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 specific figure.
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, Connecticut.
"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."