H&R Block, the behemoth of tax preparation firms, is branching out.
The company aims to expand its relationship with its customers beyond the annual tax-filing season by offering financial planning, home mortgages, brokerage services and even private wealth management. With more services, it hopes to keep customers coming back.
"If we help people with their financial decisions, they will be more loyal," said Mark A. Ernst, the company's president and chief executive officer. "Plus, we will be doing more than just filling out tax forms."
H&R Block, founded nearly 50 years ago by brothers Henry and Richard Bloch in Kansas City, Mo., now has more than 9,000 offices across the country. Its online offerings include both do-it-yourself and professional-assisted tax preparation, and its TaxCut software is a big seller.
This year, many tax filers also will get financial planning tips focused mainly on saving for their children's educations and their retirement.
Meanwhile, H&R Block Financial Advisors, the brokerage launched with the company's 1999 acquisition of Olde Discount Corp., has attracted more than 3,000 customers since the rollout of new wealth management accounts last fall.
The company's mortgage division originated $6.5 billion in loans last year. A lesser-known subsidiary, RSM McGladrey, which offers accounting and tax services to mid-sized businesses, has begun financial planning services for business owners.
Tax preparation accounted for about 70 percent of 2001 profits, Ernst said. The goal in coming years is for taxes to produce about half of profits, with 25 percent coming from mortgage business and 25 percent from investment operations.
Regardless of the breakdown, tax preparation will remain central to bringing in customers.
"The fundamental thing we are trying to do is fill in a gap for middle Americans," Ernst said. "People of moderate means people Merrill Lynch wouldn't consider working with need advice on saving, especially how to save for retirement. We're going to do that."
Michael Millman, an analyst at Salomon Smith Barney who watches H&R Block stock, applauds the company's new directions.
"H&R Block clients typically don't have access to sophisticated financial planning or any financial planning," Millman said. "Their clients look upon H&R Block preparers as their only financial contacts during the year."
Today, H&R Block is involved in preparing about one in seven of America's 132 million tax returns, either through the company's owned and franchised offices or its online and software products. Its overseas offices mainly in Canada, Britain and Australia handle an additional 2.2 million clients. It employs about 12,000 people worldwide, a number that balloons to more than 80,000 with temporary workers at tax time.
Revenues in the fiscal year ended April 30 were $3 billion, resulting in a net profit of $281.2 million or $1.55 a share. Analysts surveyed by Thomson Financial/First Call expect that to increase to $2.22 per share this year.
Ernst believes cross-selling will help expand H&R Block's non-tax business.
"The one time people stop and think about their financial situation is at tax time," Ernst said. "And for many, it's the one time they have some extra money."