Commonwealth Sees Surge in Advisors Ditching FINRA

Brokers who go fee-only have a decision to make: RIA or IAR? Douglas Boneparth chose to open his own RIA. (Photo: Donald Bowers)

As Commonwealth Financial Network continues to see a significant number of advisors moving away from Financial Industry Regulatory Authority registration to become fee-only registered investment advisors and investment advisor representatives, the company has reached $5 billion in assets under management from fee-only advisors who don’t have any affiliation with the firm’s BD business, according to Greg Gohr, its senior vice president of wealth management.

The company is, meanwhile, on track to achieve an additional significant milestone, probably late in the third quarter of this year, when “we’ll probably cross 100 fee-only advisors,” he told ThinkAdvisor.

The rate at which advisors are “moving away from the broker-dealer and choosing to build and grow their businesses exclusively in an advisory capacity” keeps increasing, he said. Another recent trend: An increasing number of them are opting to become IARs rather than going it alone as independent RIAs.

“They just prefer the security and the resources of a larger firm” like Commonwealth, he explained, adding that the “seamless” system that his company uses makes the transition even more appealing.

Once they drop their FINRA registration and become fee-only advisors, it’s “really just a question of whether they want … complete control over every aspect of their business [and also] assume a little bit more responsibility on the compliance side” by becoming their own independent, state-registered RIA or if they are “very comfortable with the way we perform the compliance responsibilities and they’d like to have a partner there and not have to figure it out on their own,” he explained. If advisors choose the latter route, they can be IARs and remain under Commonwealth’s RIA.

The shift toward an investment advisory business model is not unique to Commonwealth reps. Ron Carson, affiliated with Cetera, announced in December that he was dropping his FINRA license and supporting his affiliates who chose to do the same. In April, LPL said it was making changes intended to boost RIA recruiting.

One of the many examples of those who have made the transition with Commonwealth’s assistance is Gabe Lapito, now an IAR using Commonwealth’s corporate RIA and also owner of Strategic Retirement Plans in Billings, Montana. Like the other advisors we interviewed for this story, he noted that most of his business had already become fee-only, yet he was still paying FINRA BD fees to make commissions on securities prior to the transition. His transition from dual registrant to IAR was completed in November, he said, noting he had previously been dually licensed with Commonwealth since 2007.

“There’s a couple of main advantages” to transitioning to IAR alone, Lapito told ThinkAdvisor. “One is I feel like it aligns [with] my clients’ interests more appropriately,” he said, explaining he can now explain to them that he can’t legally make any commissions off them, so there’s no more potential “conflict of interest.” The second main advantage to the shift was it “reduced my expenses with Commonwealth by north of 30%,” he told us.