Cambridge Investment Research chases RIA assets

As independent broker-dealers continue to try to remodel themselves as registered investment advisors, they're willing to put their money where their mouths are and pay more to recruit financial advisors with RIA assets.

Case in point: Cambridge Investment Research Inc., a broker-dealer with a sizable RIA, Cambridge Investment Research Advisors, which has $87.4 billion in client assets.

According to Cambridge Investment Research Advisors' recently updated Form ADV, the Cambridge RIA 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.

The disclosure by Cambridge's RIA is part of an updated RIA disclosure dated March 30, which describes the firm's forgivable loan program for recruits. Broker-dealer competitors to Cambridge, including industry behemoth LPL Financial, have shifted tactics in the past several years to win financial advisor recruits and compensate advisors to reward assets over annual revenue, long the traditional way recruits were paid.

“Cambridge may also vary the amount of the loan and/or grant it provides to financial professionals based on the type of business conducted," according to the brochure section of the firm's Form ADV. "For example, Cambridge provides a higher loan/grant amount for advisory business on the WealthPort platform compared to non-WealthPort business or broker-dealer or commission business."

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

"This sounds similar to what LPL has been doing since around 2018," said Casey Knight, executive vice president of ESP Financial Search.

That's when LPL turned the independent broker-dealer industry on its head and began selectively offering potential recruits a bonus in the form of a five-year forgivable loan. The loan paid an adviser at least 50 basis points on assets transferred to LPL’s corporate RIA, a potentially far more lucrative structure for the adviser than traditional recruiting deals, which were a percentage of annual fees and commissions.

"All the big B-Ds are doing this right now," said a senior brokerage executive, who spoke confidentially to InvestmentNews. "The upfront money in recruiting deals is based on assets in advisory that go on the firm's proprietary platform."

A spokesperson for Cambridge Investment Research, which has 3,700 financial advisors, declined to comment.

Firms like LPL Financial and Cambridge Investment Research are hunting RIA assets because of their value to the bottom line. Annual fees on assets are more desirable than one-time hits from commissions. RIAs are generally perceived right now in the wealth management business as having more market value than traditional broker-dealers, so anything a broker-dealer can do to look like an RIA is also constructive.

“The payment of a higher loan amount for advisory business on the WealthPort platform presents a conflict of interest in that the financial professional has an incentive to recommend clients open and maintain accounts on WealthPort relative to non-WealthPort options," according to Cambridge's Form ADV.

"Financial professionals attempt to mitigate this conflict by evaluating and recommending clients use WealthPort because he/she believes that it is in the client’s best interest to do so based on the quality of the services offered through the WealthPort platform relative to other available options," according to the filing.