Thinned HD Vest advisor force to get new digital, HNW tools under Fidelity

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HD Vest Financial Services could shed 300 more advisors this year, on top of the more than 700 let go in the past 12 months. The cuts will stop there, however, according to the company.

HD Vest’s head count has dropped 16% year-over-year to 3,709 advisors amid significant changes under CEO Bob Oros, who joined the firm last year. The upcoming cutbacks will mark the third, but final, phase of HD Vest’s new minimum client asset levels, according to its parent firm.

“While we do have one more interval, requiring $2.5 million by January 2019, we expect that the bulk of the reductions are now behind us,” Blucora CEO John Clendening said on Aug. 1 in the company’s second-quarter earnings call, adding the company “then would expect to return to a normalized environment in 2019.”

The tax-focused company’s push to foster a leaner group of more productive advisors yielded at least the fifth-straight quarter of record client assets, with a little more than $45 billion. Advisory assets also reached a record high, increasing by 12% year-over-year to $12.9 billion and nearly 29% of client assets.

HD Vest’s pending switch from Wells Fargo’s First Clearing to Fidelity’s Clearing & Custody Solutions will also yield higher returns than anticipated over the next decade, as well as digital and high-net-worth tools for advisors upon conversion in late September, Clendening said.

“Given the importance of this conversion, and sheer number of touchpoints across the business, we are dedicating an increasing number of resources across the organization to ensure a successful completion and mitigate any disruption to advisors in Q4,” he said in prepared remarks.

The Irving, Texas-based independent broker-dealer, which is the No. 19 IBD by annual revenue and shares the same parent as tax software firm Tax Act, increased its profits by 4% year-over-year to nearly $13 million on revenue of more than $92 million.

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The company expects the Fidelity conversion, which HD Vest announced last year, to boost the IBD’s income by between $60 million and $100 million in the next ten years. The additional profits will come from better capture of interest income, technology savings and higher returns from revenue-sharing.

Blucora has updated its expected gains from the clearing firm switch after two rises in interest rates this year and incremental guidance from the Federal Reserve, Clendening said, resulting in a new estimate of up to $120 million over the ten-year contract with Fidelity.

The firm has already begun rolling out some of the tech tools it will be launching for advisors upon finalizing the conversion. In June, HD Vest said it would integrate Fidelity’s financial planning software, eMoney Advisor, into its client portal. The firm will pilot the new platform this month, Clendening said.

In the earnings call, he unveiled two additional advisory capabilities slated to go live in late September. So-called VestStrategist will provide a centrally managed, low-fee investment tool for HNW clients, while a robo advisor named VestAccess would serve smaller accounts with automated investing.

“We believe these will be attractive new offerings for clients at both ends of the asset spectrum and may serve to further accelerate the shift of funds from brokerage into advisory solutions,” Clendening said.

Blucora notes that HD Vest’s productivity is the lowest among the top 25 IBDs. HD Vest could rake in an extra $20 million to $25 million per year in income by pushing up the productivity of the second quartile to that of its first, according to estimates included in the firm’s earnings presentation.

The firm’s advisor-driven revenue per advisor has jumped by 30% year-over-year to $86,800. HD Vest plans to make it grow further through tech upgrades, more home-office support for advisors, leveraging its tax-based platform and identifying and recruiting advisors with the highest potential.

For example, HD Vest added two more accounting firms with multiple partners and offices in the second quarter. Including seven others in the licensing stage, the practices generate $23 million in combined accounting revenue with a potential pool of $2.3 billion in client assets, according to Clendening.

The parent firm earned net income of $47.7 million on revenue of $157.8 million for the quarter. The company’s $0.97 in adjusted earnings per share outpaced analysts’ estimate of $0.86, and Blucora’s stock price had surged by more than 6% to $37 per share by early afternoon in trading after the earnings.

TaxAct and HD Vest both surpassed “the high end of guidance” for their revenue and income, and the parent also beat forecasts for its revenue and adjusted EBIDTA, according to a note by William Blair Analyst Chris Shutler.

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Earnings Independent BDs Fintech Robo advisors Tax planning High net worth John Clendening Bob Oros Avantax Wealth Management Fidelity Clearing & Custody Solutions Blucora