TD Ameritrade Earns $240M in Quarter; Says Retail Robo Is Coming

Advisor business was particularly strong, say outgoing CEO Tomczyk and incoming CEO Hockey

Incoming TD Ameritrade CEO Tim Hockey. Incoming TD Ameritrade CEO Tim Hockey.

TD Ameritrade announced increased profits of $240 million, or a record $0.45 a share, on a 6% rise in net revenue to $838 million for its fiscal third quarter ended June 30; profits were helped by a onetime $33 million, or $0.06 a share, tax-liability adjustment. In 2015’s third quarter, TD Ameritrade (AMTD) had net income of $197 million, or $0.36 a share, on net revenue of $794 million.

Executives also said in an interview that the firm was launching a digital advice platform in 2017, aimed at its many self-directed clients.

In his last analysts’ earnings call as CEO, Fred Tomcyk noted that net new client assets were up 16% to $13.6 billion year over year. In a separate interview, Tomczyk said that 2016’s second fiscal quarter was “soft for the RIA business,” meaning TD Ameritrade Institutional, but “now it’s back firing on all cylinders,” suggesting as well that the Department of Labor’s fiduciary rule will benefit advisors and TD Ameritrade’s RIA business overall. Results in the quarter were helped by increased trading revenue and by Brexit trading, Tomczyk said, while he also lauded the company’s expense management, which rose only 1%.

The company also announced record client assets of $736 billion, a 5% increase year over year, and record interest rate-sensitive assets of $113 billion, up 10% over 2015’s third quarter; those assets represent 14.6% of total client assets at the company.

When asked how the company was managing those $113 billion in assets, Tomczyk said “you have to be disciplined in your asset management liability — you can make little bets at the margin” noting that duration in those assets “went down slightly in the quarter, which is fine from our perspective. Stay disciplined. It is what it is.”

Tim Hockey, the president of TD Ameritrade who will soon replace Tomczyk as CEO, said in a prepared statement that the results “reflected mixed investor sentiment. Long-term investors expressed some reticence to move new money, while traders increased their equity exposure. Both segments were opportunistic, using events like the historic Brexit vote, to lean into the market decline.”

Hockey said “we expect these bouts of volatility to continue, underscoring the importance of our client value proposition. So, we must continue to innovate and provide our clients with powerful tools.”

Robo Platforms

Among those powerful tools on the retail side of its business is a revamped Amerivest Digital Solution, announced in late June, and a full-blown robo-advisor product in development now that will be released in 2017. In the separate telephone interview,  Hockey said that Amerivest was “launched in its original form 12 years ago before anybody knew what a robo was. Ten years ago we changed it to a traditional hybrid” with access to humans. In June, Amerivest was given “an overhaul with goal setting, performance tracking, greater portfolio details,” along with news and live chat.

As for the 2017 retail digital advice platform, Hockey said management felt the need to use many of those tech enhancements in Amerivest “to launch a new robo for the self-directed client’s needs.”

When asked whether the enhanced Amerivest program or the robo-advisor for the self-directed — a key customer base for the company, especially with retirement assets — would provide referrals for TD Ameritrade Institutional advisor clients, Hockey said the client profiles were different, with a "target referral" of retails clients with $1 million to its affiliated RIAs from both the standard retail branches and the robo offerings, he said.

Hockey said that referrals from breakaway brokers were up 75% in the quarter, meaning wirehouse and other BD brokers who expressed interest in the RIA model. Following its successful advisor conference in February, and from January to March where there was “lots of nervousness in the markets,” there’s since been a “heightened amount of movement” from breakaways, Hockey said.

They “came back roaring” in the quarter ended June 30, producing the “biggest pipeline we’ve ever seen,” along with healthy growth of assets in its RIA custody channel.

--- Check out TD Ameritrade Says Hybrid Is Right Tech Model as Profits Improve 8% on ThinkAdvisor.

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