Avantax boosts advisory assets while dropping low producers

The largest tax professional-focused wealth manager is offering different ways to affiliate and moving closer toward a majority of its client assets being in advisory accounts.

Midsize independent broker-dealer Avantax keeps losing financial advisors from its headcount, but more than three-quarters of the 145 who left the firm in the second quarter had $50,000 or less in annual production, the firm’s Dallas-based parent, Blucora, noted in its earnings statement. The wealth manager’s profit and revenue jumped sharply compared to the previous year due to its rising client assets and the level of production of its 3,600 other advisors.

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• Avantax’s deal to acquire one of its largest practices and fold it into its in-house RIA, Avantax Planning Partners, represents an emerging consolidation business for the wealth manager. Parsippany, New Jersey-based Headquarters Advisory Group has three partners, Samuel “Skip” Angelo, John Crowe and Michele Lee, and the practice manages $1.1 billion in client assets. Avantax’s pipeline for similar deals has reached $5 billion and counting, Blucora CEO Chris Walters said in remarks on the firm’s earnings call with analysts, according to a transcript by Motley Fool. “At our Investor Day, we highlighted on-platform RIA acquisitions as an opportunity to scale our advisory business by deploying capital at strong returns while delivering compelling solutions to financial professionals and their clients,” Walters said. “Our pipeline of independent financial professionals interested in joining our RIA continues to grow.”
• Earlier this year, the company fended off an activist shareholder proxy fight and didn’t confirm or deny reports that it has received an offer from a private equity firm to purchase Avantax. Amid the external pressures, the wealth manager’s business is changing notably: Advisory assets under management as a percentage of client assets has reached 44.9%, compared to only 38.8% after the second quarter of 2020; and 77% of the departing advisors had trailing 12-month production of $50,000 or less, with 16% between $50,000 and $100,000 and only 8% above $100,000. Since the beginning of last year, the firm has lost a net 339 advisors from its headcount of 3,606, while its quarterly production per representative has jumped by a quarter to $41,100.
• The growth in client assets, though tied to equity values, also constitute an area of change for the firm. They soared 28% year-over-year to $87.8 billion. Advisory AUM grew 49% from the year-ago period to reach $39.4 billion. The wealth manager’s flows reflect its shifting mix of assets as well. Avantax had an in-flow of advisory AUM of $864 million for the quarter, but the company’s focus on assets on its own platform, rather than those held directly by funds, drove an overall outflow of $250 million in client assets. “While we are pleased with the quarter-over-quarter improvement in our net flows and the feedback we are receiving on our progress on both service support and technical improvements, we are not yet finished,” Walters said. “We expect the trend on negative net flows to continue through year-end with a shift toward positive flows beginning next year.”
• An SEC regulatory matter that hasn’t been publicly announced stemming from Blucora’s 2019 acquisition of Avantax rival firm 1st Global will cost the company an estimated $5.5 million in additional potential liability for a total cost of $16.8 million, Blucora CFO Mark Mehlman said in prepared remarks. The company hasn’t disclosed the nature of the matter, although about 100 wealth managers have settled cases with the SEC in recent years regarding their descriptions of conflicts of interest in required documents.
• Avantax’s operating income jumped 83% year-over-year to $21.4 million, while its revenue expanded 40% to $162.4 million. The company generated $546.2 million in revenue last year. For 2021, it estimates the revenue will rise to between $631.5 million and $649.5 million. “We're feeling good about the actions that we've taken and the response we've gotten from our financial professionals,” Walters said. “We work intentionally to provide multiple flexible affiliation models as well as succession plan options to our affiliated firms and financial professionals, ultimately, just giving them choice. And that's really what it comes down to.”