What A Sale Of H.D. Vest Says About The Accounting Channel

Wednesday, May 18, 2011 07:06
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What A Sale Of H.D. Vest Says About The Accounting Channel

Tags: M&A | Wells Fargo

Rumors out there that Wells Fargo is shopping around H.D. Vest to potential buyers. We don't talk much about accounting-based advisors, but this news reveals a few things about their world.

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First, the accountant advisory business is still fragmented. H.D. Vest is the biggest advisory-oriented retail accounting chain out there, but only has about 5,200 advisors nationwide.

 

Second, the tax prep side has seen better days. The traditional bread and butter for a lot of CPAs, the old April 15 revenue cycle has come under pressure from automated Web return preparation -- and the financial advisors who prepare returns at a nominal fee probably don't help.

 

Third, on the brokerage side, these advisors have a hard time squeezing much out of limited AUM. With $26 billion on the H.D. Vest Investment Securities platform, that's only around $5 million per advisor. From that money, they derived maybe $10,400 in management fees every year for a fairly narrow ROA of 0.2%.

 

Now if Wells Fargo wants to sell the unit now in order to "optimize" its wealth management business, that shows us that a 0.2% ROA may be too low to take a firm like H.D. Vest into the future.

 

However, Wells Fargo also reportedly wants $200 million for the firm. That's practically double what WFC paid for it back in 2001 and a full $27 million more than even the company's accountants say it's worth -- counting a whopping $104 million in goodwill.

 

Does a 15% premium make sense here? Who will buy?

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