Early strains ease as brokers eye mortgages and trust service

When Wells Fargo & Co. took control of H.D. Vest Inc. on July 2, Jack Oujo faced immediate setbacks from the merger of the network for tax professionals and the nation’s fourth-largest bank.

The partner in Pierson & Oujo, an H.D. Vest financial adviser based in Wall, N.J., could no longer contribute to the Irving, Texas, company’s generous deferred-compensation program, and he faced potential competition from 1,100 brokers working under the Wells Fargo umbrella.

But his attitude reflects none of what was lost.

Instead, he says: Let’s get it on.

“I’m leaning on them hard,” he says. “I’m anxious to get started with mortgages and trust services.”

spin the bank

Indeed, Wells Fargo’s acquisition of H.D. Vest and its network of 6,000 advisers has a decided banking spin. Wells Fargo is the nation’s top mortgage originator, and more than 30% of the H.D. Vest advisers’ clients are capital-hungry entrepreneurs.

“Our clients are very much into small business rather than just managing assets,” says Daniel E. Cook, president of Cook Financial Associates.

Mr. Cook adds that small businesses – from restaurants to dry cleaners – rely on home mortgages to procure credit lines. Fryolators and shirt presses make for poor collateral.

“We asked H.D. Vest advisers what they wanted, and they said mortgages and trust services – and 1,500 responded,” says Dennis Mooradian, president of private-client services at Wells Fargo. “It surprised us. These are two of our core competencies.”

Still, Mr. Mooradian believes that that will lead to Wells Fargo’s gaining distribution for investment products, too.

“Wells Fargo didn’t spend $127 million just to sell mortgages,” adds H.D. Vest’s president, Roger Ochs.

But it’s no surprise that H.D. Vest advisers are also pleased to be on what they perceive to be much firmer financial ground with Wells Fargo. The Texas firm is coming out of one of the more tumultuous chapters in its history, after suffering a capital crunch.

drawbacks

H.D. Vest’s investment transactions soared by 72% last year, and its revenue growth has averaged 28% over the past five years. As a result, the company has been scrambling to revamp its back-office capabilities. Its 6,000 advisers – the same number Charles Schwab & Co. has – oversee $16 billion in assets.

But as far as existing advisers are concerned, that growth has had its drawbacks. H.D. Vest has been so concerned with getting basic back-office functions up to snuff that other aspects of the business have slipped. Training, recruiting and adding products and services are at the top of the list.

“H.D. Vest was too big [to control without significant additional investment] and too small [to be able to afford all the necessary upgrades],” says Mark C. Tibergien, principal with Seattle-based Moss Adams LLP, the nation’s 13th-largest accounting firm. “Critical mass is 10,000 advisers, because it’s a low-margin business.”

“We were what they call in Texas a tweener,” Mr. Ochs says. “We really needed a partner.”

Now that it has Wells Fargo’s backing, H.D. Vest hopes to build on the its success. The firm essentially taps into a growing number of accountants who are seeking to provide investment products.

H.D. Vest advisers like the firm’s unobtrusive approach. It recognizes that they are busy from January through April. It doesn’t expect a cut of the revenue from tax preparation.

But those qualities go only so far with those H.D. Vest accountants who evolve into high-producing financial advisers, according to Phyllis Bernstein, owner of an eponymous consultancy in New York and former director of financial planning for the American Institute of Certified Public Accountants.

“There’s been a lot of turnover in H.D. Vest,” she says. “Many people started there and moved on.”

Mr. Mooradian says that his bank will get mortgages into the hands of H.D. Vest advisers by yearend, and trust services as soon as possible thereafter. He also plans to loosen the purse strings on training and recruiting so that H.D. Vest can double its adviser staff over the next four years.

Mr. Ochs says H.D. Vest’s niche makes that a realistic goal.

“The good news is that there are 170,000 CPAs and enrolled agents who are one- or two-man partnerships, so it’s a huge, fragmented market. It’s a tremendous opportunity.”

Still, there is one hurdle, according to Mr. Tibergien. Accountants are uncomfortable giving financial advice. It goes against their character and training.

“It’s levels of risk versus providing factual information,” he says.

But he believes that Wells Fargo’s strategy of giving advisers the power to bring in lending business is a tried-and-true path.

“Merrill Lynch is one of the biggest lenders to small business,” he says. “It would be the seventh-largest bank.”

Meanwhile, advisers say Wells Fargo needs to improve asset custody services. Currently, National Financial Services, a subsidiary of Fidelity Investments, does the job.

“I have service issues with Fidelity,” says Mr. Oujo. “I’m hoping Wells Fargo gives us the clout to hammer on them to get better service.” “It’s a constant headache,” adds Mr. Cook.

Mr. Oujo says Wells Fargo already aids him in winning advisory business. “The name H.D. Vest was an objection to overcome in a sales presentation,” he says.