H&R Block ready to test its advice gambit

H&R Block’s middlebrow customers rely on the firm to do their taxes, but would they want financial advice with their returns?

The Kansas City, Mo., financial conglomerate announced plans two years ago to capture what it saw as a natural synergy between the two, and now it’s finally ready to test its strategy.

Over the past six months, it has turned about 500 of its 100,000 tax preparers into “tax-preparer financial advisers,” or TPFAs, as they’re called in-house – just in time for the upcoming tax season.

The effort is the cutting edge of its plan to leverage 10,000 brick-and-mortar offices and an estimated 19 million customers worldwide into a lucrative financial planning business.

Block is also leveraging its 1999 acquisition of Olde Financial Corp. to turn 1,400 brokers into fee-based financial advisers. One of the steps is to get all the brokers licensed to sell annuity products.

As of July, H&R Block Financial Advisors was managing $42.2 billion in client assets – mostly from Olde.

To drive home the point that Block is in the financial planning business – and that Olde is a part of the program – the 200 Olde offices in 35 states have been renamed H&R Block Financial Advisors.

Those former Olde brokers will represent a step up from the TPFAs, who will try to turn loyal tax-preparation customers into financial planning clients.

The top tier of the financial advice effort at Block belongs to RSM McGladrey Inc., where Block is now consolidating a half-dozen CPA firms that were acquired during the past four years to build a registered investment adviser business for the high end of the market.

So far, the high-end McGladrey effort is not integrated with the relative entry-level TPFA program, but Mr. Wilson says that that isn’t as important as offering a broad range of products and services to a full spectrum of clients.

“We’re meeting the needs of clients that we’ve built relationships with where we’ve built the relationships,” he says.

Questions remain

On paper, H&R Block Group Inc. seems to be ready to barge into the financial advice business and seize a respectable chunk of market share.

But big questions linger as H&R Block Financial Advisors begins equipping tax preparers with the tools to offer financial advice.

For starters, how many tax preparers have the desire and ability to start selling investment products?

According to some industry watchers, providing tax preparers with licenses to sell investment products doesn’t instantly equal success.

“H&R Block has a reputation of doing tax returns, and not on the high end of the market,” says Joseph Tucciarone, founder of the National Network of Accountants.

Dennis Gallant, a financial services industry consultant at Cerulli Associates in Boston, says much of Block’s success depends on how many of those 100,000 tax preparers actually become financial advisers.

“There are a lot of tax planners out there trying to make the transition to financial advice,” he says.

“Many of the people at H&R Block won’t have the skill set or the desire to be a planner.”

Mr. Gallant says the company may need to bring in new planners.

But even before that, Mr. Gallant points out, H&R Block may have to determine whether customers are ready to pay for the company’s advice.

“They have to overcome the perception of being low end.”

However, Mr. Gallant adds, going after the middle and lower end of the market could represent a key foothold for Block.

“Maybe there’s a niche in the marketplace for them,” he says.

“Most tax planning firms don’t have their kind of brand recognition or retail recognition. And they also have the bricks and mortar.”

In any case, H&R Block is starting its newly crowned advisers with the Series 6 license that enables them to sell mutual funds. The goal is for them to also sell fixed-income products, individual securities and some insurance products such as annuities.

After a recruiting and training campaign that began a few months ago, there are “approximately 500” TPFAs, according to Bernie Wilson, a senior vice president of the new financial advice unit.

Mr. Wilson acknowledges that not all tax preparers will be interested in becoming financial advisers.

“In the next few years, anything less than a few thousand [TPFAs] would be disappointing,” he says.

“We are right now refining the recruiting process.”