Update: Just had a conference call w/ biz dev. mgr at Commonwealth. Liked what he had to say. Basically they approach things similarly to the way I approach my business (be selective of the clients you take in and give them better service). He was honest in saying that the only thing that works against them in terms of their size compared to LPL is their ability to contract w/ SMA managers due to the asset requirements the managers want before signing on w/ a BD but from what I heard they have plenty. Heck they have more than what's available at AGE (my current firm) so this may not be an issue. They do seem to understand the wealth management approach and the fact that the industry is changing and relying ONLY on investment management fees could be a dangerous business model as fees/commissions continue to face compression due to people thinking portfolio management is being commoditized.

I did find out that they in fact have alternative investments (hedge funds, private equity, managed futures, REITS, 1031 LP, oil & gas and leasing LP's). I got access to their website and looked for the programs available and the only downside is the quantity of managers available in each class is thin in the area of hedge funds, private equity and managed futures. Of course the managed futures funds that I use were NOT on the list!

Their technology seems good but at first glance not as good as LPL. My impression is that they probably react to what LPL does due to advisor request/demands. The do have a robust advisory platform and I really like the idea of increased payouts once you have $25MM or more in their advisory platform (payout goes up to 90%) and the fact that the administrative fees also go down as your AUM in advisory programs increase. This makes A LOT of sense if you ask me.

Their marketing materials seem very good although they do have the Commonwealth Financial name on them but not sure if that's too big an issue.

I will continue to "play" around w/ their technology and report as new developments occur. Boy is there a lot to learn here. Almost makes me want to take Merrill up on their offer to go with them so I don't have to worry about all this BUT I know indy is the best option for me in the long run so I won't be tempted!

[quote=csmelnix]

Indyw - appreciate the responses; we may have some similar things in eachother's practices.  As you do your due dilligence my suggestion or point of emphasis would be that ask the questions I asked of you and make sure the explanations fit the answers you gave me.  Commonwealth is a great firm for many reasons but my time spent looking at them every so often, they really lack the resources to service my business in the areas you are looking at.  There is a lack of tax and attorney professionals there to help with case design or estate planning etc... compared to what I have had here at LPL.  LPL having their own trust company is a huge benefit from that standpoint, though, I don't often use them for trust administration the people available to address questions, help with planning etc. have been strong.  In terms of tax planning, estate attorneys and all that...being indy has helped me build a wealth management platform for my practice; it's not complete but is filling - I do have 3 in house CPAs, they are licensed and do their own business, I would love to bring in an attorney but too many ego's in one office have made it difficult.  One of things that certainly would keep me from going to CW at this time is none of the CPAs in house is responsible for doing $100k in GDC and as it was explained to me, CW wouldn't let them join as a result.  Kind of p'd me off given that it's my business not theirs. These are all very good points and examples of exactly things that I would need to feel comfortable with. The lack of experts in the home office that I could call on when needed is a red flag for me. One thing I had forgotten about was LPL's Trust Co. which does help and add a level of credibility that CW does not have. Not only that but I envision LPL will eventually add lending capabilities at the rate they're going. Finally I don't know how I would feel if I was told I can't bring someone doing less than $100K in GDC if I felt it was the right move for my practice.

Also, really dig down with Commonwealth on their 3rd party managers, as I said before, they are lacking in choice on the individual managers but have a great selection of vendors to choose from that do overlay management and combine managers (like SEI, brinker, pac fin. group etc).  On the insurance side, I have worked with a few GAs, as well as the FMOs and it's hit or miss.  I don't have a great liking to the LPL Ins. associates platform either; the beauty with the local GA is I get far greater service on the underwriting side for multiple product than I get anywhere else and that is a great benefit for the client. 

