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Financial Planning > Tax Planning

What Cetera’s $1B Avantax Deal Means for the Future of Advice: MyVest CEO

By John Manganaro

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What You Need to Know

  • The acquisition highlights a deeper focus on tax-aware planning, Anton Honikman says.
  • The advisor technology expert says the deal shows the consolidation of the RIA industry won't slow down anytime soon.
  • Honikman says advisors should expect to see an arms race in the years ahead, both on scale and tax-planning capabilities.

Cetera Financial Group’s mid-September acquisition of Avantax, formerly Blucora, may not have been the biggest wealth-management deal of the past year or so, but according to MyVest CEO Anton Honikman, it’s one of the more telling with respect to the long-term trajectory of the RIA industry.

As the CEO of MyVest, a TIAA subsidiary focused on building and supporting enterprise wealth management technology in a tax-aware and personalized manner, Honikman spends much of his time thinking about M&A trends and what they say about the technical side of the wealth management industry.

As he recently told ThinkAdvisor, the Avantax acquisition demonstrates two key themes that are rapidly reshaping the space: consolidation and tax-aware planning.

“Those who follow the industry probably weren’t surprised by the news,” Honikman said. “On one level, this is continuing the story of [industry] consolidation … It’s the big continuing to get bigger — and Cetera is already one of the big ones.”

The second key theme, Honikman says, is the “elevation of all things tax” throughout the financial planning and investment process.

“I think [Cetera Holdings CEO] Mike Durbin knows exactly what he is doing,” Honikman continues. “Large firms are looking for sensible, additive acquisition targets, and Avantax is one of them. Beyond mere consolidation, however, I think this deal also signals the importance of tax and elevating the concept of tax planning and tax matters in wealth management.”

The Tax Play

As Honikman notes, Durbin himself has outlined this vision, including in the original announcement of the Avantax acquisition, and leaders across the RIA and broker-dealer industries are seeking greater expertise and technical capabilities in this area.

“As we explored expanding Cetera’s capabilities into wealth management and tax expertise as a core component of our growth strategy, it quickly became clear that Avantax was an ideal target and a powerful fit for our business,” Durbin said. “Avantax will significantly build out Cetera’s capabilities in tax and wealth management.”

As both Durbin and Honikman have observed in the past, disrupting the market with expanding capabilities means more flexibility for advisors and developing adjacent capabilities and channels to expand a firm’s addressable market. This is seen as a key trend moving forward, they explained, given the potential for fee compression and the industry’s overreliance on market returns to fuel revenue growth.

Ultimately, Honikman says, the Cetera-Avantax deal signals the fact that client service expectations are growing quickly, and that includes a new demand for tax-aware investing. What comes next is Cetera’s task of fully integrating and taking advantage of the Avantax approach, a task that is shared by other firms that have engaged in similar acquisitions.

Among this group is Hightower, which recently made a strategic investment in GMS Surgent, a suburban Philadelphia-based tax and advisory firm that provides high-net-worth and business clients with tax advice and advisory services.

Under the deal, GMS Surgent will become a “wholly owned tax subsidiary” of Hightower, according to a press release published by the firms.

In announcing that deal, Hightower Chairman and CEO Bob Oros said the firm was “thrilled” to welcome GMS Surgent into the Hightower community, noting that the collaboration enables Hightower to provide its advisors with a vetted resource to deliver comprehensive tax services to clients — all via a “seamless experience.”

The ‘Why’ Behind the Avantax Deal

“One interesting factor in the Avantax deal, as I understand it, is that Cetera already has an internal division that does this kind of tax-aware planning,” Honikman says. “So, it will be interesting to see how the integration is actually done. I’ve read that the plan is to keep Avantax separate, but we’ll see.”

Whatever the exact approach, Honikman says, the deal is “quite significant.”

“It makes Cetera a heavyweight in tax-aware financial planning and tax management in general,” Honikman says. “Particularly important is the expanding ability to help clients navigate their way out of complex, concentrated portfolio transitions in a tax-efficient manner.”

As Honikman observes, these capabilities are important for clients at all life stages, but they are especially beneficial when the advisor is seeking to help the client engage in more sophisticated estate planning and intergenerational wealth transfers.”

“That’s what these people at Avantax do,” he notes. “They aren’t just answering simple tax questions. It’s about planning in potentially very complex tax scenarios.”

The Tax ‘Arms Race’

Honikman points out that Avantax (and its predecessor organizations) has itself engaged in both acquisitions, reorganizations and spinoffs meant to expand and focus its capabilities in these areas.

“It reflects the fact that we are seeing a bit of an arms race, both on scale and capabilities,” Honikman says. “Here, I think this is partly a technology buy, but more than that, it’s about people and expertise.”

Honikman says the acquisition should be, in this sense, a net positive for Cetera’s ongoing efforts to recruit and retain high-power advisory teams.

“I expect the advisors will see this as a sort of auxiliary service that can be added to their capabilities,” Honikman adds. “It can enhance the service offering on the platform.”

The Big Picture

Stepping back from this particular deal, Honikman says all signs indicate that these key trends will only intensify in the years ahead, and that will help to further blur the traditional lines that have separated the work of RIAs and broker-dealers.

“Because of the demand for this kind of advanced planning, you are seeing more of the brokers shifting towards the dual-registered approach and either establishing or acquiring RIAs,” Honikman says. “You have actually seen this trend impacting the TAMP industry, too. TAMPs traditionally used to serve B-Ds and now they are serving RIAs, as well.”

John Manganaro

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