Ameriprise plan: Rouse H&R Block brokerage unit

Ameriprise Financial Inc. believes it can spiff up its acquisition of H&R Block Financial Advisors Inc., which never lived up to its potential as a dominant national brand.

“I think they only got part of the way there,” said James M. Cracchiolo, CEO and chairman of Ameriprise, noting the difficulty of building a full-scale, national firm.

Ameriprise of Minneapolis said last Tuesday that it is buying H&R Block Financial Advisors for $315 million in cash, scooping up more than 900 of its reps and advisers.

When the deal is completed, Ameriprise expects the total broker head count across its various platforms to reach 13,000.

“We can help H&R Block Financial Advisors achieve the strategy that they wanted to do in the past,” Mr. Cracchiolo said.

And there certainly is room for growth. Average revenue for advisers at H&R Block Financial Advisors was $233,000 for the year ending June 30. Last year, average revenue for reps and advisers with Ameriprise was $315,000. The deal is expected to close in the next four to six months. Mr. Cracchiolo said it is too soon to make decisions about closing or joining branches of the two firms.

It appears that parent company H&R Block Inc. of Kansas City, Mo., is taking a bath on the deal. In 1999, H&R Block acquired Olde Financial Corp. of Detroit for $850 million and renamed it H&R Block Financial Advisors.

Since then, H&R Block has made various attempts to build the network, but it never fully flowered, observers said.

H&R Block Financial Advisors “has not been a stellar performer,” said Robert Ellis, senior vice president and head of wealth management practice with Celent LLC, a New York financial services consulting firm. H&R Block’s strategy to sell financial services products to clients who used the firm for tax preparation “wasn’t successful,” he said.

Mr. Ellis sees positives to the deal.

Ameriprise is paying “next to nothing” for $30 billion in client assets in accounts held by H&R Block Financial Advisors, he said.

And the two firms share similar cultures, Mr. Ellis said, given that they seek mass-market clients with at least $100,000 to invest.

Others agree that the deal fits Ameriprise.

“This is a good grab for Ameriprise,” said Tim Welsh, president of Nexus Strategy LLC, an independent-consulting firm in Larkspur, Calif. Commenting on H&R Block’s efforts to build a national network, he said: “Clearly, financial advice is not easy. Training is key.”

“To go from taxes to college planning and estate planning is tough,” Mr. Welsh said, particularly when broker-dealers must face technology and compliance costs, along with other burdens.

“Ameriprise has had success in molding their system into a financial-advice- and fee-driven model,” said Jeffrey Schuman, an analyst with Keefe Bruyette & Woods Inc., an investment bank in New York. “I’m optimistic they could move the acquisition that way.”

H&R Block’s average account size of $85,000 falls slightly below the account size of Ameriprise’s mass affluent target, which is at least $100,000, he said.

Ameriprise’s recent activity in mergers and acquisitions speaks well for the company’s discipline, Mr. Schuman said.

Although business deals in asset management and retail investment advice have been slow to materialize, Ameriprise is advancing in that direction, he said.

Last month, it said it would acquire J.W. Seligman & Co. Inc. of New York for $440 million. And this month, its independent broker-dealer said it would buy Brecek & Young Financial Advisors Inc. of Folsom, Calif.

Terms weren’t disclosed.

Details of the brokers’ retention package haven’t been made public, but Mr. Cracchiolo said that top brokers could receive a bonus of 100% of their prior year’s fees and commissions.

Meanwhile, he thinks there is potential for more acquisitions.

“There are still opportunities out there,” Mr. Cracchiolo said. “We feel we have the opportunity to play right now in the asset management and retail-distribution businesses.”

E-mail Bruce Kelly at [email protected].