TD Ameritrade makes a clean sweep of five IBD reps in New England with about $1 billion of combined AUM

Mike Preston and John Llodra had many motivations for forming an RIA, but one stood out as a no-brainer.

The two former Commonwealth Financial Network advisors, who now operate as New Harbor Financial Group LLC, were paying extraordinary ticket charges at their former broker dealer because of a hedge fund-like strategy that involves placing substantially more trades than is typical.

The Leominster, Mass.-based firm with more than $150 million of AUM has 1,000 accounts with eight to 15 ETF positions; each position has a call option that rolls over every three months. Bottom line: They are likely to do five or six ETF transactions annually in each account and 20 options transactions.

With a basic trading rate of $16 at Commonwealth, transactional costs were swelling into the hundreds of thousands of dollars, they say.

Becoming an RIA and moving their assets to TD Ameritrade meant that New Harbor cut that expense line by about 50%. For other breakaway stories, see the RIABiz Breakaway Stories section.

Hundreds of thousands

For big advisors, Commonwealth has since slashed these commissions to $7.95. See: Commonwealth raises payouts for big advisors and slashes trading commissions. The price cuts were part of an ongoing commitment to keeping prices low at the broker-dealer. “They were the 8th round of enhancements we have shared with our fee-based advisors over the past decade as we continue to share the economies of scale of achieving $25 billion in fee-based assets,” Emily Guadagnoli, spokeswoman for Commonwealth.

Eighth round

Llodra and Preston, who originally broke away from UBS in 2005 (“We’re slow learners,” Preston quips) are one of five large Commonwealth teams that chose to make the switch to working primarily as RIAs under TD Ameritrade. (See: TD Ameritrade uses greater financial incentives to attract custody clients.)

The others include: Mike McNamara of McNamara Financial Services of Marshfield, Mass., which moved assets to TD in October, Nick Giacoumakis, CEO of New England Investment and Retirement, which moved $330 million to TD Ameritrade in February; Rich Prout, president with Wealth Management Group of Danvers, Mass., which has $140 million of AUM; and Peter Nagle, whose eponymous firm in Milford, Conn., moved about $125 million.

Peter Nagle: I finally just got
fed up. [Because of FINRA] Commonwealth
gets in the position of overregulating
you. I couldn’t blame Commonwealth one
bit.

I was able to interview four out of the five advisors to try to understand why four teams – whose leaders all had positive things to say about Commonwealth and its CEO Wayne Bloom — would decide to leave at about the same time and choose the same asset custodian in TD Ameritrade.

TD used fairly unheard-of reimbursements of technology costs. But this was truly insufficient to explain the moves. In each interview, advisors mentioned the technology reimbursement as more of a side note.

FINRA looms

The advisors spoke more passionately about other motivating factors ranging from FINRA to wanting to rub elbows with like-sized advisors.

“It was a small network of folks and it was referrals; they’ll tell you who their friends are,” says Tom Nally, managing director of institutional sales for the Jersey City-based asset custodian.

Still, the reasons boiled down to being able to do more business and create more permanent and lasting value in a comfortable atmosphere. For example, McNamara wanted to create a structure that could more easily be passed to his children as part of a succession plan. I wrote a separate article about him. See: How Mike McNamara became a TD Ameritrade RIA and pruned his book in one move.

Prout is still in the process of moving all his approximately $150 million of assets to TD Ameritrade. The assets are coming from Schwab Advisor Services because he chose that custodian while still clearing through Commonwealth.

Decided to leave

“We looked at what we were doing on our own and what we were paying, and we decided to leave.”

Nagle offered a similar remark.

“Three-quarters of the services I didn’t use and I could duplicate the other quarter (of the services) for about a third of the cost.”

Such views hardly apply to all fee-based Commonwealth advisors, according to Emily Guadagnoli, spokeswoman for the firm.

“Some Advisors leave for various reasons over time and we wish them well. Given that we have recruited more fee-based production over any time period you’d like to measure we’re confident that our value proposition is very, very strong.”

Still, the economics of dealing with a broker-dealer are nothing new, so why the change now?

Prout admits that these economic factors have been in place for quite some time so he believes the final emotional catalyst may have been spurred by regulatory changes in the offing.

Harder and harder

“A driving force was FINRA. Being under FINRA was becoming harder and harder.” See: One-Man Think Tank: Six reasons that FINRA should be dismantled.

Mike McNamara, principal of McNamara Financial Services, which manages $250 million from Marshfield, Mass., says that Dodd-Frank put him on edge and made him question why he would stay with a broker-dealer when it was only 15% of his assets.

“I was very concerned about what was coming down the pike,” he said.

Of course, not all advisors see it that way. The more onerous regulators become, the more inclined some advisors are to get under an IBD umbrella. See: Cambridge, Commonwealth see reverse breakaways due to compliance fears.

But Nagle says he, too, was becoming increasingly frustrated by the trickle-down effect of regulatory pressure.

Took three days

“You can’t even write a client telling them that you sold Apple. If I do that for five letters for five people, under FINRA that’s considered sales literature. It has to be approved by Commonwealth. I have to send the little letter to Commonwealth and it took three days. They treated me like a stockbroker even though I wasn’t selling equities. I finally just got fed up. (Because of FINRA) Commonwealth gets in the position of overregulating you. I couldn’t blame Commonwealth one bit.”

The advisors say that they were also excited about using software of their own choosing. They praised Commonwealth’s technology, which uses Advent for portfolio accounting and Goldmine for CRM, but moving to TD allowed them to pick other vendors.

New Harbor chose Black Diamond Performance Reporting and Junxure and Nagle chose Orion Advisor Services, LLC Junxure. Prout’s Wealth Management Group uses dbCAMs, which is now owned by Morningstar. He is migrating to Morningstar Office. McNamara chose Redtail Technology for CRM and Orion for portfolio accounting.