HD Vest sheds ‘disengaged advisors,’ sets records in client assets

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HD Vest Financial Services shed 473 “disengaged advisors or those with little to no assets” in the past year and expects to trim another 500 or so in the next three months, the CEO of its parent firm says.

The wealth management unit of Blucora, which also owns tax preparation firm TaxAct, has also put in place new minimum assets under administration requirements for HD Vest’s 3,999 advisors, Blucora CEO John Clendening said in prepared remarks on the firm’s fourth-quarter earnings call.

The No. 19 independent broker-dealer by revenue in Financial Planning's annual FP50 ranking and the largest tax-focused IBDs has joined other firms in letting go of lower-producing brokers in an effort to boost productivity and advisory assets. Ameriprise, the No. 2 IBD, and Waddell & Reed, No. 11, have also cut out lower producers in recent months.

Even as HD Vest reduces its headcount, though, its client assets have set records in both AUA and assets under management for at least three quarters in a row. AUA has grown 14% year-over-year to $44.2 billion, while AUM jumped 21% to $12.5 billion.

Advisory assets now comprise 28.4% of HD Vest’s client accounts, which Clendening noted is an increase of about 150 basis points year-over-year and also a record. The firm also predicts its transition to Fidelity Clearing & Custody Solutions will boost profits by $60 million to $100 million over the next decade.

The estimated drop of 500 advisors should round out its headcount losses, he said, adding the caveat that the firm always looks for ways to improve its business. HD Vest has launched predictive models to identify which tax professionals would likely make successful advisors, Clendening noted.

“Early indications on our new recruiting process seem to be quite positive, with us now attracting even higher caliber advisors,” he said. “The new advisors have been getting licensed faster and ready to engage with clients earlier than we have typically seen in the past. It’s very early, but this is a good sign.”

Clendening praised the addition of HD Vest CEO Bob Oros, who joined the firm last year after stepping down from being head of Fidelity’s RIA unit, as among the firm’s major accomplishments of 2017. In January, HD Vest also hired Crystal Clifford, a former technology executive at LPL Financial, as COO.

Annualized revenue per advisor at HD Vest has surged by 28% to $81,600 over the past three years. The metric will continue its upward trend, Clendening said, in part due to the new AUA requirements. HD Vest advisors must generate at least $1 million in AUA by May and $2.5 million by January.

At the same time, the firm is working to complete the transition of its assets to Fidelity from Wells Fargo’s First Clearing. The conversion, slated for mid-2018, allows HD Vest to better capture interest income from rising rates and move third-party fund assets on to its platform, the firm said last year.

“The expected benefits of our new clearing arrangement are running ahead of schedule,” Clendening said in his prepared remarks last week.

Since the Federal Reserve has raised interest rates faster than the firm’s previous calculations, it will break even on the expenses of the conversion in less than six months instead of its earlier estimate of six to nine months, he added.

HD Vest earned income of $14.2 million on revenue of $93.8 million in the fourth quarter, a 3% increase in profit on the year-ago period and a 13% rise in revenue. The parent firm’s GAAP profits amounted to $10 million for the quarter after reporting a loss in the final quarter of 2016.

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Earnings Independent BDs Independent advisors Tax planning Tax prep software Bob Oros John Clendening Avantax Wealth Management Fidelity Clearing & Custody Solutions Blucora