I asked my preferred partner @ HRBFA about the possible sale of bank/HRBFA in light of recent events.
My FA told me they recently got to listen to a conference call with their HRBFA head. Apparently, when asked during a Q&A session, the head specifically said that HRBFA is NOT for sale.
For all that's worth anyway. Thought it was worth sharing with the message board.
You're taking the entire Consumer Financial Services segment and dividing by the number of traditional brokerage accounts. Page 36 of the 10Q clearly states that the average balance of the 381,765 traditional brokerage accounts is $90,155.
There are a lot more accounts-bank deposits, Express IRAs, etc. The last time I saw a breakout was Q 4/30/06 (before the bank started on 5/1/06) where there were more Express IRA accounts (442,157) than traditional brokerage accounts (418,162) but the Express IRAs average account size was only $780.
Breeden's whole proxy fight was about getting out of investments, mortgages and banking. Ernst has only been gone for a month. Mortgage issues and the impending tax season are higher priority items so HRBFA probably hasn't been formally put up for sale yet but it will be. A larger asset manager will be willing to pay for those traditional brokerage accounts and suck them into their system.
10Q lists (under "Liabilities") $568,122,000 as "Accounts payable to customers, brokers and dealers". They also claim to have 381,765 client accounts as of the end of July. Assuming ALL of the $568 million belongs to HRBFA clients, we can deduce that their average client account size is LESS than $1,500.
Back in the late 1970's when I was a broker at Prudential Bache, In order to make a decent living, we needed to have around $10,000,000 worth of client accounts, ideally this would mean 200 clients with $50,000 each. Of course you'll be in good shape with just 2 client who had $5,000,000 each but if you lose 1 or more of these big accounts you can pretty much count on lowering your standard of living, in other words you're rather be diversified. These days my son who just joined a national brokerage firm tells me they're aiming for $30,000,000 "on the books". Achieve or improve on that and you're in fat city.
What I'm saying is that $1,500 accounts aren't going to cut it, anyone who has ever been in the brokerage business should be able to tell you that. No wonder HRBFA has lost money for 21 straight quarters. On average, their accounts aren't nearly large enough.
I'm also looking at the "Liabilities" side of HRB's Balance Sheet and scratching my head. I see $886,533,000 worth of "Customer Banking Deposits and I see $568,122,000 worth of "Accounts payable to customers, brokers and dealers for a grand total of $1,454,655,000. What is surprising (to me) is that on the "Assets" side of their Balance sheet I see no such corresponding balance in "Cash and Cash Equivalents". Where has this money gone? These are fund which MUST be kept VERY LIQUID as they belong to customers of HRB Bank and HRBFA, these funds may be withdrawn AT ANY TIME. I sure hope some analysts asks their CFO more about this rather surprising situation.
"In my experience the Tax Preparers were very leary and extremely resistant to the whole idea. They didn't trust HRB or us." (douglasjmoore)
I don't blame the FA either as a group or as individuals.
But we preparers were never given any reason why we should
trust the FA (or Block under Mark Ernsts).
Remember, in the minds of many tax preparers, the primary link between HRBFA and the tax offices was the Express IRA. Why should we think that the other products at HRBFA were any better?
Also, please remember that Olde did not have the best reputation when Block bought it, so HRBFA started out with a disadvantage.
And Block under the Ernst/Yabuki would never win any prizes as the most ethical company arount.
"Additionally, most of them were not the least bit interested in anything except taxes."
Somebody in Block had to be interested in taxes. Neither Mark Ernst nor Jeff Yabuki was. This pair made it clear that, as far as the tax offices went, the only things they were interested in were cutting costs, selling products and making referrals to mortgage and HRBFA.
"The ones that had wealthy clients (not many) were reluctant to refer them to a broker ..."
Most of the more financially secure clients already had brokers or financial advisors. Again, the preparers were shown no compelling reason to ask the clients to switch brokers.
