Firms in Focus: Commonwealth

We feature Commonwealth as the next firm for our Vantage Impact Firms in Focus series.

As an independently owned, privately held firm, Commonwealth offers advisors an assortment of models, platforms, and resources to choose from when considering how to partner with them.

In this article, we discuss what differentiates Commonwealth from other firms in the financial services industry, who they are looking for in a “right-fit” advisor, and what they can offer financial advisors who transition to their firm.

Who is Commonwealth?

Founded in 1979 by current chairman, Joe Deitch, Commonwealth is the nation’s largest privately held RIA-independent broker/dealer. It is now fully owned and controlled by 12 tenured managing principals who remain a part of day to day firm operations.

Today more than 2,000 advisors partner with Commonwealth’s 900 supporting staff members through multiple affiliation models, and they boast some impressive “advisor satisfaction” survey results and awards. For those advisors operating independently, but affiliated with a broker/dealer, Commonwealth has been ranked #1 for “Independent Advisor Satisfaction Among Financial Advisors” by J.D. Power eight times in the last decade.

Also noteworthy, Financial Advisor Magazine’s “Independent Broker Dealer Ranking 2021” ranked Commonwealth #6 in Total Gross Revenue with the #1 highest Gross Revenue per Representative ($814,075).

Fidelity Institutional provides clearing, custody, and other brokerage services to Commonwealth through National Financial Services LLC (NFS). While Commonwealth is one of NFS’s largest and longest-tenure correspondent firms, Commonwealth owns the operations and technology processes which allows for more advisor autonomy.

What are the ways advisors can affiliate with Commonwealth?

Commonwealth offers four different affiliation models for advisors to provide more flexibility in what they are looking for and what goals they are trying to achieve.

Here we provide a bullet point overview of some of the major components of each type of affiliation.

A. Dual Registration: Use Commonwealth’s RIA and Broker/Dealer

Business Requirements: Commonwealth's standard minimum production
Revenue Type: Fees and commissions
Revenue Sharing / Splits: May split advisory fees with other Commonwealth IAR’s
Payout: Up to 95% on commissions; up to 98% on fees, less administrative fees
Administrative Fees: With Commonwealth’s Growing Advisor Program, as assets increase, fees decline
ADV Filing and Updates: Commonwealth’s ADV is used to file
Advisor Fiduciary Status: Advisor and Commonwealth act as fiduciary for all transactions
Regulatory and Compliance Oversight: SEC, FINRA, and state registrations and oversight of advisor’s brokerage business are provided through Commonwealth’s Broker/Dealer. SEC and state oversight and regulatory examinations are handled through Commonwealth’s RIA. Advisors have access to Commonwealth’s full compliance infrastructure.
Liability Coverage: Advisors are covered by Commonwealth’s E&O insurance and Fidelity bond.

B. IAR-Only: Use Commonwealth’s RIA Exclusively

Business Requirements: $50M in AUM
Revenue Type: Fees
Revenue Sharing / Splits: May split advisory fees with other Commonwealth IAR’s
Payout: Up to 100%, less administrative fees
Administrative Fees: Fees vary depending on overall assets and specific business mix
ADV Filing and Updates: Commonwealth’s ADV is used to file
Advisor Fiduciary Status: Advisor and Commonwealth act as fiduciary for all transactions
Regulatory and Compliance Oversight: SEC oversight is provided through advisor’s association with Commonwealth’s RIA. Advisors have access to Commonwealth’s full compliance infrastructure.
Liability Coverage: Advisors are covered by Commonwealth’s E&O insurance and Fidelity bond.

