Registered both as an investment advisor and brokerage firm, Commonwealth Financial Network has more than $85.21 billion in assets under management (AUM). It sees its financial advisors as small business owners, rather than its sales staff, and so acts as their “back office.” Most of these advisors, who number 1,933, according to Commonwealth’s site, are also brokers and insurance agents. This means that they receive commissions from vendors, on top of client fees.
With advisors across the country, the firm has headquarters in Waltham, Massachusetts, and in San Diego. In 2018, it reported revenue of $1.425 billion, while its advisors had the highest gross revenue among independent broker-dealers, according to Financial Advisor.
Commonwealth Financial Network Background
Joseph Deitch founded Commonwealth in 1979, originally calling it the Cambridge Group. His vision was to start an independent broker-dealer that didn’t have the conflicts of interest that his former firm had. This is likely why the firm does not have its own proprietary investment products. Instead, it provides advisors with technology, compliance support and tools, research support, marketing support, continuing education and more.
In 1991, Investment Advisor magazine named Commonwealth “Broker-Dealer of the Year” in its inaugural year of the award. The firm won it two more times that decade. Since then, Deitch has stepped away from day-to-day operations and serves as chairman. He still owns a large part of the company through a trust. Almost a dozen other current employees are also stakeholders.
Commonwealth Financial Network Client Types and Minimum Account Sizes
The minimum to open an investment account varies, depending on the program. At the low end, the minimum is $1,000 for a passive model portfolio in the Preferred Portfolio Services (PPS) Select program. At the high end, the minimum is $500,000 for an account in the PPS Select Fixed Income Separately Managed Account program. That said, Commonwealth may waive its minimum requirement at its discretion.
Given that the minimums are relatively low, the great majority of Commonwealth retail clients are not high net worth. The firm’s advisors do work with high-net-worth individuals, of course, plus corporations, other businesses entities, pension and profit-sharing plans, state and municipal government entities and charitable organizations.
Services Offered by Commonwealth Financial Network
Commonwealth’s advisors offer an array of investment products, asset allocation services, financial planning and consulting services. The investment programs, which can be through a wrap fee program, are:
- PPS Custom - personalized investment portfolios, usually on a discretionary basis, using one or more investment types, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), UITs, variable and fixed-indexed annuities and alternative investments
- PPS Select - a variety of model portfolios managed on a discretionary basis by Commonwealth’s investment management and research team. Portfolio types include mutual fund and ETF portfolios, equity portfolios, fixed income portfolios and variable annuity subaccount portfolios.
- PPS Direct - a variety of model portfolios managed by one or more third-party portfolio managers on a discretionary basis. These portfolios may be constructed with mutual funds or ETFS, with individual stocks and bonds (in a separately managed account), by third-party investment advisors using mutual funds and ETFs or as a unified managed account (multiple separately managed accounts).
Additionally, in its third-party asset management program, Commonwealth advisors can recommend unaffiliated money managers and act as subadvisor. Account minimums generally run from $25,000 to $50,000.
Commonwealth Financial Network Investing Philosophy
Commonwealth offers a full array of investing strategies for every kind of client profile. If its advisors don’t have the niche expertise needed, they will recommend an independent money manager. That said, the firm generally applies the concepts of dollar cost averaging (buying fixed amounts on a regular schedule) and asset allocation. It may also utilize technical, fundamental, quantitative and qualitative methods of securities analysis.
Fees Under Commonwealth Financial Network
Commonwealth’s fees for portfolio management services are based on a percentage of AUM, which are generally paid quarterly. These fees vary, depending on the program, and may be negotiable. Below are the schedules for the PPS Custom, PPS Select and PPS Direct programs. Fees for third-party advisor-managed programs would be available through the third-party manager.
|PPS Custom Program Annual Management Fees*|
|AUM||Max Annual Management Fee|
|$0 to $749,999||2.25%|
|$750,000 to $999,999||2.00%|
|$1,000,000 to $1,999,999||1.75%|
|$2,000,000 or more||1.5%|
*There is an additional platform fee for platform accounts that ranges from 0.12% to 0, based on asset levels.
|PPS Select Program Annual Advisor Fees**|
|AUM||Max Program Fee|
|$0 to $499,999||2.00%|
|$500,000 to $999,999||1.75%|
|$1,000,000 to $4,999,999||1.5%|
|$5,000,000 or more||Negotiable|
**There is an additional program fee that follows a tiered schedule that ranges from 0.60% to 0.30%, based on asset levels.
|PPS Direct Program Annual Advisor Fees***|
|AUM||Max Advisor Fee|
|Up to $250,000||2.21%|
|Next $5,000,000 or more||2.33%|
***There is an additional program fee that ranges from 1.14% to 0.835%, based on asset levels. The combined advisor and program fee is not to exceed 3.00%.
Clients in wrap fee programs may also have to pay program fees or platform fees. Clients not in wrap fee programs also pay transaction fees and other charges.
For financial planning or wealth management consulting services, fees may be annual for ongoing services, a flat fee or an hourly rate (of up to $500 per hour).
What to Watch Out For
As noted earlier, your Commonwealth advisor may also be a broker or insurance agent (or both) who receives commissions on sales. This means he or she may have more conflicts of interest than an advisor who only provides financial planning and investment advisory and management services. That said, as advisors, Commonwealth’s advisors are legally bound to work in clients’ best interests. (As brokers, they must only make suitable recommendations.)
Commonwealth had 14 disclosures in its most recent SEC filings. Five had to do with affiliate advisors. And nine involved the company itself, which paid fines or penalties ranging from $15,000 to $300,000 to regulatory authorities. In the most recent action, which was brought by the Securities and Exchange Commission, the firm agreed to pay $1,426,700 in disgorgement and $210,603 in prejudgment interest for purchasing, recommending or holding mutual fund share classes that charged 12b-1 fees instead of shares classes that had lower costs, during the first three months of 2014.
All information was accurate as of the writing of this article.
Tips for Finding the Right Financial Advisor
- Ask who the compliance officer is at the firm. It’s a good sign if that is the person’s only job. That means the firm is putting resources toward making sure it is following the rules and regulations.
- Also ask about the advisor’s client base. If his or her clients mostly have a high net worth, and you are not that wealthy, you may want to work with someone who won’t think of you as small change. Conversely, if you do have sizable assets and the advisor mostly works with less affluent investors, you probably want someone with the experience and know-how to help people at your asset level.
- Use SmartAsset’s free financial advisor matching tool. After answering questions about your financial situation and preferences, you’ll be matched with up to three advisors we have vetted.