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Avantax President Todd Mackay
Avantax President Todd Mackay

Avantax Wealth Management Launches New Affiliation, Referral Businesses

Avantax recently added new CPA referrals for advisors at the IBD as well as those affiliating under a new, full-time employee model.

Avantax Wealth Management, Blucora’s wealth management business created from the acquisitions of HD Vest and 1st Global, recently launched two new affiliation models to help recruit and support financial professionals whose value proposition is largely tax-centric financial planning.

The firm continues to run its independent broker/dealer model, which serves tax-focused advisors who want to run their businesses independently.

But executives at the firm recently added multiple new referral models where tax professionals and CPA firms can refer relationships to one of Avantax’s independent financial advisors at the IBD, as well as to a new W-2 advisor affiliation model stemming from parent Blucora's acquisition of HK Financial Services, a CPA-focused registered investment advisor, earlier this year.

“We’re in an environment where firms are stepping back and saying, ‘We want to be relevant. We want to be competitive,’ competitive both in terms of client retention and adding additional sources of revenues, but also competitive in terms of recruiting,” said Barbara Herman, senior vice president at Diamond Consultants.

A lot of firms are diversifying into new affiliation models, Herman said, pointing to LPL Financial with its new employee channel, and Commonwealth Financial Network with its fee-only offering. LPL already has an RIA-only offering but is expected to expand it in a more formalized business line in the coming months.

“Our focus on that marriage of tax and financial planning and wealth management has really been a strong pull, as more and more CPAs and accountants, but also existing advisors in the space, understand the need for that trusted combination of services,” said Avantax President Todd Mackay.

Under Avantax’s new referral models, tax professionals and CPA firms affiliated with Avantax can formally refer clients to one of Avantax's independent advisors, which, executives say, is a benefit to both. Under the arrangement, the tax and CPA firm and the financial professional are compensated, with that compensation varying based on the relationship.

“We have a large network of tax professionals that can enter into these strategic partnerships and provide a growth channel, which is the most trusted growth channel by financial advisors in the industry,” Mackay said.

Herman said she doesn’t know an advisor in the industry who doesn’t want to grow, but this is an area that is underexplored and untested.

“Tax professionals, CPAs don’t necessarily naturally make referrals to wealth management,” she said. “They tend to be more conservative, more cautious, fiercely protective of the relationships. If they can figure out a really good process, a methodology for doing it, there’s a lot of potential.”

Avantax’s new W-2 option for advisors allows them to join as full-time employees, building off of HK Financial Services.

Under that model, advisors get benefits and a steady compensation based on their production and their book of business. Avantax is meant to handle the logistics involved in running a practice, including providing the technology, service platform and account opening process. In addition, independent advisors have the option of transitioning their business over time to the in-house Avantax team if they need a succession plan.

“That's unique in that they can do that without changing anything in the client experience, and continue to have that same value proposition of that marriage of tax and wealth management that their clients have grown so accustomed to,” Mackay said. The referral model is also available to advisors who join that channel.

There likely would be limited interest in getting their own reps to convert to the employee model, said Jonathan Henschen, president of the recruiting firm Henschen & Associates in Marine on St. Croix, Minn. “For the most part, these are reps who already have their own office, have all their infrastructure already set up. There’s really no need to convert and have them run it for them. It would just be a recruiting tool.”

Henschen believes Avantax is trying to recruit wirehouse advisors through the employee channel, who don’t like the entrepreneurial aspects of running a business. But he doesn’t believe many wirehouse reps would be interested in joining Avantax.

“One area they might have success would be, say, reps at the captive insurance broker/dealers, who are situated in a centralized office, and don’t want to be entrepreneurs,” he said.

Mackay said the firm rolled out a number of new investment programs and products for its existing advisors, including a new brokerage IRA with zero custodial fees for low-balance accounts. IMS Prime is the firm’s new low-balance advisory offering, with a $5,000 minimum. The firm will introduce a fee-based annuity product next year; Mackay could not say who the firm is partnering with on that.

The firm also introduced an in-house retirement plan business for advisors, which includes fiduciary services, investment management, administration and support, and employee enrollment and education, mostly aimed at small- to medium-sized businesses.

Over the first 10 months of 2020, Avantax recruited 175 new advisors, including 95 from other broker/dealers. The firm had 104 affiliates referred by current Avantax professionals.

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