Further, it is in the preparers'(and our clients') interests to maintain good relationships with all the local brokers/advisors. We want to be able to pick up the phone and get, for example, basis information about a stock without worrying about our request ending up on the bottom of the pile.
Again, in general I blame senior management and not the FA's. But the relationship always seemed very one sided.
I still believe that under different leadership and with modifications to the business model the synergy might have developed.
Hi Boris. I've read your HRB postings on and off for over a year. Just wanted to compliment you on your accurate take of HRB and Ernst's big push into other areas. I was a broker @ Olde for several years before HRB bought us. I was never impressed with Ernst or the idiots he put in charge of us. It was a disaster from the beginning and never got better. No synergy then and from what my contacts at HRBFA tell me not much now. It seemed to me a poor fit. Brokers need wealthy clients and most of HRBs aren't. People w/ big $ use CPAs. In my experience the Tax Preparers were very leary and extremely resistant to the whole idea. They didn't trust HRB or us. Additionally, most of them were not the least bit interested in anything except taxes. The ones that had wealthy clients (not many) were reluctant to refer them to a borker because if they (the client) were to lose $ (it happens) they (the Tax Preparers) would feel guilty. There are some good advisors @ HRBFA but I'm sure most of them wish they were bought by another broker.
You got me confused. It's not goodwill they're amortizing (Goodwill on the books is =$173,954,000 and shouldn't of been amortized since 2001 (?) but there have been some minor impairment charges) but an intangible asset "Customer Relationships" . The original amount was $293,000,000 and as of 10/31/07 only $3,052,000 is left. In the last 12 months $36,625,000 was amortized.
It's hard to tell now that they'e merged it with the bank for reporting purposes. If I get the time I'll go back to 2003,2004 and 2005 were Investment Services was a separate reporting segment but just looking at the losses it was probably a wash to a little positive if you add it back.
Anyway if it's now cash flow positive, all the better. It's gone by 12/31/08.
"Still, Mr. Wenick said: ''You have to look beyond the problem to what we can do with it. What happens if we take Olde's 600,000 clients and turn them into 1.8 million clients?'' "
"Frank L. Salizzoni, a veteran airline industry executive and Block director who in 1996 became the company's third chief executive in less than a year, said Block bought Olde cheaply. He projects Olde's 1999 pretax profits at $100 million, making the purchase price 8.5 times earnings, and says the acquisition will add to Block's profits immediately. "
A strech of 21+ straight quarters of losses.
(Pretty funny article in hindsight).
In a nutshell, my rep contacted me and asked if I wanted to buy or sell stock that day; I said "no." Then my rep asked what my net worth was (without telling me why he wanted the information). I thought he was trying to determine whether my account was worth bothering with and so refused to provide an exact figure. He then told me to take my business elsewhere. I contacted "customer service" to complain about the shoddy treatment and asked to be transferred to another rep or to another office (there is another office closer to my home; I wanted to stay with HRB at the time because I wanted to do business with both the Bank and Tax units). My assigned branch blocked the transfer of my account to the new office and refused to assign me to another rep ("customer service" then said it was up to my branch to resolve the situation). I threatened to report my branch to the SEC for holding my account "hostage." (I am preparing a documentation package and still plan to do that.)
My banking business is now with Chase Bank and Capital One. My brokerage business is now with Scottrade.
Since my longtime tax provider is due to retire, I'm still looking for a Tax provider.
Hope this explains it . . .
since the company has not publically announced that the HRBFA is up for sale, or has hired someone to look at what the options are, the head of HRBFA could not publicaly say if they were. He would be in deep hot water with the SEC and could face losing his license. Reg RF
"the head of HRBFA could not publicly say if they were..." (bugsp1981)
Correct - but the head DIDN'T say anything publicly. It was said on a conference call for HRBFA employees only.
I want to reiterate this is only what my FA partner shared with me after I asked him if he thought HRBFA would be sold. This isn't first hand news.