Avantax boosts recruiting bonus to add advisers

After seeing hundreds of advisers walk out the door last year in the wake of an unpopular fee it announced in 2020, Avantax Investment Services Inc. has slowed the bleeding by paying new recruits bonuses up to two to three times the industry norm as part of a package to get them to move to the firm.

The broker-dealer arm of Blucora Inc., Avantax, which focuses on advisers who are aligned with or also work as accountants and tax professionals, said in 2020 that it was introducing a new $60 annual fee for advisers’ accounts at outside money managers, a popular way for advisers to conduct business directly with mutual fund companies like American Funds.

In the wake of that announcement, the firm saw its head count drop but the average production, in terms of annual fees and commissions, generated per adviser increase. In 2021, Avantax reported a decline of 354 financial advisers, a decrease of 9.4%, and industry observers pointed to the new $60 annual fee as part of the reason advisers were leaving. But, over the 12 months that ended in December, average revenue per adviser, or total fees and commissions, rose 33.9% to $177,500, according to the company.

Over the last few months, the firm, with 3,409 financial advisers, has switched to an aggressive recruiting campaign, dangling up to 70% of an adviser's annual revenue or production, forgiven over a decade or so. Independent broker-dealers, which operate on thin margins, has typically offered advisers it wants to recruit bonuses forgiven over time of 20% to 30% an adviser's annual revenue.

“While Avantax has marketed and paid recruits UP TO 70% trailing 12-month production, decisions are made on a case-by-case basis — many factors go into evaluating if a firm is a good fit with Avantax," Tim Stewart, vice president and head of business development at Avantax, wrote in an email to InvestmentNews Friday morning. "In addition to considering a firm’s book of business, it’s vital to Avantax that the firm be tax-focused, committed to growth, and be a cultural fit with our model."

The tactic appears to be working.

"We also had exceptional recruiting efforts," said Blucora CEO, Chris Walters, during a conference call Wednesday to discuss the firm's first-quarter earnings. "We brought 85 new financial professionals into Avantax during the quarter. We set a company record in recruited assets for the quarter, exceeding $500 million."

"As a result of these actions, we saw great asset flows in the first quarter with progress that was ahead of our forecast," Walters added. "We achieved positive net asset flows of more than $245 million, which is our best quarter since the second quarter of 2019."

The fee that Avantax announced last year on held-away accounts, while only $15 per quarter, could have cost some advisers thousands of dollars each year because some of the firm’s advisers have hundreds of such accounts.

One industry observer warned that paying large recruiting bonuses to financial advisers was like a sugar rush: sweet at first, but it comes with a downside.

"Overpaying for recruits is impactful but will counter profitability, which is especially true for those firms that don’t have substantial scale," said Jon Henschen, an industry recruiter. "We’ve seen firms cut staffing in order to pay for large forgivable notes, which long term can be a formula for disaster, resulting in higher turnover later in the cycle."