Waddell & Reed advisors lead revenue spike amid IBD overhaul

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The overhaul of an 80-year-old mutual fund company’s independent broker-dealer is winning support from its smaller but much more productive force of 1,060 advisors, Waddell & Reed Financial’s CEO says.

Executives visited most of the firm’s markets in December and felt “the overwhelming sense” that advisors “understand and are enthusiastic about the direction we are taking the business,” Philip Sanders said Feb. 5 after the Overland Park, Kansas-based firm announced fourth-quarter earnings.

The No. 13 IBD’s headcount fell by 22% in 2018 amid new productivity requirements and three departures by large practices in August. But average trailing 12-month revenue per advisor has soared by 48% to $378,000, and the IBD’s 2018 revenue of $469.5 million came in 11% higher than a year ago.

Advisors received a boost of several percentage points to their payout rates at the beginning of 2019, as part of the IBD’s ongoing multi-year evolution. The company plans to launch a new advisor desktop in the second quarter under Refinitiv’s Thomson ONE platform — ahead of other technology enhancements.

The firm is “focused on the areas of highest priority to advisors,” Sanders said on a call with analysts, according to a transcript by Seeking Alpha. “They are embracing our new model of making long-term investments based on the value proposition for the business and positioning the firm for future growth.”

Waddell & Reed earned net income of $46.5 million on revenue of $272.2 million in the fourth quarter, or $0.60 per share, outpacing analysts’ consensus by $0.11. The stock value of the IBD’s parent remained stable at about $17.20 per share the day after earnings, amid lower assets under management.

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Sanders cited better home-office support, tech and targeted services for higher producers as the IBD’s major areas of focus. The expansion of advisory products — including a new third-party strategist program with multiple ETF portfolios — also came “in response to growing advisor and investor needs,” he said.

The advisor desktop, which Refinitiv says has more than 170,000 users, will launch in a pilot program in March before the full rollout, according to Waddell & Reed spokesman Roger Hoadley. The software has integrations with Albridge Solutions, eMoney, Envestnet and Pershing NetX360.

Waddell & Reed will announce more integrations later this year. Thomson ONE will enable the firm “to scale better in support of our advisors by consolidating things down into one platform,” IBD President Shawn Mihal told analysts. The company will also add data aggregation and reporting tools.

“Our core technology packages will allow us to further enhance that advisory experience and allow us to further deliver new innovative solutions to advisors as we continue to grow out the broker-dealer business,” Mihal says.

Equity volatility in the fourth quarter led to an outflow of $885 million in client assets under administration at the IBD, which dropped by 10% year-over-year to $51.3 billion. At $21.2 billion, advisory AUM now represents 41% of the IBD’s client assets, compared to 38% at the beginning of 2018.

Advisor attrition tapered off toward the end of the year, largely due to the “strategic departure of lower-producing advisors,” according to Sanders. The firm expects more low producers to leave in 2019 and Mihal says the firm aims to recruit advisors with $200,000 or more in annual production.

In a “substantive overhaul” of its recruiting, the IBD is hiring for open positions with an eye toward putting “a national recruiting model in place,” Mihal said. The target advisor has shifted to the higher producers from the new or “very inexperienced advisors” the firm trained up in the past, he added.

Waddell & Reed is also downsizing its traditional real estate footprint by closing its branch offices and helping advisors in setting up their own individual or franchised locations. The firm shut down 36 offices in 2018, and it intends to leave 100 more by the end of 2020.

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Independent BDs Earnings Fintech Recruiting Phil Sanders Shawn Mihal Waddell & Reed Financial