By Ashley Lau
March 18 Raymond James Financial Inc
said on Monday it will launch a pay plan that allows high-end
financial advisers to manage money for a fee as well as collect
commissions from the sale of certain products.
The new plan, which takes effect April 1, is targeted at
advisers with $100 million or more in discretionary client
assets under management.
St. Petersburg, Florida-based Raymond James is hoping the
new plan will help bulk up its share of hybrid registered
investment adviser market growth.
"There is significant potential for growth here" in the
hybrid adviser market, Scott Curtis, president of the company's
Raymond James Financial Services independent broker-dealer
division, said in an interview.
Hybrid advisers maintain commission-based business while
also managing money for a fee.
Under the new compensation plan, hybrid advisers will retain
100 percent of their advisory fees and pay a quarterly fee to
Raymond James based on their discretionary assets under
management. Curtis said the new model was designed to offer a
more "transparent" pricing structure.
A very small percentage of current Raymond James advisers
will be eligible for the pay plan. The firm would not give a
While the introduction of the plan is largely meant to help
attract top talent from competitors that also offer a hybrid
compensation model, some in the industry also see it as a
defense mechanism to keep veteran advisers on board.
"They and a lot of broker-dealers are launching plans like
this to stave off attrition of high-end advisers," said New
Jersey-based financial services recruiter Mindy Diamond.
Such advisers may otherwise seek alternative options for
independence, joining the growing number of registered
investment advisers, she said.
"When you get to $100, $200 or $300 million in assets, those
advisers have a lot of options, and the economics of the RIA
space become more attractive," she said.
As an added incentive, Raymond James' new model also
dictates that the firm would not retain "12b-1" trailing
commissions it received on fund shares in clients' managed
portfolios, but instead would reimburse the clients. These fees,
which fund firms collect and pay to brokers as a marketing fee,
have been the subject of regulatory debate in the past.
"The whole financial industry has pressure on it to make
adjustments based on the high level of conflict of interest
around them," said Keith Marks, partner and general counsel at
Ascendant Compliance Management, based in Salisbury,
"If you want to tout a client-centric, full fiduciary
approach to client investing, then you'd want to get rid of
them," he said.
The added measure, which Curtis called a "significant point
of differentiation," would effectively reduce each client's
portfolio management costs.
Becoming a pure RIA means an adviser would give up the
securities license that allows him or her to collect commissions
on mutual funds and similar products.
But many "breakaway" brokers - those who leave a firm like
Morgan Stanley Wealth Management or Bank of America
Corp's Merrill Lynch, for example - see the hybrid model
as an attractive option for becoming independent advisers, while
also maintaining their commission-based business.
Advisers who have a hybrid business are registered as RIAs
with the U.S. Securities and Exchange Commission or a state
regulator, and as brokers with the Financial Industry Regulatory
Authority, Wall Street's self-regulator.
A Cerulli study from October projected the market share of
dually registered advisers to increase 2.4 percentage points
from 2011 to 2014 to 10.3 percent. It expects the share of the
"wirehouse" market - the largest bank-owned brokerage firms that
primarily house traditional employee advisers - to fall 6.9
percentage points to 34.2 percent over that period.
Competing firms in that business include LPL Financial
Holdings Inc, low-cost brokers such as Charles Schwab
Corp, and start-up firms such as Dynasty Financial
Partners and Focus Financial Partners.
About one-third of Schwab's almost 7,000 independent adviser
clients, for example, have a side affiliation with a
broker-dealer that allows them to collect mutual fund fee
"trails" alongside their fee practices for sales made when they
were brokers, according to Bernie Clark, head of Charles
Schwab's RIA business.
Schwab helps arrange the affiliations and is going to look
for more ways to help fee-based advisers collect commissions so
it can compete for hybrids with independent broker-dealers,
Clark said last month.
"I think we'll see that there'll be more hybrids into the
future," he said. "We're going to think more and more about how
we create more efficiencies there to make sure that's not
getting in the way of the flow that we're seeing."