C. Hybrid RIA: Use Your Own RIA and Commonwealth’s Broker/Dealer

Business Requirements: $100M in AUM
Revenue Type: Fees and commissions
Revenue Sharing / Splits: May split advisory fees within advisors’ own RIA
Payout: Up to 95% on commissions; up to 100% on fees, less administrative fees
Administrative Fees: Fees vary depending on overall assets and specific business mix
ADV Filing and Updates: For fee business, advisors must create their own ADV and file appropriately with state regulators and/or the SEC. For brokerage business, Commonwealth ensures appropriate FINRA and state registration.
Advisor Fiduciary Status: The advisor’s RIA acts as fiduciary for all advisory services offered through the advisor’s RIA.
Regulatory and Compliance Oversight: SEC, FINRA, and state registrations and oversight of advisor’s brokerage business are provided through Commonwealth’s Broker/Dealer. Certain RIA activities are subject to Commonwealth policy. The advisor’s RIA is subject to SEC or state oversight and regulatory examinations, as applicable.
- For the advisor’s commission business: Advisors have access to Commonwealth’s full compliance infrastructure.
- For the advisor’s RIA: Advisor has access to in-house compliance experts for questions and referrals to third-party compliance consultants.
Liability Coverage: Advisors are covered by Commonwealth’s E&O insurance and Fidelity bond.

D. RIA Only: Use Your Own RIA Exclusively

Business Requirements: $100M in AUM
Revenue Type: Fees
Revenue Sharing / Splits: May split advisory fees within advisors’ own RIA
Payout: 100%, less administrative fees
Administrative Fees: Fees vary depending on overall assets and specific business mix
ADV Filing and Updates: Advisors must create their own ADV and file appropriately with state regulators and/or the SEC.
Advisor Fiduciary Status: The advisor’s RIA acts as fiduciary for all advisory services and transactions.
Regulatory and Compliance Oversight: Guidance only; there is no supervisory oversight of the advisor’s RIA from Commonwealth. Commonwealth retains certain supervisor functions as Broker/Dealer of record for client accounts. The advisor’s RIA is subject to SEC or state oversight and regulatory examinations.
- Advisors have access to in-house compliance experts for questions and referrals to third-party compliance consultants.
Liability Coverage: Advisors must acquire their own E&O insurance and Fidelity bond coverage.

Payout Rates and Compensation Schedules

Click here for a Commonwealth “Compensation and Pricing” brochure with information about compensation and fees for each type of model and specific program.

A few noteworthy highlights of Commonwealth’s payout rates and various programs to help you make sense of the different options:

1. Teams Can Aggregate Production to Increase Payout Rate

For advisor teams under the advisory fee pricing model, groups can aggregate production to increase their payout level for the entire team.

2. Preferred Portfolio Services (PPS) Compensation

Commonwealth bases compensation for PPS programs on account size as one of the factors, but there are also two different methods for advisors to grow: enhanced PPS payout levels and the “Growing Advisor Program” (GAP).

For both of these methods, Commonwealth offers administrative fee discounts commensurate with their total PPS program AUM. The growth of your business directly results in a reduction of the program’s administrative fees.

Specific to GAP, or the Growing Advisor Program, the advisor’s administrative fee level actually has a “ceiling” or is “capped” at a particular level. The GAP cap reduces administrative fees on smaller account sizes and allows the larger accounts to be assessed whatever is less: the standard rate or the GAP cap.

3. Preferred Portfolio Services (PPS) Custom

In addition to the standard PPS compensation schedule, Commonwealth allows advisors to manage client accounts on a discretionary basis, and then you are compensated from an annual management fee based on a percentage of the account’s value.

If you would like to discuss these details and talk about which model would be best for you based on your current book of business and situation, let’s schedule a consultation.

Vantage Impact Takeaways - 3 Things to Know About Commonwealth

1. Affiliation Models Provide a Glide Path for Advisors Looking to Grow

Commonwealth’s variety of affiliation models with different “business requirement” entry points of AUM provides advisors a unique opportunity to shift their type of affiliation as they grow in production.

For advisors looking to leave the wirehouse and become more independent, starting an RIA might not be feasible or realistic. While this may be a career goal and a major interest of the advisor, the production levels may not quite be there or the life timing may not be right.

Commonwealth’s models of Dual Registration or IAR-Only allow advisors to immediately benefit from the firm’s large infrastructure of support and build their practice, with the eventual “glide path” towards a hybrid or fully independent RIA when it makes sense in the future.

2. Integrated Technology Stack Solves Big Problem for Advisors

Technology platforms are essential for an advisor nearing the first quartile of the 21st century, yet providers are still learning the best ways to support the financial services industry. Most firms need to use multiple platforms or systems to serve clients and run their practice sufficiently.

