IBD Sees Surge in Advisors Ditching FINRA

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 explained.

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, Gohr says. 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 Investment Advisor. “One is that 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.

The principal reason he decided to remain with Commonwealth’s RIA rather than register as an RIA on his own was convenience. For one thing, his clients were transferred automatically, receiving negative consent letters to inform them of the change, Lapito noted. In a nutshell, that meant “I didn’t have to repaper” more than 300 clients, which would have created a lot more work for him, he said.

Similarly, Michael Comstock, president of Premier Private Wealth in Brentwood, Tennessee, dropped the hybrid advisor and BD affiliation that he had with Commonwealth for the past 16 years or so in 2017 and became a fee-only IAR using Commonwealth’s corporate RIA.

Echoing Lapito, Comstock said one main reason he made the transition to IAR was “it was really the way I was working anyways, so it just made sense to go that route [and] get rid of some of the regulatory requirements that FINRA had that really didn’t apply to us any longer.” But “probably more important, I suppose, is just to kind of put the flag in the ground, so to speak — to say: ‘This is who we are. We believe in the fiduciary, fee-only model.’ And we wanted all of our clients and those we network with to know who we are and what we do and how we do it.”

Douglas Boneparth, president of Bone Fide Wealth in New York City, opted to transition from broker-dealer to become an independent state-registered RIA on his own but continue using Commonwealth’s investment management platform and technology. For Boneparth, the ability to make the change without having to repaper his clients was a huge benefit, he stressed, noting that the willingness of custodian National Financial Services to go along with the process, including the negative consent, helped make it possible.