Page 42 - Investment Advisor April/May 2022

BROKER-DEALER BEAT

By Jeff Berman

Why IBDs Are Changing Their

Recruiting Deals

Commonwealth now bases forgivable notes on AUM instead of

production levels, following a similar move by LPL.
T he shift that first LPL Financial

and
now
Commonwealth
Financial Network have made
from production rates to asset levels
when calculating transition assistance
for recruited advisors makes sense
based on the evolution of advisor books
to an increased percentage of advisory
assets, according to industry recruiters.
With books of business increasingly
being made up substantially of advisory
assets, “evolving to transition money
based on basis points rather than a
percentage of gross dealer conces-
sion is a logical move” for the inde-
pendent broker-dealers, Jon Henschen,
founder of Henschen & Associates, told Wayne Bloom, Commonwealth CEO
Investment Advisor.
The shift in strategy stands to also been the case for the firm and the sector sors joining Commonwealth, he said:
help IBDs trying to compete with RIA overall in the past. “It seems a little outdated that you’re
custodians and other IBDs for advi- “We formally switched that over right rewarding people or basing their tran-
sors, said Louis Diamond, president of in the beginning of the year,” according sition on the amount of commissions”
Diamond Consultants. to Wayne Bloom, Commonwealth CEO. they’re charging clients.
Similarly, Andy Tasnady, manag- The change was made because the new The firm’s shift was first reported
ing partner of Tasnady Associates, told method better “reflects how we do busi- by Wealthmanagement.com, which said
Investment Advisor by email that the ness today,” he told Investment Advisor the deals range from 30 to 35 basis
moves by LPL and Commonwealth in a phone interview. points on assets. The basis points are
“makes sense now that the retail invest- Although Commonwealth remains “unique to each individual,” Bloom said,
ment world (and its revenues) are now a BD and “transactional, commission- noting: “There are some higher. There
fee-based rather than the older school based business is still appropriate in cer- are some lower. But that’s in the range,”
transaction (trade) based.” After all, the tain instances,” he explained, “in 2021, he said of the 30-35, calling that about
“biggest revenue sources now are fees about 86% of our advisor revenue was the average basis points recruited advi-
from managed money and, to a less- fees, so Commonwealth is more like a sors are receiving.
er extent, spreads on cash balances,” national RIA than it is a broker-dealer.”
Tasnady added. Commission and production are just MORE PROFITABILITY, LESS CHURNING
“not what resonates with advisors” now, “Firms have been focusing note money
COMMONWEALTH’S DECISION he said, adding, “they’re more focused more on profitability,” Henschen said,
Commonwealth is now offering advi- on being fiduciaries and doing a great noting Commonwealth’s move followed
sors it recruits forgivable notes that are job for their clients.” LPL’s, more than a year ago.
based on the advisor’s asset level instead Noting that the change in formula has LPL confirmed it started using asset
of a percentage of production as had received a positive reaction from advi- levels instead of production rates to

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