Commonwealth plans to open its payout purse

NEW YORK — Commonwealth Financial Network of Waltham, Mass., said it is giving pay raises to 400 of its advisers effective April 1, increasing the payout for advisers once they reach $25 million in assets on the firm’s proprietary managed money system.
Commonwealth, which has 1,100 advisers in total, will start the increased payout at 90% and increase it to 95%. The increase, which Commonwealth says on average is close to a 93% payout, applies only to assets on its fee-based platform, called Preferred Portfolio Services.
About 85% of the firm’s affiliated advisers use the platform, which is close to reaching $15 billion in assets.
The change in payout is based on all assets, including those below the $25 million threshold, and therefore isn’t a tiered system.
Commonwealth’s move makes it more competitive with other leading broker-dealers, such as Linsco/ Private Ledger Corp. of Boston and San Diego, and Cambridge Investment Research Inc. of Fairfield, Iowa, industry observers said. It also shows how serious broker-dealers are in obtaining advisers who charge fees rather than commissions, one recruiter said.
“The fee-based business is more competitive than ever,” said Jodie Papike, vice president of Cross-Search, a recruiting firm for
independent-contractor broker-dealers based in Jamul, Calif. “That side of the business is so competitive, this is going to make Commonwealth that much more competitive.”
Industry observers noted that Cambridge is among the most competitive broker-dealers when it comes to both its payout on
fee-based business and its
charges to reps and advisers for service. For example, Cambridge charges 0.05% of assets in administrative fees for its managed money platforms.
And Linsco/Private Ledger last summer gave a pay raise in the form of a production bonus to many of its affiliated reps and advisers.
Linsco’s top payout now is 98%, but a very small percentage of its advisers qualify for that because it applies to advisers with $4 million or more in fees and commissions.
As the economies of scale grow in the fee-based platform, Commonwealth can pass along the payout increase to its advisers, said Wayne Bloom, a managing principal with the firm.
“We’ve become more efficient,” he said.
The firm, however, is not considering increasing its payout for advisers’ commission business, Mr. Bloom said. “Our business is aggressively migrating to fees,” he said.
And Commonwealth’s advisers clearly were pleased with the move to increase their pay.
“We’re able to compete at the best level,” said Tom Bartholomew, president of Bartholomew & Co. Inc. of Worcester, Mass. “Obviously, I’m happy to see it.”
Mr. Bartholomew has about $250 million in assets on Commonwealth’s proprietary platform and $700 million in total client assets. He added that the growth of Commonwealth’s fee platform was “paying off.”
“It’s an exceptionally good deal now,” said Martin Kossoff, president of Kerkering Barberio Financial Services Inc. in Sarasota, Fla. Commonwealth’s trademark has been treating its advisers like clients, said Mr. Kossoff, whose firm has about $180 million in Commonwealth’s fee platform and manages about $250 million in total.
He said that the payout increase makes it “that much harder” for an adviser to drop registration with NASD and become a fee-only adviser.
“And that’s probably good for Commonwealth,” Mr. Kossoff added.