Now my disclaimer...LPL has been great to and for me, my business is better than I ever imagined.  But....LPL is not what they were when I first came here 5 plus year ago either.  Their service has slipped both in time to answer but most importantly in accuracy of information.  I never had to question the info I received from the service center until about 12 months or so ago...now I do.  I don't like the aggressive growth they are on right now either, particularly given my business model.  As they continue to grow, they are building this box that we all are going to have to play in or compliance won't be happy.  I am seeing the changes already, I am seeing where they were once flexible they no longer are or they are making it very difficult to do things related to my business model that I once could do.  I don't foresee that getting better.  Yet, they offer more options than what I have seen with other b/ds I have looked at to include commonwealth... Their technology makes or helps my practice stay efficient more than what others appear to do too.  A time may come though were the trade off with flexibility/independence will win v the efficiency and technology though.  We shall see. This "high growth" trend concerns me too. I know service has been a key benefit of LPL in the past but seeing how the speed and more importantly quality of service decreased at AGE during the last few years as they were growing makes me VERY sensitive to this issue. I too believe they will have to "lock" things down in order to manage their compliance liability as they continue to grow. My concern is that they are just taking anyone in who wants to join LPL and this scares me a bit. I know they say that because of technology they can be profitable w/ $125K OSJ but I don't know how they will be able to service everyone and continue to allow the customization they allowed for in the past. Any specific examples you can share w/ me regarding the changes you're seeing in LPL over the last few years?

Just the one's I mentioned.  Time and accuracy to answer in the service center is poor.  They are much less accomadating on certain things like trying to add a vendor or manager to the platform...it's more of a run around with lack of answers than before.  I also believe that with their growth and the addition of proprietary platforms...they have subtly begun to push their platforms more by making it difficult to use other platforms like Assetmark.  I like the idea of using ETFs for parts of some portfolios, by I don't want to be the overlay manager rebalancing 2x or whatever a year...I know some platform vendors offer that capability but it's just difficult to do that biz. with LPL from getting the deal done to getting the data in the perf. reporting tech. etc...These platforms of theirs are additional revenue sources and the margins are much higher for them than our business and I think we are seeing more examples of this with their new clearing deals too.  It's just a different mentality than what it was going back 5 years and I believe that is where CW has a potential advantage; but I get a sense they are a bit arrogant as well.

It might be worth you while to check in with First Allied too, I thought they had some decent things going and they tend to be quite flexible with things...

Had another meeting w/ LPL recruiter & director yesterday. Very good meeting. We discussed the pros & cons of LPL vs. Commonwealth. Made sense. Basically their is strength and economies of scale in being large like LPL. They have more resournces & $$ to do things to help advisors. Good example is the eMoney Advisors pricing they were able to negotiate. Sounds like they really try to listen to their reps and built that additional service center staff up for the larger size of their advisor force. I did bring up the issues I've heard w/ service not being the same and they said that the problem is coming from the fact that they hired a lot of new folks and they are still "green" so they are making more mistakes but expect this to work itself out w/ time. Sounded like an honest answer. They also said that as more and more of their reps are coming from the wirehouse ranks, that they realize and are making progress towards providing the same level of sophisticated investment platforms and wealth management resources because they know that LPL needs to make that available if they have any hope of attracting people like me. Again, could be "recruiter" talk but I hope not.

I'm back to thinking LPL is a stronger candidate compared to CW. My team and I will be flying to SD soon enough and I'm also asking that we are allowed to go the national conference. I will be visiting w/ RJFS and CW too.

...I went through the same thing...talk to one firm, move that direction...talk to another, move THAT direction.  Once you are through with all of them, you'll know which one works best for you.

If you go to the national conference, I think you'll find that a strength of LPL.  I've spoke with other indy advisors and compared notes on the national.  I've yet to find an indy firm that compares in this regard.

For those of you w/ LPL, what do you consider to be their strongest points and what would you consider to be their weaker points? Also, I hear that a typical net payout % to OSJ after all expenses is in the sixties (assuming you work out of an office & have 1 full time assistant). I know this is different for everyone but in general would you agree with this?

[quote=Indyone]

...I went through the same thing...talk to one firm, move that direction...talk to another, move THAT direction.  Once you are through with all of them, you'll know which one works best for you.

If you go to the national conference, I think you'll find that a strength of LPL.  I've spoke with other indy advisors and compared notes on the national.  I've yet to find an indy firm that compares in this regard.

