Commonwealth Plans Big Tech Investments as More of Its Advisors Ditch FINRA

What You Need to Know

Commonwealth's 2021 results so far include revenue up about 21% from the same period a year ago.
A growing number of Commonwealth advisors are dropping their FINRA licenses and transitioning to fee-only.
The firm is getting ready to launch enhanced advisor tools while making a major investment in cybersecurity improvements.

As Commonwealth finishes up a strong year of growth, Wayne Bloom, its CEO, pointed to some of his firm’s 2021 successes and plans for 2022 that include the coming launch of next-generation versions of its three major advisor-facing tools and a major investment in its cybersecurity initiatives.

Commonwealth’s revenue so far this year is up about 21% from the same period a year ago, while fee revenue is up 28% and assets under management are up about 30% to about $270 billion, he told ThinkAdvisor during a recent phone interview.

About 85% of advisor revenue is now fee-based at the firm, he noted, adding: “Commonwealth actually looks more like a national RIA than it does a traditional broker-dealer.”

About 200 of the firm’s more than 2,000 advisors have dropped their Financial Industry Regulatory licenses and are now affiliated with Commonwealth on a fee-only basis, he said, adding that about 80-100 advisors had dropped their FINRA licenses as of about a year ago. “I think there’s several more that are sort of in the queue” to transition to fee-only, he added.

As the company noted at its recent National Conference, the firm’s advisors are thriving in a challenging year. Other data that the firm shared at the conference included Preferred Portfolio Services, its managed account platform, growing to over $155 billion.

“We have seen steady growth in the number of clients relying on financial plans, which we find has a significant impact on investor confidence and discipline,” Bloom told ThinkAdvisor. “We have also seen an expansion in the compensation methods advisors use for this crucial work,” he said.

“Having comprehensive capabilities and access to subject matter experts can serve as a differentiator and a driver of growth,” he also said, noting, “it can deepen relationships and insulate advisors from fee compression.”

Advisor Tool Enhancements

Commonwealth is “finishing up work on the next generation of three major advisor-facing tools,” Bloom said, referring to: Client360 Beta, Trading & Model Management, and Digital Onboarding.

Client360 is the firm’s flagship tool that he noted “contains everything an advisor needs to serve their clients: Portfolio management, document management, CRM, performance reporting [and] financial planning.” That tool is “getting a brand-new look and feel and improved functionality across the board,” he said.

Trading & Model Management, Commonwealth’s rebalancing tool, is “getting even smarter, allowing things like equivalencies and locks to be customized per account, per model or across an advisors’ business,” he said.

Digital Onboarding, meanwhile, represents the “evolution of our Client Account Wizard, which allows new accounts to be opened in real time, and existing accounts to be edited,” he said. The new version “will allow all signatures to be bundled into one DocuSign email, and for more client digital engagement,” he explained.

Cybersecurity Initiatives Ramp Up

Commonwealth, meanwhile, has “never invested more to counter the cyber threat on hand,” Bloom told ThinkAdvisor, but declined to specify how much the firm is spending on its cybersecurity initiatives.

“We are constantly evaluating our capabilities and enhancing our security to ensure that the proper protections are in place to keep advisor practices and their clients secure,” he explained.

Providing some of the details on its latest cybersecurity initiatives, he pointed to Shield 2.0, saying the company has “enhanced our Shield security services with state-of-the-art new capabilities to help provide greater protection against an evolving threat landscape as well as provide a simpler, faster, and more seamless experience to our services.”

Commonwealth is also adding multifactor authentication to “help provide additional security to ensure advisor access is secured, validated and prevent intruders from accessing their sensitive data,” he told ThinkAdvisor.

For email security, Commonwealth is adding a next-generation capability that he said “leverages an advanced machine learning and high-powered” artificial intelligence engine that will help “combat cyber threats looking to exploit email to steal information or ransom our advisors at speed and scale.”

A new security awareness, training and education platform, meanwhile, will provide Commonwealth advisors and their teams with the “latest security best practices to ensure they are aware of emerging threats, and to protect against them,” he said.

Advisors will also have the ability to “continuously assess, educate, reinforce, and measure the effectiveness of training through phishing simulations, targeted training, access to on-demand security videos, and continually provide new cyber awareness content to their clients that is effective and relevant,” he said.

As part of Commonwealth’s cloud-first strategy, the firm is also “implementing a modern, scalable, secure and ‘always-on’ cloud platform that includes a new security solution as well as Microsoft’s 365 platform,” he said. “Advisors will be able to save and store files in the cloud and access them from any device anytime.”