The Waltham, Mass.-based independent broker/dealer Commonwealth Financial Network has confirmed that the way it has structured deals recently gives prospects as an incentive to join the firm. It now provides forgivable notes based on the advisor’s asset levels rather than as a percentage of output, which has historically been the norm.
A third party recruiter, who declined to be named, said deals range between 30 and 35 basis points on the property.
“The Commonwealth remains at the forefront of where industry is going, which we think is on the asset side versus production side,” said Andrew Daniels, Head of Management, Business Development. “As we continue to see ourselves as a national RIA and our advisors as independent offices (versus captive producers), it makes sense to shift the structure of our support to focus on assets. Our overall transition Support is based on the scope and size of a potential advisor’s practice, and although we are competitive in the market, we care first and foremost about advisors who will be a great fit for both us and them.
The move is similar to that by LPL Financial, which has been structuring deals around asset levels for at least a year, those recruiters said. The LPL offers new recruits about 40 basis points on assets.
“As advisory books have evolved to account for an increasingly large percentage of advisory assets, it makes more sense to base transition money on the gross dealer discount on AUM,” said Jonathan Henschen, founder of recruiting firm Henschen & Associates. “We expect the detail of how much is paid on AUM to be based on profit as well.”
Ryan Shanks, co-founder and CEO of FA Match, says this new count has become more common among IBDs over the past 18 to 24 months. This is how institutional custody platforms structure their deals, which they call “start-up dollars.”
This is a better way to structure deals, Shanks said, because advisors’ business books are increasingly fee-based.
It is also a better deal for the broker/dealer; He said it is less risky and encourages the retention of those assets. This may be particularly helpful in recruiting the wirehouse breakaway, which many IBDs target. Historically, transition money was tied to an advisor’s 12-month back production.
“If someone leaves one IBD and moves to another IBD, the retention rate on those customers and assets is really high,” Shanks said. “If it’s coming from a wirehouse breakaway into IBD, there’s a significant risk of a breakaway.”
“I think part of it lies with Jones,” said Louis Diamond, president of Diamond Consultants. “LPL is clearly a major competitor to any of these brokers/dealers who are hiring, so in part, the LPL kind of sets the market and other types have to follow.”
Diamond said these could change the IBD calculation to mirror how they charge advisors in terms of administrative or platform fees, which are basis points on advisor assets, or mirror how custodians make money. Mentors won’t write a check, but they will give advisors some capital to offset marketing costs, ACAT fees, and other startup expenses.
“All firms are willing to pay more for advisory assets than brokerages, so this is one way to identify that,” Diamond said.
But unlike Shanks, Diamond believes it’s a better deal for the advisor, not b/d, because most advisors don’t have a 1% return on their assets. Many advisors have assets that are not productive or that they do not bill.
Diamond said, “If LPL offers 40 basis points to a person with $100 million in assets and he is making $1 million in GDC, it doesn’t matter if he does 40 basis points or 40% of GDC.” Is.” “But if you’re doing $1 million in GDC, you’re probably managing $250 million or $200 million. Advisor makes better.”
