Page 43 - Investment Advisor April/May 2022

calculate recruiting deals. But it didn’t
say when or why it made the change. Commonwealth Rolls Out Virtual Admin Program
Paying on basis points, meanwhile, is Commonwealth Financial Network has started lending its advisors a hand
“just now starting to spread” in the sec- with non-advisory business needs with a new Virtual Administration (VA)
tor in recent months, Henschen added. Program, the RIA said. The offering pairs advisors who need support in vari-
More BDs will now “pick apart the ous operational areas with professionals who are trained and employed by
book” of business the advisor has; Commonwealth, the firm said, noting the program will free up time for advisors
“they’ll run it through a matrix and it’ll at the participating offices so they can focus on clients and other core needs.
spit out a number that they’re going to The team of specialists, part of a larger Commonwealth operations department,
pay for the note amount and that num- collaborates across business functions to provide fast, accurate support to the
ber it determines is based on profitabil- advisors and clients they serve, according to the company.
ity,” Henschen explained. “So they’re The virtual administrators provide advisors with an alternative to hiring part-
paying more for advisory business and time staff and eliminate the need to spend time and money on training, human
less on other business including assets resources management, technology and setup, Commonwealth said.
held away from the BD.” “This program takes the time-consuming, day-to-day tasks off an advisor’s
What is driving this shift? “It is the plate,” according to Jon Bohs, senior vice president of brokerage operations at
ever-increasing amount of fee-based Commonwealth.
business being done,” according to “It’s one-on-one support, not a pooled service,” he said in a statement. “By gain-
Henschen. “Before, when a percentage ing an intimate knowledge of the firm they’re working with, VAs recognize their
was paid on total production, irrespec- advisors’ needs and work to maximize efficiencies so the advisor can focus on
tive of what the product mix was, you growing their business and training their staff for more client-facing work.”
could have the same amount paid on a
book that was all mutual funds and vari-
able annuities held direct versus a much makes at least twice the profit on this First, “Commonwealth and many
more profitable book for the broker- office-supplied model than they do with other IBDs charge an advisor an admin-
dealer that is primarily advisory assets,” the standard independent reps that have istrative or platform fee that calculated
he explained. their own office,” he said. as basis points on assets. So offering a
“We’ve been seeing larger broker- Henschen, meanwhile, likes the recruitment deal that aligns with how
dealers pushing platforms for attracting basis-points formula for incentive deals they charge advisors seems to make
wirehouse advisors,” he added. “These because it’s based on AUM, he said. sense. We’ve also seen a shift within
platforms provide most everything for “For those that aren’t churning, they’re Commonwealth and some of their peers
an office except staff but for that, they rewarded with more transition money to charge advisors a flat fee (based on
get lower payouts than a standard inde- because it’s based on assets under man- basis points on assets) which would bun-
pendent advisor would receive. Further agement,” he noted. dle the traditional grid payout (ie: 90%
enticement for attracting this model is However, “if you have somebody payout), trading costs, platform fees,
note amounts over 100% of trailing 12 [who] doesn’t have a lot of assets but and additional services associated with
or higher upfront and backend amounts is generating a lot of revenue off those starting up the business. So once again,
offered with the backend bonus based assets — you can call it churning or this shift in how they write recruitment
on assets brought over. With these doing high-commission products — they deals jibes with this new approach.”
larger amounts being offered, you also would benefit less from that model of Second, “practices are much more
have a longer commitment of nine years paying on assets under management,” advisory heavy so this rewards fee-
before the notes are forgiven versus he explained. “So it’s a way of paying based practices.”
the typical forgiveness period of five to that rewards ethics and pays less for Third, Commonwealth’s biggest com-
seven years. those that have a propensity to churn petitors are often RIA custodians who
“IBDs love this model because wire- and make more off a smaller amount of offer “business development dollars” or
house advisors hold all their assets in assets,” he added. startup funds to offset a transitioning
brokerage accounts, and they have sub- advisor’s expenses during the transition.
stantial advisory assets, which are both STAYING COMPETITIVE Finally, it “helps them compete
highly sought after.” The shift by Commonwealth, Diamond with how LPL and other BDs are
Another plus: “The broker-dealer said, “makes sense for a few reasons.” structuring deals.”

APRIL/MAY 2022 INVESTMENT ADVISOR 41