HD Vest CEO's quest to convert more tax pros into financial advisors

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Since Bob Oros left Fidelity to join HD Vest last year, he has been charging ahead with an effort to bring aboard more tax professionals and accountants to help HD Vest expand their financial planning services for clients, especially in the wake of the new tax law.

The payoffs could be huge for traditional accounting and tax planning firms, the HD Vest CEO says. HD Vest found in one study that those who brought financial planning into their practice generated an average of $1.7 million in incremental revenue over five years, leading to $670,000 more in profits.

An accountant would have to prepare an additional 570 tax returns to make up that same kind of revenue, Oros says, calling it the stat that “really punched me between the eyes.”

“That one really punches me because we all know tax returns,” he says. “They’re manual, laborious and just add more and more work at a time of year when there’s only limited hours in the day.”

With the passage of the Tax Cuts and Jobs Act last December, tax pros have been hearing inquiries from clients this year about how to adjust their finances and investments to take advantage of the tax code overhaul and not end up paying more taxes as a result.

“Any kind of tax law change tends to be a good thing for our tax professionals because change means uncertainty, and it takes time to figure out how you actually deal with all of these issues in practice,” said Oros. “Our tax professionals have been pretty busy this tax season talking through that. More and more tax professionals are introducing financial planning as a component of their practice.”

HD Vest has a long history of working with clients to provide new business opportunities for tax pros since it was founded in 1983. The company was acquired in 2015 by Blucora for $580 million. By the end of last year it had approximately 4,000 accountants and tax professionals affiliated with it.

“Our founder who launched the firm 35 years ago is a CPA,” said Oros. “Herb Vest, in my mind, created an industry because he went state by state changing regulations that opened up this opportunity for tax professionals.”

A majority of affluent Americans are likely to adjust their financial plans under the new law, according to the AICPA. Here's how advisors can help.
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He believes the new tax law will help tax pros strengthen their relationship with clients. “Our advisors and tax professionals see this as an opportunity to deepen what’s already a trusted relationship,” said Oros. “In many cases they know these families very well. They’ve been doing their taxes for years, and they may be supporting their business returns. This is a chance to take that trusted relationship and just extend it further.”

Tax pros already are familiar with their clients’ financial situation so they can spot ways for them to plan best for the new tax law. “Who sees more financial information than your accountant, your CPA, your tax professional?” said Oros. “They know what you make, they know what you spend, they know how you invest, they know your family situation. As I like to say, they do know the good, bad and ugly. Many of them feel like they have an obligation to step in and help folks.”

The new tax law also provides accountants and tax pros with more of an opportunity to advise clients year round.

“I’ve had this very conversation with my CPA: Would you rather get paid all year or get paid once a year? Frankly, I don’t think I write my CPA a big enough check for everything he does for me,” said Oros. “I don’t want him to raise my fee, but it does beg the question because when you talk to most tax professionals, they’ll talk about the challenges of having such a concentrated busy season that they don’t really have extra bandwidth. In many cases their practices are capped out, and they don’t have capacity. Introduce financial planning and you now diversify your revenue stream.”

HD Vest found in one study that those who brought financial planning into their practice generated an average of $1.7 million in incremental revenue over five years, leading to $670,000 of incremental profit.

“The stat that really punched me between the eyes was if they were going to replicate that in additional tax returns to equate to the same amount of revenue, they would have to do an additional 570 returns on average to accomplish the same thing they could by integrating financial planning,” said Oros. “That one really punches me because we all know tax returns. They’re manual, laborious, and just add more and more work at a time of year when there’s only limited hours in the day.”

Financial planning offers tax pros the ability to diversify their practice.

“You can generate more revenue, diversify and frankly you can serve less clients than you’d have to if you were only doing taxes,” said Oros.

HD Vest research also found that 84 percent of the tax professionals who have added financial planning would recommend someone else to do the same. “That tells you that most feel it’s been a very positive outcome,” said Oros. “Seventy-five percent of them felt it improved their client satisfaction, and two-thirds of them attributed it to increased retention and referral and growth rates. I think the data bears out that in most cases this nets out to be a very good thing for their practice, for them personally, for their clients, and it’s the ultimate win, win, win.”

A financial planning practice can also increase the value of a tax practice, Oros argues. “For most small business owners, that asset has significant value,” he said. “Are they properly thinking about how they monetize it? By increasing the value, and having a purposeful strategy around succession and what I’m going to do with my practice, they can enhance the value of that asset.”

Adding financial planning also improves customer satisfaction, HD Vest has found, and it helps tax practitioners compete better against financial advisors who are moving into their space. “Many tax professionals want to add financial planning, but more and more traditional financial advisors want to add tax preparation,” said Oros. “If they’re not adding financial planning they actually risk getting disintermediated by another financial professional who may also have a trusting relationship with that individual.”

Many accountants and tax professionals already offer financial planning services, even if it’s just informally. But with the new tax law, they may find they have to throw out many of the assumptions they have made in the financial plans they helped draw up for clients based on the old tax code.

“Everybody’s still digesting what the real implications of the tax law changes are,” said Oros. “What we like to say is every day is tax day. It’s not just the day you go in to drop off your documents, and the day you go in to pick up your return. There’s a series of decisions that get made every day that have pretty significant tax implications. It’s where tax professionals have a unique advantage. Most financial advisors know a little bit about tax, but they’re not competent to give tax advice. Many of the firms that financial advisors work for won’t allow them to talk about taxes. A tax professional really is in a unique position to help someone understand all the areas of implication.”

He pointed out that tax pros who act as financial planners can help clients decide how much to contribute to a 401(k) or health savings account, and to advise them in areas such as withholdings and tax loss harvesting.

