Avantax client assets climb to close out 2021

February 18, 2022 12:33 PM

Despite a year of advisors walking out the door and yet another activist shareholder challenge aimed at its parent company, the largest tax professional-focused wealth manager closed 2021 with growing client assets and a slightly larger team of financial professionals.

Avantax, the tax-focused wealth management arm of Dallas-based Blucora, had year-end total client assets of $89.1 billion, representing a 7.3% increase from the previous year. Avantax also saw its advisory assets climb to $42.2 billion, up 18.5% from the $35.6 billion in AUM reported at the end of 2020.

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“Blucora made substantial progress in 2021, positioning the business for sustainable and profitable growth. Our team continued to exceed expectations as we achieved or exceeded all elements of our outlook from last quarter, and we are on track to achieve our three-year revenue and EBITDA growth goals,” Blucora CEO Chris Walters said in a statement. “The continued progress that we have seen across the business allows us to confirm our expectations of positive net flows for the wealth business and our outlook for strong continued momentum in tax software in the current tax season.”

Income and outlook

Avantax earned operating net income of $21.9 million on revenue of $172.2 million for the quarter. Revenue grew by 21% year-over-year while profit was up 14%. After the first quarter of 2022, the company projects it will earn income between $19.5 million and $22 million on revenue ranging from $164.5 million to $171.5 million. Last year, Blucora generated income of $72.2 million on revenue of $546.2 million.

New members of the family

In remarks on the firm’s earnings call with analysts, Walters said Avatax added 49 new financial professionals contributing $330 million in total client assets, according to a transcript by Seeking Alpha.

Walters added that in an effort to improve customer retention, the company is working to better meet the needs of its financial professional community. He said an in-house satisfaction survey conducted in Fall 2021 saw improvement of 20 percentage points compared to Spring 2021, and 33 percentage points compared to Fall 2020.

“These results were driven by enhancements in our financial, professional, customer service and technology,” Walter said on the call. “On a tech front, we've made several improvements. We launched the first version of a new client portal to a pilot group of financial professionals and will continue to expand this portal’s availability to all firms throughout 2022. This exciting new feature will directly enhance the experience that end clients have when working with our financial professionals and will be the foundation of how end clients and financial professionals collaborate.”

Walters said Blucora also launched new account-opening and off-platform asset transition tools to boost efficiency and lower overall processing times.

An eye on the market

On the earnings call, Walters said he believes Avantax is in a position to benefit from the “macro environmental factors” on the horizon, noting the impact market volatility can have on fees related to wealth management operations. He said the profit-sharing model the company has in place mutes the impact of market volatility, but the increasing rate environment will have a significant impact on the bottom line.

“As everyone on this call no doubt appreciates, the near-zero interest rate environment over the past few years has been unprecedented,” Walter said. “This has severely impacted cash sweep revenue, which is a critical input for our wealth management business. As we have repeatedly said, a returned historically normalized interest rate environment represented a significant opportunity for additional revenue, which will positively impact Blucora's earnings.”

Walters said as the interest rate environment normalizes back to conventional pre-COVID levels, sweep revenue will once again be a source of high margin income to the business.

“As an example, upon reaching a Fed funds rate of 125 to 150 basis points, Avantax will generate incremental annual segment operating income of between $40 million and $50 million, assuming today's level of assets, among other factors,” he said on the call. “This is a key component of our earnings power. Due to the timing of rate increases and a non-linear nature of upside associated with the first four rate hikes, we want to see all the positivity hit our P&L in 2022.”