third parties," according to the filing. MML Investors Services "addresses this conflict of interest by disclosing it to you, and supervising account and program recommendations in compliance with its fiduciary duty to you."