“The notion of tax alpha is very real, and varying studies will try to quantify it,” said Oros. “My experience is it’s typically worth 200 to 500 basis points on your portfolio. That’s as simple as am I putting my assets in an optimal place based on the registration of the account, what they call asset location? Am I practicing tax loss harvesting? Am I leveraging tax efficient investment vehicles? When you think about 200 to 500 basis points over time, that is real accumulation power. A typical financial advisor really isn’t going to engage in that holistic conversation. They may talk about asset location. They may talk about tax loss harvesting, but they won’t be able to talk about the full picture and then understand and help the individual optimize around that.”

The new tax law may discourage some clients from itemizing deductions, however, and push more of them to just accept the higher standard deduction, whose amount will be effectively doubled now. But Oros isn’t concerned about the increased standard deduction prompting more clients to dispense with their tax preparer.

“I think net net it’s certainly going to change the business, and it may have some influence on the profile of who can do it themselves versus who needs to use a tax professional,” he said. “But I don’t think we view the level of work as fundamentally changing much because it will be an exchange. You get some benefits from simplification in some areas. You get more complication around planning. And when you net net it out, I don’t see it having a huge impact on the practice.”

Tax pros will need to get more guidance from the IRS about the new tax law before they can properly work out all the implications for their clients.

“When we get through our first couple of tax seasons, it’s going to drive a lot more conversation around understanding what is the individual impact,” said Oros. “Every one of us is going to be impacted differently. I’ll just speak for myself. I don’t fully understand the impact of the new tax laws on my own situation yet, and my accountant will start that process of educating me and helping me understand it, but I think the nuance will take at least a few seasons to work its way through. We’ll need to see clarification in areas. We’ll need to see what kind of precedents get set, so it will definitely raise the importance of a good tax professional to help anybody with any level of complication to understand where they’re going to net out on this.”

The Tax Cuts and Jobs Act also adds uncertainty about whether the individual tax cuts will last beyond 2025. While the corporate tax cut is supposed to be “permanent,” many of the tax breaks for individuals expire after a few years. Congress is likely to extend them, but that’s uncertain right now. That could complicate the picture for financial planners and tax planners.

“Any kind of planning shouldn’t be viewed as a static activity, but rather it’s got to be living, breathing and evolving, whether that be financial planning or tax planning,” said Oros. “We need to change people’s view of that. It’s not a one and done. It’s not a set it and forget it. It’s really something you want to be engaging in on a regular, recurring basis. It’s not just the evolution of our tax laws, but it’s the evolution of our families. We’re constantly changing, whether it’s the needs of children for education, or my views on retirement, or other goals I set it for myself. It looks different from year to year in many cases. And it comes full circle. It changes the nature of that relationship when you get more holistic, because now it’s not about January through April. It’s about the full year, and it’s about all the things that are really important to you both financially and emotionally.”

Clients in high-tax states are also worried about the limitations on deductions for state and local taxes.

“There’s no doubt, depending on your individual situation, that’s going to have significant impact for many,” said Oros.

Amid all the uncertainty, he has been seeing more tax pros signing up to offer financial planning services with HD Vest, in part because of the opportunity to earn more revenue.

“We do see it trending up,” said Oros. “We see more and more of them understanding what it means. Think about the power of observation. When you see a friend of yours who’s a tax professional make that decision, and see the success they have, it makes that path much more understood, much more comfortable. Firms like ours, we put a huge amount of effort in the upfront of getting someone through that process of getting properly licensed and registered, and then giving them a lot of upfront support around learning and development and teaching them how to do it. If we get them started strong, for many of our tax professionals, they now view themselves as financial advisor first, tax professional second. That’s a tipping point. We’re seeing more and more of them travel that path.”

Accountants can bolster their financial planning credentials by earning various licenses and certifications, such as Certified Financial Planner and Investment Advisor Representative.

“It depends on what exactly they want to do, but in most cases they’re going to get their security licenses, their Series 7 or 63,” said Oros. “They’re going to get their Registered Investment Advisor license, so that they can be an IAR of our RIA. They’re going to get properly state registered, based on where their clients do business. They may get insurance registered. I would say a high percentage of ours do that because it’s part of holistic financial planning. If you’re going to talk about risk management, insurance is going to play a role there, so they will get all of those licenses. Many then go on to get their CFP. If you’re a CPA, you can immediately sit for the CFP exam. We would be big encouragers of more and more tax professionals getting their CFP. We have a relationship with the CFP Board, where we’re working together to think about how we make that easier for folks.”

Oros has seen the value of a financial planning practice firsthand in the experiences of one CPA who works with HD Vest. “I’ve been CEO of HD Vest for a little over a year now,” he said. “In my first month, I went out and visited one of our advisors who’s a CPA in California. He took me through the history that in 1999 he made the decision to incorporate financial planning into his practice, and it was for all the right reasons. He wanted to serve his customers better. He saw all the things that weren’t being done properly, either because they were getting bad advice or no advice. So he made the decision to do it. It had such an impact on his practice that he was able to live in a better home, take better care of his family, send his kids to better schools, and it was all because he could serve less clients, have better balance in life, and serve them better.”

The CPA came to have a personal identification with HD Vest that he made evident to Oros soon after they met. “We were going out to dinner, and he took me out and I noticed the car he was driving,” said Oros. “His license plate was a vanity plate that referenced HD Vest.”

Oros was so impressed that he asked the CPA to send him a photo of his license plate that he saved on his desktop. “I look at it every day when I log in to my computer,” he said. “I thought it was so cool because it was a pretty big sign of loyalty. I guess short of getting a tattoo or naming a child after us, that’s pretty good.”

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Financial planning Tax planning Tax reform Trump tax plan CPAs Enrolled agents Client strategies Practice management Bob Oros Avantax Wealth Management IRS