Commonwealth Hopes to Turn Heads with New RIA Options
Commonwealth Financial Network is getting set to put its five-year-old expanded RIA platform at the center of recruiting efforts, targeting financial advisors who are happy putting commissions on the back burner. And a large part of this strategy is making more custody options available.
“At Commonwealth we believe there’s a place for commissions,” Greg Gohr, the firm’s advisory services chief, tells FA-IQ. “But the overall industry trend is clearly leaning to more agnostic affiliation models.”
Gohr doesn’t have to look far for evidence. Commissions account for less than 10% of the business running through Commonwealth from its roughly 1,800 affiliated advisors. The firm’s lack of such business contributed to its recent readiness to bar commissions altogether in the runup to a then-new Department of Labor rule governing retirement accounts. The DOL rule has since been delayed, watered-down and litigated nearly out of existence, however, and Commonwealth has returned to its old neutral stance on commissions.
But fee business remains the overriding focus at Commonwealth. And though the firm’s fee-only support for a variety of investment vehicles — including REITs and other alternatives — is quite mature, its RIA platform, which only serves a few hundred FAs in about 70 practices, has lots of scope for growth.
Since 2013, Waltham, Mass.-based Commonwealth has been providing consulting and support services around things like practice transition, compliance and operations for independent practices “that have chosen to evolve their business outside the regulatory framework of our broker-dealer or that wish to establish their own RIA,” a spokeswoman for the firm tells FA-IQ.
Advisors who want to work under Commonwealth’s corporate RIA must manage at least $50 million, while those with RIAs of their own who wish to affiliate with the firm need at least $100 million, the spokeswoman adds. Neither minimum seems outlandish for a network where the average FA manages nearly $75 million.
Commonwealth isn’t a voracious recruiter. Its stated aim is merely to bring in the 100 or so advisors a year it needs to keep its headcount in the 1,700-to-1,800 region. But increasingly, says wealth-industry expert Alois Pirker, competing for advisors calls for casting a multi-channel net that includes support for RIA-based advisors.
For Pirker, who leads Aite Group’s wealth management practice, the rise of the RIA fiduciary model for delivering financial advice to retail clients over the more sales-oriented brokerage approach has put pressure on all independent broker-dealers.
As a result, in the last decade or so firms such as Raymond James and Ameriprise have revitalized existing RIA platforms while others, like LPL and Commonwealth, have started new ones virtually from scratch. Even in the captive-advisor world, longstanding RIA dabbler Wells Fargo contrasts with RBC as a relative newcomer with an indie sideline. Outsourcers have old and new guards as well, with deep-rooted custody providers like Schwab and Fidelity contrasting with custody-neutral offerings from comparative upstarts like HighTower and Dynasty Financial Partners.
To help its RIA platform stand out in a growing throng, Gohr says Commonwealth is “working toward expanding custodial options” beyond its Fidelity-only base.
Ted Kerr, who has run a Commonwealth-affiliated practice since 2000, last year jettisoned his last crumbs of brokerage work to run his own RIA — Touchstone Capital in Sewickley, Pa. — using Commonwealth’s infrastructure. Though he’s happy with Fidelity, he can see why a multi-custodian roster might appeal to advisors eyeing Commonwealth from other perches.
“It’ll help with recruitment because it means somebody coming from Schwab doesn’t have to re-paper as extensively,” says Kerr. “It could make a huge difference if you’re looking at transferring a $200-million book and $95 million of it is at Ameriprise.”
Advisor Wesley Botto joined Commonwealth affiliate Cornerstone Financial Group in Cincinnati, Ohio, about a year ago with his father Mark Botto. For them, custody options took a backseat in their decision to drop the remnants of their commission business and go all-RIA on Commonwealth’s corporate platform.
“Commonwealth really convinced us that fee-only is the wave of the future,” says the younger Botto. “I’m only 30 and I’m going to be in the business a long time, so it makes sense to start out ahead of the curve.”
Besides that strategic consideration, Botto says it was a genuine pleasure to drop a layer of compliance by giving up his brokerage work.
Having made a similar move last year under Commonwealth’s auspices, Kerr couldn’t agree more. “Only 5% of my book was Finra” he says, naming the brokerage industry’s self-funded regulator. “But Finra accounted for 90% of my headaches.”
Meanwhile, when asked if he’d thought of moving to an infrastructure provider other than Commonwealth for his new RIA last year — one of the big custodians, perhaps, or a purpose-built upstart like Dynasty — Kerr is equally unwavering.
“I know there are alternatives, but choosing Commonwealth in the first place was one of the best business decisions I ever made, so I didn’t give it any thought,” says Kerr. “It’s an amazing firm, and by far my most important business partner.”
Then Kerr quips: “I’d say more about that, but I don’t want Commonwealth to increase its margins.”