[/quote]

Me too.  What I did was create a grid on paper with the various firms that I was considering.  (I know... too analytical.  I did the same thing when I was considering kicking my first husband to the curb.  The cost benefit analysis indicated that I was better off without him )

Make categories of what is most important to you and would be important to your clients and the negatives that might arise if you went with a firm.  Costs of operating the business, product selection, costs for client trades, levels of production required and fees for not making the grid, freedom to chose outside product vendors like fixed and life insurance, supervision, ability to transition clients based on firm reputation or if that would be a consideration. etc etc.  Make columns for each firm and check of which firm satisfies more of the items you requires. 

Then go with your gut feelings.

Dust Bunny,

Yeah good strategy. I guess I'm not used to the indy mentallity of me hiring the BD to provide what I need. I like your idea of determining what is MOST important to me and my style of business to determine which one of the 2 is the best fit. On the one side I "feel" Commonwealth is better geared for my type of business (fee based, wealth management and higher end clients) but have it in my mind that LPL's size is a strength yet I really dislike their proposal system and their rapid rep growth. I hated the service issues and loss of personal touch that plagued AGE so this is another area of concern w/ LPL for me.

I think/hope my due dilligence trips will help me figure things out.

I guess I'm not used to the indy mentallity of me hiring the BD to provide what I need

This is most important. You are not going to be an employee. You will be in business for yourself and need to consider all costs you might incur, the tax advantages and disadvantages.  I don't know about LP, but in most indy situations you are responsible for your own tax withholding and maximizing deductions.  

The B/D is hired by you and the overrides that are taken from your production is what provides all those "support" people their jobs.  Don't you forget that.  Sometimes they do; but the reality is they work for you so you need to be sure you get the best bang for your buck.

You are in business for yourself and need to be a smart business owner who creates value in your company and hopefully someday has something of value to sell to some one else when you retire.

Not concerned w/ the fact that I will be a business owner. I’ve been there and LOVED it. Probably the point in my professional career when I felt the best and in most control so I’m really looking forward to that again. I’m just finding it hard to see BIG differences between LPL & Commonwealth and don’t want to make a bad decision that will impact my business because of lack of knowledge about what BD would be best for me and my type of business. I guess I’m torn because my gut is stearing me towards Commonwealth but my brain tells me that being w/ the biggest (LPL) is probably smarter eventhough there are some biggies that I don’t like about LPL!

Indyw - frankly, I don't think either will hurt you.  CW may cause a bit more leg work to get your "total" wealth management set up but once there, you won't look back.  LPL won't hurt you either.

You raised concerns with each, consider where the larger disruption may come from either b/d affiliation.  Where does each sit v where is each going in the future; is what I am getting at.

Indyw, you've mentioned a lot about the size of a broker/dealer being a concern, so you really want to compare apples to apples.

When you're working with a b/d you're REALLY working with the company they clear through.  LPL is self clearing and clears for 2 b/d's, LPL & AXA (maybe 10,000 advisors, total?  12,000?).  CW clears through NFS, which means you're really 1 of 86,000 advisors.  I think the self-clearing is really one of the most important things to consider.  RJ is also self clearing, but I'm not sure how many advisors they clear for.  I believe it's about 40 different b/d's, though.

Just my $.02.

I totally agree with FreedomLvr on the self-clearing difference between the two firms.  Although Comm. will stress that it is a smaller firm with more personal attention, in reality they have to outsource their back office service and support.  LPL used to clear through Pershing approx. 7 years ago and found that it is wasn’t as cost efficient and had no accountability in servicing their advisors.

I've spoken w/ a few CW reps that moved their business from LPL over the last 2-4 years and they LOVE Commonwealth. They say the service is truly outstanding and their attitude towards the reps is great. They really understand what true wealth management is and have great materials and proposal generation systems that center around the role of a wealth manager vs. an investment advisor only. That's very appealing to me. I asked about the lack of self-clearing and none of them said it has been an issue w/ them. The basic message I heard was that LPL had gotten so large and impersonal that they no longer felt like it was the best BD for them.

I guess I don't understand the potential problem with self-clearance so can anyone explain how this creates problems?

