On March 10, Commonwealth Financial said its 500 staff members, 1,400-plus advisors and their clients can do more philanthropically in their communities through the independent broker-dealer’s new 501(c)3 charitable foundation, Commonwealth Cares.
And on April 1,Commonwealth Financial advisors can take advantage of new pricing and payouts associated with the independent broker-dealer’s fee-based asset-management platform, known as Preferred Portfolio Services, or PPS. For advisors with more than $25 million in fee-based assets, equity and ETF ticket charges would drop to $7.95 from $16.
Payouts – which are linear -- increase to 94% from 92% for those with assets above $50 million and up to $100 million, to 96% from 94% for FAs with assets from $200 million to $250 million, and to 98% from 95% for those advisors with more than $500 million in AUM.
AdvisorOne spoke with Commonwealth Financial CEO Wayne Bloom about these and other developments.
Q. What prompted the recent changes to ticket charges and payouts?
A. Making improvements in ticket charges and payouts to advisors has been our main thrust since 1996, and this is the eighth time we have made adjustments. It’s important for us to do so for advisors and as part of the competitive environment.
In terms of the ticket charges, the financial advisors and their clients benefit from lower costs, which they always appreciate. These moves enhance the relationships between advisors and their clients, who may have wondered why their ticket charges were higher than some charges they see advertised elsewhere.
As for the payout changes, this is about us reinvesting our collective success. We reinvest profits in their business, and advisors can then advertise and improve their service model.
We have about 2,400 non-transaction-fee (or NTF) funds and also offer roughly 3,000 core funds with low transaction fees.
We are aggressively expanding our no-trading-fee program for our funds. Advisors do not want to deal with costs, and we don’t blame them. We’ve had great success doing this, and our advisors are highly regarded.
Just to add a bit more about our increasing payouts, we want to do all we can to share the economies of scale with those who most help us achieve this – meaning up to 98% vs. lower rates at our rivals, who tier their payouts based on, say, the first $10 million or $50 million, which means that the average payout for an advisor is lower than their highest payout rate.
Q. The competition for good RIAs has become very intense. How is this affecting Commonwealth?
A. Everyone values the great fee-based, recurring revenue advisor. This is very powerful from a business perspective, whether you’re an RIA custodian, a broker-dealer, an information-technology provider or another type of firm.
We have to be mindful and competitive with all of them, as the landscape is changing and changing fast.
Our value proposition is as an outsourcer of practice management, IT, communications, wealth management and other services. We have 504 employees for more than 1,400 advisors.
This is a great service model for our successful fee-based advisors. We are highly aggressive in our support, as well as in our payout enhancements.
Also, it’s worth noting that the advantage for RIAs to do all the back-office work on their own is no longer there.
Q. What types of firms do you see as your greatest competitive threat?
A. We look at other quality broker-dealers and RIA custodians, who are getting very aggressive. Now, some of these firms reach out and even call me about certain advisors. Thus, the marketplace is becoming more transparent. That is good and raises the whole industry up.
The independent-advice model has been more than validated, and it’s now up to the advisor to decide how to best be positioned within it. We try to accommodate them, no matter what they do.
Q. What is Commonwealth's view of developments affecting the fiduciary standard?
A. We are pretty well positioned, given the high percentage of fee-based business that our advisors do. Almost 60% of our revenues is derived from fees, and 70% of recurring-revenue income is derived from fees.
Fee-based FAs embraced the fiduciary standard a long time ago. That has been a good thing for investors and is also positive for the industry. Anytime you increase the confidence of investors, regardless of the intermediary they talk to, it’s beneficial.
Am I concerned about the issue of products with commissions and their suitability being part of fiduciary responsibility? Of course, but we are monitoring and hopeful it will be palatable from a regulatory perspective for all involved. And we think the Financial Services Institute’s lobbying on the matter is going really well.
Q. How do you see your recruiting efforts today?
A. In 2009, we had more than 100 net new advisors join us. In 2010, we were a bit below that year’s level, like our peers. In 2011, we have gotten a bump out the gate. Our recruiters are excited, especially with our new payouts and other policies.
We expect to add 100 advisors in 2011. Keep in mind that no one joins another firm unless there is pain or discomfort at their existing firm, which there was so much of in 2008-2009.
We maintain lot of relationships with advisors, and if they choose to take peak, we have some great conversations.
We like to talk about our service score of 96.1, which we received from our advisors in 2010, out of 100. In 2010, we were also ranked highest in independent-advisor satisfaction among financial-investment firms by J.D. Power and Associates.
This helps us explain that we really walk the walk when it comes to technology and other services.
Q. What trends are you seeing in terms of investors and assets?
A. Our portfolios are well allocated, and we are seeing the percent of the portfolio invested in equities move up a little bit, with the recovery now being up about 95% from the bottom.
Fixed-income yields are so low that investors need to go into equities for better returns. Advisors have been looking at fixed income with raised eyebrows, and with concerns over inflation and raising rates, no one wants to get caught in the wrong place at the wrong time.
Q. What are your thoughts on consolidation in the broker-dealer field?
A. I’m surprised there has not been more of this, especially at the firm level. How can you afford to compete with the scale that’s required today? As others have said, we should continue to see more of this happen.
Now, we are pretty selective about the advisors that join. In the past two months, we have been approached to buy a large firm. But we weren’t interested, since this wasn’t consistent with our model.
What good is it for us to add another couple hundred advisors, if half of them don’t fit? These opportunities are not always easy to take advantage of. We don’t’ just grab more business. We focus on quality – which is not to say that we don’t take every phone call. We do, because we have to see what may or may not make sense.
One group that did join us recently, for instance, was a group with more than $3 million in yearly production, or sales, and $300-plus million in assets.
Q. How did your recent Chairman’s Retreat in Boston go?
A. We had our top 45 advisors and some of their clients. Richard Clark, a cyber-security expert spoke, and we had a session on optimizing happiness and satisfaction with some Harvard speakers, which was very interesting.
Q. Could you share why the firm launched the Commonwealth Cares Fund?
A. Our advisors and home-office have been giving back locally for years. This foundation allows us to do in more formal ways what we have been doing for some time. And it lets us extend our efforts through activities that are more meaningful to our advisors. .
Our advisors are always asking us what more they can do to support our philanthropic efforts, and this will facilitate such efforts. Efforts like our Giving Back initiatives and Chemo Caps for Kids have been so successful, and we hope they will become the mainstay of Commonwealth Cares.