Avantax Brand Isn't Going Anywhere: Cetera's Durbin
Now that Cetera Financial Group has completed its $1.2 billion acquisition of tax-focused Avantax, what’s next?
Assimilation. But not integration.
“We’re taking a ‘do no harm’ approach of minimum disruption to the advisors,” Mike Durbin, CEO of Cetera Holdings, who oversaw the deal, tells ThinkAdvisor in an interview.
The acquisition brings more than 3,100 financial professionals, $82.3 billion in assets under administration and $42 billion in assets under management to Cetera.
Cetera Financial Group serves advisors, tax professionals and institutions. Pre-acquisition, it had 9,000 financial professionals and their teams, $374 billion in assets under administration and $145 billion in AUM.
Avantax, which will remain a stand-alone business and retain its brand, delivers tax-focused planning for advisors, tax pros and CPA firms. It has an employee-based model, Avantax Planning Partners, and Avantax Wealth Management, an RIA for independents.
Durbin sees the significance of “tax sensitivity,” as he terms it, as an essential component of “21st century planning.”
“If you’re going to be world class at financial planning, you need tax planning … in addition to traditional wealth planning,” he argues in the interview.
Avantax brings San Diego-based Cetera a clearing relationship with Fidelity. This expands Cetera’s multi-custodial platform, building on its existing use of BNY Mellon Pershing and Cetera’s self-clearing unit.
Durbin, who was named CEO of Cetera Holdings in May, was previously with Fidelity for more than 14 years, most recently as head of Fidelity Institutional. He details the significance of the Fidelity addition in the interview.
He also talks about what he calls “an increasing RIA-ization of the marketplace.”
In the conversation with Durbin, who was speaking from Woodstock, Vermont, he pointed out Cetera’s emphasis on both organic growth and more acquisitions. As for Avantax’s growth profile, it is “equally as rosy as what Cetera’s was even prior to the deal,” he says.
Here are excerpts of our interview:
THINKADVISOR: Why is acquiring Avantax such a significant part of Cetera’s growth strategy?
MIKE DURBIN: There are more and more households in this country that could benefit from the advice and guidance of a human tax advisor.
Yet, as an industry, we’re not producing high growth rates of additional advisors coming into the profession, though there’s strong demand for them.
So, with the secular dynamics that are afoot in our industry, we have a good secular wind at our back.
Why is Avantax a good fit with Cetera?
Cetera already had a tax planning specialty: One of our business models is Cetera Financial Specialists, several hundred financial advisors-strong focusing on tax expertise. And we also have partnerships with independent CPA firms.
The ability to bring the two [entities] together, to double down on the scale effect, was a clear market opportunity.
Tax specialization and partnership with CPAs can lead Cetera to build out our capability to bring real tax sensitivity to what we think is [part of] the 21st century planning that more and more households are looking for.
Was Avantax’s registered investment advisory a big attraction for you?
That was part of it, for sure. There’s already an increasing RIA-ization of our marketplace. We have a growing RIA service proposition in the Cetera network.
Avantax was a good M&A candidate to join our network because they see the market the same way we do.
What are your growth expectations for Avantax?
They’re right in line with the growth expectations of Cetera. Avantax’s growth profile is equally as rosy as what Cetera’s was even prior to the deal.
This industry is poised to continue to have attractive organic growth because the demand base is growing.
But we’d like to do better than overall industry growth. That’s [by way of] how we go about fueling organic growth and continuing to pick our spots on M&A-fueled growth.
Our single private equity sponsor, Genstar Capital, are investors in growth.
We [recently] closed our fundamental re-investment by Genstar in Cetera. We think we’re poised for above-market rates of growth.
Other RIAs have recently told me that they’re adding in-house tax strategies and tax management capabilities to their client offerings. Is this a trend?
If you’re going to be planning-based, you can’t ignore taxes. [Traditionally], most advisors shared the same [stance], “I’m not touching taxes. I’m not getting involved in taxes. I’ll leave that to the CPA.”
That probably means you’re competing on the basis of how you run money and produce alpha, which is pretty hard to do on a sustained basis.
So I think you’re seeing more and more advisors step into, “If I’m going to be a real financial planner, I have to pay attention to insurance, taxes, retirement, banking and lending, in addition to just the wealth portfolio.”
Why is the RIA-ization of the marketplace happening?
RIA is a business model in a regulatory framework that aligns nicely with a planning-based value proposition.
To be an RIA vs. a broker-dealer, means less up-front cost. It’s less capital intensive.
The outside market values an RIA at a higher multiple level than a non-RIA because it has the attributes of being discretionary, where the revenue is repeatable and recurring with basis points on assets.
And it’s relationship-heavy.
What’s the future of RIAs?
