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Regulation and Compliance > Federal Regulation > FINRA

Commonwealth Outlines ‘Glide Path’ at Meeting

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Gathered at their national conference in San Antonio in early November, Commonwealth Financial executives said they plan to give financial advisors more official options in how they do business with the independent broker-dealer, starting in the second quarter of 2013. 

“I’ve spoken with at least three or four advisors who have said they want to drop their FINRA registration and have greater flexibility,” said Commonwealth CEO Wayne Bloom, in an interview. “This is what I call a glide path issue, and we are hearing more and more about it.”

As of next spring, independent advisors will be able to drop their FINRA registration and use Commonwealth’s RIA, for instance, or operate solely as their own RIA. As is the case today, they also can be affiliated with Commonwealth and keep their FINRA registration, be dually registered with FINRA and as an IAR, or run a hybrid business with FINRA registration and their own RIA. 

“We are going to take our inward-facing compliance systems and make them outward facing, so an RIA can protect his or her own business and ride on our technology,” said Bloom. “I see it as a way that advisors can go IA only without being alone.”

“The business has evolved to the point that how advisors are registered is essentially meaningless,” he explained. “Offering them tools that open options for them in how they do business, a glide path, is meaningful.”

Commonwealth’s 1,400-plus advisors now produce about $700 million in yearly fees and commissions, 70% of which is fee based. The independent broker-dealer “is marching toward” becoming a $1-billion firm with a $500,000 production average over the next few years, while maintaining its reputation for boutique-level service, Bloom says.

Breakaway Brokers

There are a good number of wirehouse advisors who “resonate” with the fee model, according to Bloom. “They want to learn more about it and work on giving up their FINRA registration, but maybe they need to keep their commission-based business as they are making the jump to independence,” he explained.

“In other words, they are a bit unsure of their future … so they need to find a firm that does both, i.e., works with dually registered or hybrid advisors and also is able to accommodate other business models,” Bloom said.

While Commonwealth focuses on attracting advisors who have at least $200,000 in yearly fees and commissions from competing independent BDs and other firms, it believes this glide path growth strategy can make it more attractive to wirehouse and other employee advisors (who represent about 10-15% of recruited reps).

“The breakaway movement is a real thing, and we’ve done a fantastic job getting the word out that Commonwealth is a sophisticated, service-oriented firm, and that we are interested in capturing them and building a bridge to that market in ways that are a good two-way fit,” explained Andrew Daniels, managing partner of field development, in the same interview.

Though only a small percentage of recruits—which number about 70 so far this year—may quickly embrace each of the business options set to be introduced in early 2013, they all want more ways to operate over time, says Bloom. “They are trying to be strategic as they ask where this advisory business is going, and they want a glide path to make these [transitions] as seamless as possible,” he noted. •


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