Cetera deal for Avantax shows boom continues for wealth management assets

investmentnews.com:

Cetera Holdings this week said it was spending $1.2 billion to acquire the nearly 3,100 tax focused financial advisors at Avantax Inc., a clear indication that the valuations for broker-dealers and registered investment advisors are still climbing and no one knows how high they will go.

To put that $1.2 billion price tag into perspective, Avantax, which was named Blucora Inc. up until it changed its name last year, in 2015 and 2019 spent $760 million to acquire two broker-dealers, the former H.D. Vest Financial Services Inc. and 1st Global Inc. Both focused on financial advisors who are tax specialists.

That translates into a 57% increase over the purchase price for the two firms, in a period of eight years. Avantax financial advisors work with about $84 billion in client assets, or roughly $27.1 million per advisor. That’s at the very low end of the industry; wirehouse financial advisors on average have clients with more than $1 million each, while the average client at LPL Financial is likely to have a few hundred thousand dollars.

It’s the simplest rule of thumb in the wealth management industry: the more assets per client, the greater the profit to the broker-dealer of RIA.

Regardless, industry reaction to the deal said the price made sense, particularly in a market where private equity-backed broker-dealers and RIAs are making hard charges at wealth management assets.

A spokesperson for Cetera declined to comment for this article.

“The deal is not overpriced, it’s just about right, really,” said an executive at a competitor of Cetera. The executive, who asked not to be named, noted that Cetera, a giant network of 9,000 financial advisors, is owned by Genstar Capital, a private equity shop.

“And private equity