Indyw - the potential benefits for self clearing are many but true benefits are being lost as LPL continues to grow.  I know lots of other LPL reps or recruiters will argue that they are great, I am not saying they aren’t; I am simply saying they are not what they were a few years ago.  Where’s the cost benefit that you talk about PGH?  Costs are rising and many firms charge the same or similar ticket charges to what we are hit with here?  The one area that I found a benefit to continue though is availability of the funds.  Local bank depository is very sweet since you can get your clients funds working for them right away.  Not all 3rd party clearing set ups have this.    Beyond that, I am beginning to see the benefits go by the way side more and more.

Well as time goes by I can start seeing some of the pros & cons of both firms. Although I'm really liking the size and feel of Commonwealth, I'm also finding that they have some key areas of concern for me. I'll list them out for those of you following this thread:

Research - CW seems to have a limited amount of research information in house. Yes you can buy a research package that includes Argus, Valueline, S&P, Morningstar & Forefield but compared to LPL, who has an actual Economist & Market Strategist along w/ a lot more research analysts, the difference is noticeable. For example if I do a search for CW's opinion or educational info on floating rate securities I come up w/ nothing. In LPL's system I find info on the current opinions of floating rate securities. With LPL there is quite a lot of internal (LPL) research on everything from asset allocation to alternative investment products PLUS they have a Strategist's Corner where outside research is made available on a variety of topics as well (for free) plus you can add research services such as S&P, CSFB, Zack's, Forefield. In this category LPL wins in my opinion. Add to that the fact that LPL's chief economist is seen on CNBC & other media and I would have to say LPL is the WINNER in this area.

Portfolio Analysis Software - I think CW only has Morningstar (part of the research bundle) which is nice but can't handle fixed income or alternative investments and the info provided is limited from a portfolio perspective. LPL has their PRT which granted is not institutional quality but does do a heck of a better job in allowing an advisor to ANALYZE a current portfolio. The PRT does not handle SMA but they now have a tool advisors can get (for a fee) to analyze SMA managers if needed. Granted CW has Advent but that doesn't really analyze a portfolio it just gives you some really cool reporting options. Again LPL is the Winner.

Wealth Management Materials - CW has got this down! They have  great client approved material that does a phenomenal job of explaining what a true wealth manager does and they have client and advisor specific educational pieces on everything from retirement planning to income tax planning. They also have questionnaires advisors can use during their review meetings w/ clients that help advisors talk about the various aspects of wealth management. LPL really lags in this area although I was just informed they will be rolling out something called Advice for Life which sounds like a wealth management program that may have similar things as CW's. CW also has a GREAT proposal generator that kicks the pants off the one LPL has. It's just well written and designed. LPL is rolling out their eMoney Advisor program which could completely turn things upside down in this area especially with their goal of completely integrating eMoney w/ BranchNet and client account info to automate a lot of the financial planning we do for clients but for now I have to give the gold to Commonwealth in this area.

Products & Services - Both firms are very similar in this area except for a few notable areas: LPL has a Trust Co. which is a biggie if you play in the HNW segment. Anything I can do to keep competitors (trust companies) away from clients the better. Because of this you can also leverage the trust co. experts for complex case issues which is a bonus. Beside the Trust Co. both firms offer pretty much the same but I just get the impression that LPL just has more options. An example is the relationship LPL has w/ local banks so reps can deposit client's money locally. Another example is Alternative Investments where LPL's list is significantly larger than CW's. And, although the newly formed LPL Insurance Assoc. sounds like it's been more trouble than help, I'm sure they will get their stuff together and prove to be an asset for reps in terms of helping them be more efficient. Winner here LPL.

Culture - Time and time again I hear that reps w/ CW are VERY happy with the attention and service they get. The fact that there is a high ratio of support staff/reps sure helps and you get that small business feel where you feel important because you are. With LPL growing as fast as they have and will continue to I'm certain this will become an issue at some point. The recruiters say that it wont but I just can't believe that. Granted, I haven't yet spoken with anyone who is currently with LPL who says service is a problem but the people at CW and the reps there that came from LPL said culture and service was changing and that's why they left LPL. They felt the firm was catering to the top producers and they felt less important. So in the area of culture I have to say Commonwealth has the edge.