For example, advisors may use CRM (Customer Relationship Managers) like Redtail or Orion to store financial and customer data, but they still integrate this CRM with a customized version of Salesforce installed a decade ago to serve some need. Then the practice has invested in tools like eMoney to assist with Financial Planning. Now Salesforce sales reps keep calling to convince decision-makers they need to upgrade to Salesforce Financial Cloud, and team members are clamoring about needing a new tool to prospect and generate leads.

Sound familiar?

For those interested, Commonwealth built their own fully integrated technology stack called Advisor 360 to solve this problem. Rather than invest 100’s of thousands of dollars for their 2,000 advisors to utilize a variety of different platforms, Commonwealth created their own system for advisors and support staff to use with clients. Advisor 360 combines CRM tools, financial and customer data, prospecting, investment management, and financial planning tools into one suite for advisors to use.

Feel good about your current tech stack? It’s important to note as well - advisors can plug and play their own technology (Risk Analyze, Planning Tools, Redtail, etc).

Commonwealth also provides ongoing support and training for advisors and their staff members to make sure they are utilizing the different suite of tools to the best of their abilities.

For advisors who are not attached to their current technology platforms and are looking for a way to simplify things, Commonwealth’s Advisor 360 is an interesting and beneficial solution to consider.

Note: While not mentioned above, Vantage Impact is a HubSpot Certified Partner, and we help financial advisors utilize its suite of CRM, marketing, and sales tools to earn more clients and grow their practices.

3. Infrastructure of Support

In our work and review of Commonwealth, we were struck by the comprehensive infrastructure of support for advisors, in both their emphasis on its importance, and what systems have been established to back up their philosophy.

In addition to the technology platform and training mentioned above, Commonwealth provides advisors support in the areas of transition consulting, marketing, practice management consulting, and compliance.

Here is a quick rundown of the various services offered in each one of these areas:

Transition Consulting

Dedicated transition consultant and transition operations specialist
60 person transition team
Week by week timeline, customized
Real-time tracking of transfers
Dedicated technology consultant
Live web tour and training
Assistance with licensing materials and insurance reappointments
Compliance-approved marketing resources to notify current clients

Marketing

Templated marketing materials that can be personalized
Business goals/marketing goals strategy builder
Learning Center with Branding Advice
Peer stories- case studies from other Commonwealth advisors
Easy Site - Website Platform and Template to be Customized
Access to third-party vendors to hire for copywriting, design, and other services

Practice Management and Business Transition Consulting

Work with a consultant to build a business plan for the practice.
Get help implementing processes to analyze your practice’s financial performance
Collaborate to plan business transitions, including acquisitions, succession planning, or continuity planning

Compliance

News and communication about changes to rules, regulations, guidelines, and policies
Access to support team when needed
Process for conducting reviews with clients
Engagement with regulators and industry trade groups to advocate on behalf of the firm and practice

Who is Commonwealth looking for in a right-fit advisor?

Offering a variety of “supported independence” models, Commonwealth wants advisors who are seeking more independence, but who will also embrace the comprehensive support provided by the firm.

“Right-fit” advisors will primarily do fee-based business and want to spend their time interfacing and working directly with clients. They will see the value in the integrated technology stack and feel comfortable working with Commonwealth’s practice management team to build a plan for success.

Advisors who are kind and affable, with clean compliance records, will fit in best to Commonwealth's culture.

The VI Summary

Commonwealth differentiates itself with its commitment to multiple affiliation models that are flexible and offer advisors a way to run their practices independently, but still have direct access to exhaustive support systems.

The integrated technology stack with different suites all held under one platform is a major differentiator and could offer a solution for advisors who have been struggling to navigate the complexities of this environment.

Commonwealth is not for everyone, and advisors who prefer to outline, dictate, and run every element of day-to-day practice operations by themselves will probably not thrive in this firm.

If you want to learn more about Commonwealth, including specific payout rates and options per affiliation model, or start exploring other options, reach out to us and schedule a consultation. We can dig into the details and take you through the process.