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How the 1st Global deal is fueling Blucora's wealth management expansion

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Blucora’s newly expanded wealth management unit expects to generate half a billion dollars in revenue in 2019.

After HD Vest’s parent acquired 1st Global and tapped new executive leadership from the only other large tax-focused independent broker-dealer, the unit’s revenue surged 39% year-over-year to $127.8 million, according to the firm’s second-quarter earnings.

Combining the two Dallas-area firms will add between $108.5 million and $115.5 million in revenue this year and push the wealth management unit’s revenue to as much as $513 million, Blucora’s projections state. In addition, more than 800 1st Global advisors who came to Blucora pushed up its headcount by a net 672 from the previous quarter.

The rationale for the acquisition was to “add significant scale to our wealth management business, which drives substantial revenue and cost synergies,” Blucora CEO John Clendening said in prepared remarks after the earnings announcement. “The integration of the two companies is going well and tracking to plan.”

Blucora's wealth management earned a net income of $17 million, soaring by nearly 30% year-over-year. The parent company generated $31 million on revenue of $58.3 million, which is $0.62 per share and 14 cents above analysts' consensus for the GAAP-based metric.

Blucora bought 1st Global for $180 million in May, bringing together two of the largest tax-focused IBDs. Then in June, the firm hired Enrique Vasquez — the former CEO of Cetera Financial Specialists — to be head of wealth management.

“It’s interesting that in one quarter, we combined the No. 1 and No. 2 tax-focused wealth management firms and brought in the former CEO of the No. 3 firm,” Clendening said.

Vasquez is focusing on assembling the wealth management unit’s leadership team, leading the integration process, and developing organic growth strategies, Clendening added. David Knoch, president of 1st Global, is playing a key role in the integration, according to Blucora.
HD Vest and 1st Global have both boosted their advisory assets to record levels for the combined unit. HD Vest’s advisory assets grew by 12% year-over-year to $14.5 billion, while 1st Global’s AUM increased 5% from the year-ago period to $11.7 billion.

The unit’s total client assets jumped by 29% to $67.6 billion. After the acquisition, the share of AUM as a percentage of total client assets has reached 38.9%, compared to 28.8% in the second quarter of 2018.

While the 820 advisors from 1st Global enlarged the IBD’s headcount to 4,225, Blucora is still dropping advisors from HD Vest, which they bought three years ago for $580 million.

Modest productivity standards for advisors have pushed down the firm’s ranks in recent years. Blucora cut about 145 advisors from HD Vest in the second quarter because they were either inactive or no longer met the requirements, Clendening said.

“Going forward, I think likely this next quarter will be the one where it’s more of a steady-state approach where you have just more of a normal number of folks that retired or drop-out or whatever,” he said in response to an analyst’s question.

The acquisition, along with the client-asset mandate of at least $2.5 million, has pushed up advisor productivity in a major way. Advisor-driven annual revenue per advisor rose by 19% to $103,600 year-over-year in the second quarter.

Blucora’s wealth management unit also recruited 30 new advisors, including two with combined client assets of $100 million. One of them came as a reverse breakaway from an RIA, Clendening noted. Six new accounting practices affiliated in the quarter as well.

In addition, 250 HD Vest advisors signed on to the firm’s automated tax-smart investing platform. It formally launched in June and Blucora has planned a wider rollout across the advisor base. It will also launch modules beyond tax-loss harvesting for beta testing by the end of 2019.

“It is a sophisticated tool and requires some training, so we’re in the process now of getting this group trained and up and running,” Clendening says. “We expect to see meaningful usage, which should allow us to track how advisors are using it and how it impacts their growth metrics and overall business.”

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