Payout - Finally we get to $$$. No doubt that at first glance you will see that LPL's payouts and bonuses are simply higher than CW. CW starts at 87% and moves up to 95% whereas LPL starts at 90% and moves up to 98%. The transition packages are also better at LPL. CW says they don't want to pay anyone to come over but when you're starting a business startup financing and cash flow are KING so something to keep in mind. CW says that LPL's charges reps for every little thing they do and so they say LPL's 90% is not quite true. I'll have to explore this for myself a bit more but for now I'll have to say LPL is ahead here as well.

This is the latest. I will have more to report in the coming days/weeks. If anyone out there is/was with either of these firms and you have some direct experience w/ what I just wrote about please feel free to chime in and write about your experience or opinion.

Great post.  I'll add that while the local bank depository is nice, at one point last year I was told that a device to scan checks (similar to what some gas stations use) so that funds are electronically moved immediately, was in the works.  While it's possible that this project has since gotten derailed, I think it would be outstanding if I could deposit client checks without ever leaving the comfort of my office.

Also, Commonwealth is correct in stating that LPL has numerous charges that offset the full effect of the better payout.  Here's an idea of what to expect...

Ticket/fee-based admin charges: my actual numbers: 2006 - 4.65%, 2007 - 3.39% (apparently, I'm getting smarter at playing the game) Note: The fee-based admin charges are partially offset by some sharing (50-60%) of non-retirement account 12b-1 fees.

NASD/SIPC Fees:  0.23% and 0.1875% respectively

Branchnet: $75/month

Portfolio Review Tool: $25/month (going to $35/month)

Monthly Contract Fee: $125 (this one somehow escaped me on due diligence...didn't see it until it hit my commission statement...)

Monthly Bonding Fee (for assistant): $10

S&P & CSFB Research Charges: $45 & $70/month respectively

Annual Outside Brokerage account fee: $100 (for me to maintain a cheap online brokerage account)

Quarterly E&O charge: $512.50 + $25.00 surcharge for doing insurance direct.

Obviously NASD branch and state licensing fees are passed through, but other than that, I can't think of anything I've missed (other LPL reps feel free to correct me if I have).

Offsetting those are production bonuses...1% when you hit $100K and 2% when you hit $200K (after that, I don't remember the scale...just remembered thinking that it would probably be awhile before I had to worry about hitting additional tiers...

Initially, all these little charges irritated me, but as production grows, I tend to care less and less about them.  I suppose that LPL would rather itemize all the services they provide to show the value that they bring to the table, rather than absorb them and show a lower payout.  Every once in awhile, a charge will come through that irritates me all over again, but for the most part, I've decided that it's not worth raising my blood pressure.  My guess is that even with the nuisance charges, LPL's net payout is still stronger than Commonwealth's, although the gap may not be as large as it initially appears.

Commonwealth has some of those fees you listed Indyone so the 87% is not w/o reductions. Some of the ones I'm aware of are:

The ones that CW said were an extra fee at LPL and not at CW are things like:

I got the impression that LPL charges for a lot of things CW doesn't but this is what I WAS TOLD. Not what I know for a fact but I will investigate.

Finally I was told that LPL reps waste A LOT of time with service issues such as tracking status of ACATs, fixing processing errors, and that this is all due to their support staff not being as well trained as CW and basically being stretched to thinly. Funny thing is that I have not heard one LPL rep say they face these type of issues!

Indywanab - I would check on those 3 things CW are telling you that reps are being charged at LPL - I have not heard that it costs anything to call tech support.  Why would they charge you for assisting in opening up an account?  Getting advise from the Private Client Group should not cost anything as well.

My advise to you is to take a home office visit to both companies.  Until you kick the tires of both firms up close, don't make your decision.  This amount of due diligence is what you need to do before making a decision one way or another. 

I have a trip to CW tentatively scheduled for next Friday and am working on the one for LPL. I'm also hoping I am allowed to go to the LPL National Conference. That would be a great place to talk to a lot of LPL reps.