Commonwealth Aims New Recruiting Deals at Wirehouse Brokers
Commonwealth Financial Network, an independent broker-dealer serving about 2,500 advisors, is preparing a new recruiting package aimed at attracting brokers from wirehouses.
Commonwealth, which historically pitched itself to fee-oriented advisors at other independent brokers, plans to raise its upfront recruiting bonuses in the form of seven-year “forgivable loans” to wirehouse advisors, said Andrew Daniels, managing principal of business development.
“The race for talent is intense right now,” Daniels said in interviews with AdvisorHub. “Commonwealth has long relied on a superior service model as the key selling point, but we needed to up the premium to get closer to the market.”
He would not specify how much Commonwealth will raise its transition package, which it plans to introduce in January through a bulked-up recruiting staff, but said advisors producing $1 million or more are likely to be offered loans 50% higher than under its current package.
The alternative compensation grid will lower all-in percentage payouts for million-dollar producers to the mid-80s, from 95% under the standard grid, and to the high-80s for $2 million producers, Daniels said.
Brokers can choose the standard grid if they prefer, but the new model aims to clarify the tradeoffs between the higher payouts and higher ticket charges, administration compliance and other fees that come with independence. “We are simplifying the economics to look and feel much closer to the wirehouse model,” Daniels said.
Commonwealth, jointly headquartered in Waltham, Mass., and San Diego, also is negotiating for more competitive management fees from outside account managers (through its platform providers, Fidelity Investments and Envestnet), since they are not competitive with the volume discounts that larger firms command.
“SMAs have been a small piece of the pie for us,” Daniels said, noting Commonwealth’s menu of about 95 separately managed account managers. “We know we have to make the economics more competitive.”
Commonwealth expects to entice at least nine wirehouse advisors producing $750,000 or more to its new “channel” in 2021, including three apiece from Merrill Lynch, Morgan Stanley and UBS, Daniels said. (It already has a healthy pipeline from Wells Fargo, he said.)
That could help offset Commonwealth’s slow 2020 recruiting year, which Daniels attributes to selectivity as well as to coronavirus constraints, after three years of record net additions. Its broker count of 2,479 is up a net 17 since January, reflecting 118 new recruits and the loss of 101 brokers, primarily to retirement, according to a firm spokeswoman.
“Being private affords us a longer-term investment horizon than many of our competitors who have to answer to quarterly earnings call and outside analysts,” Daniels said.
Despite low interest rates and the pandemic dislocation that have eroded Commonwealth’s usual double-digit revenue growth, the firm has invested heavily in practice management technology and hired about 100 new employees to support advisors this year, said Trap Kloman, its president and chief operating officer.
Commonwealth is not alone in trying to leverage the trend of advisors breaking away from traditional employee firms to the independent model.
Publicly traded LPL Financial, which works with more than 17,300 independent brokers, introduced a “Strategic Wealth Services” channel for brokers emigrating from the employee brokerage world in April. It had attracted five wirehouse teams to the new channel as of early November.
Wirehouse brokers have been migrating to firms supporting independent fee-based advisory practices or hybrid broker-RIA businesses in record numbers over the last five years.
Cerulli Associates, a consultant to asset management firms, estimates that wirehouses experienced an annualized decline in headcount from 2014 to 2019 of -.8% while the hybrid RIA channel enjoyed a compound annual growth rate of 2.0% and the independent RIA channel a 5-year headcount CAGR of 3.9%.
Pure independent broker-dealers, including those run by insurance firms, however, are faring worse than wirehouses. Cerulli estimates their headcount has declined by 1.9% annualized over the five-year period.