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Blucora IBD focusing on advisor ‘TLC’ after 1st Global deal, CEO says

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After more than 100 advisors left the newly christened Avantax Wealth Management, the bulk of its “proactive nudging” of low producers is over, says John Clendening, CEO of parent firm Blucora.

Nearly all third-quarter departures came from the former HD Vest side of Blucora’s wealth management business, which acquired fellow tax-focused independent broker-dealer 1st Global earlier this year for $180 million. Irving, Texas-based Blucora reported its earnings on Nov. 6.

In a call with analysts, Clendening said the combination of the two businesses is already increasing wealth management income by $2 million more than it had anticipated this year. HD Vest had been shedding advisors amid modest productivity requirements in the past two years.

Avantax’s headcount slipped by 106 advisors from the prior quarter to 4,119 representatives. The vast majority of departing advisors had less than $5,000 in quarterly production. In the past three years, average advisor-driven revenue has nearly doubled to $31,100 per quarter.

The rebranding of HD Vest and 1st Global is nearly complete, but the quest for tax-focused IBD dominance isn’t without its challenges. The integration has altered advisors’ connections with “some of the people [they] have grown quite familiar with,” Clendening says.

“And so we are essentially rebuilding relationships is what that means, in some cases,” he said, according to a transcript from investing website Seeking Alpha. “In a business like this, advisors really like the TLC that we want to give them and some of that’s been disrupted.”

Clendening added that he would provide more guidance on plans for Avantax during the next Blucora earnings call. Avantax earned income of $20.6 million on revenue of $145.4 million. The margin of 14% was the same as the year-ago period, even though income surged by 60%.

The parent firm’s stock value fell sharply — tumbling by more than 13% to $19.30 per share in a day of trading after the earnings came out — on Blucora’s lowered expectations for its other subsidiary, tax software firm TaxAct.

Clendening didn’t say how many advisors don’t meet Avantax’s “very low" production minimums, but he says the largest part of the cuts are done. In 2018, HD Vest set a requirement for each rep to have at least $2.5 million in assets under administration by the following year.

Since 2016, Blucora has viewed production “as a more meaningful metric, rather than the total number of advisors, to ensure that we recruit, retain and develop the advisors with the highest potential,” Clendening noted in his prepared remarks.

“We proactively pruned our advisor base to remove advisors that were not engaged or productive, and who accounted for virtually no assets,” he said. “This positioned us to allocate more resources to remaining advisors.”

The bulked-up investment includes the firm’s Tax-Smart Investing program, which the firm rolled out this year in order to automate tax planning strategies. At least 425 advisors have adopted it, according to Clendening, who expects 75 more to sign on by the end of the year.

A module to analyze capital gains in mutual funds will launch this quarter, joining the initial software enabling tax-loss harvesting. The firm estimates the technology could ultimately save an average investor some $800,000 over a three-decade period.

Blucora also pushed up Avantax’s expected revenue of more than half a billion dollars this year based on favorable advisor and asset retention and a full clearing conversion before tax season, according to Clendening. The integration of the HD Vest and 1st Global is going ahead of schedule, he says.

CEO Enrique Vasquez joined the firm this summer, and Blucora is moving to a brand new headquarters in the Dallas-Fort Worth Metroplex next year. In another transitional move, 1st Global applied to terminate its FINRA registration effective Nov. 1, BrokerCheck shows.

Blucora’s wealth management unit has been focusing on its conversion to Fidelity Clearing & Custody Solutions’ National Financial Services and the 1st Global acquisition over the past two years, Clendening said, thanking the firm’s staff for its hard work and results.

“And I’d especially like to share my personal appreciation to our incredible advisor community, which I view as the very best in the industry,” he said. “This business has never been stronger and with more potential; and the stage is now set to turn our attention to organic growth.”

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