H.D. Vest ramps up assets, adviser ranks

SAN FRANCISCO — With help from coaches who train accountants to behave more like financial advisers, H.D. Vest Financial Services is finding new success.
The largest independent broker-dealer for tax preparers who sell financial products now has $29.5 billion in assets, up 28% from $23 billion at the end of 2005, according to Roger Ochs, H.D. Vest’s president.
The Irving, Texas-based firm has recruited 750 advisers so far this year, up from 676 for all of 2006, he added.
“Now we have critical mass,” Mr. Ochs said. “We are creating financial advisers from scratch.”
The way H.D. Vest “creates” advisers is by assigning them a coach to teach them financial planning. It also uses experienced advisers as mentors for its new advisers.
These changes recognize the reality that certified public accountants need training as much as other advisers do, according to Mark Tibergien, managing partner of Moss Adams LLP of Seattle.
“Before these were drive-by advisers, and their training was pretty superficial,” he said.
“The presumption back in the day was that [CPAs] know the numbers and that they should be a natural with providing financial planning advice, but the reality was so different,” Mr. Tibergien said. “I like the fact that H.D. Vest is thinking about the development of these people.”
A similar phenomenon is occurring at Genworth Financial Investment Services Inc., another broker-dealer that focuses on tax preparers. The broker-dealer’s rep count rose just 4.4% between 2005 and 2006 to about 2,400, but its assets grew 14% to nearly $16 billion, from $14 billion, according to Enrique Vasquez, chief executive of the Schaumberg, Ill.-based broker-dealer.
But Genworth’s average adviser had better than 22% revenue growth last year, which he also attributes to better training by coaches.
“It’s really been a focus over the last 18 months,” Mr. Vasquez said.
Stephen A. “Tony” Batman, chief executive of 1st Global Capital Corp. of Dallas, another broker-dealer that hires accountants as reps, declined to comment for this article.
Meanwhile, another focus for H.D. Vest representatives is to hire more staff members to do tax preparation work. The trend toward delegating tax work was the buzz of the latest H. D. Vest national conference, said conference attendee Thomas Karsten, managing partner of Karsten Financial LP of Burleson, Texas, which manages $140 million.
“People are hiring tax professionals to handle the tax business,” he said.
H.D. Vest doesn’t track the hiring of accountants by its 5,200 reps, but 65% of them still prepare at least some tax returns every year. Mr. Ochs said. But many of these advisers are getting more selective and will prepare tax returns only for larger, more sophisticated clients, he said.
In addition, more reps are requiring clients to begin a financial advisory relationship if they want to receive tax services, Mr. Ochs said.
Yet H.D. Vest faces a series of challenges in maintaining its adviser head count, which has stayed about the same for the past few years, he added.
H.D. Vest loses about 600 advisers each year, Mr. Ochs said, adding that most of the attrition occurs about three years after a tax preparer comes on board.
However, there is a new energy among H.D. Vest reps, said Mr. Karsten, who is a rep for the broker-dealer.
“Now we’re seeing bigger firms with younger professionals,” he said.
One big advantage in grabbing bigger firms may be H.D. Vest’s ability to provide a bigger and better managed-accounts platform, said Ron Cordes, Pleasant Hill, Calif.-based chairman of managed money with Genworth Financial Inc. of Richmond, Va. Genworth’s managed-money division includes the $20.5 billion of turnkey asset management program assets from both AssetMark Investment Services Inc. in Pleasant Hill and Genworth Financial Management.
“I think H.D. Vest was a little slow on that managed-account stuff, but that [new emphasis] will probably really help them,” he said. “CPAs tend to be more comfortable with something with no conflicts” like charging fees on managed accounts rather than earning commissions on mutual fund sales, Mr. Cordes said.
Indeed, H.D. Vest is making up for lost time fast in hitting $4.6 billion in managed accounts by the end of last year, according to Mr. Ochs.
“Since yearend 2002, our [managed-account] assets have grown at a 32% [annual] rate, compared to 15% for all assets under management” at H. D. Vest, he said.