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In Wake of Failed E*Trade Merger, "We Are Going It On Our Own."

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Following E*trade Financial Group’s abandonment last month of its bid to buy Toronto-Dominion Bank’s TD Waterhouse U.S. discount brokerage unit, “we are not for sale,” insists Waterhouse CEO Frank J. Petrilli. “Let’s be very clear,” he says. “We are not going to merge. We are going it on our own.”

But in an interview with Investment Advisor during TD Waterhouse Institutional Services’ well-attended “Partnership 2004″ conference Feb. 4-6 in Lake Buena Vista, Florida, Petrilli left open the possibility that the discount broker could yet buy a rival itself some day. In the wake of the bull market and its subsequent demise, the brokerage industry is “entering a consolidation period,” he observes. While “we don’t have to do acquisitions,” he adds, “clearly, you never rule out acquisitions if properties become available.”

Petrilli and TD Waterhouse Institutional Services President J. Thomas Bradley Jr. would not speculate on potential acquisitions. However, they indicate that Waterhouse is already stepping up its spending on sales and marketing in a bid to garner new assets. Petrilli notes that Waterhouse is increasing its planned 2004 advertising budget of $65 million by $20 million, “or maybe more,” and may add branches to its 150-office U.S. network. Bradley, meanwhile, is doubling the size of his institutional sales force, to 40, and is also increasing financial incentives for Waterhouse branches and their staffs to refer clients to advisors.

Indeed, the two executives also showed how critical advisors, with $30 billion in assets in 200,000 custodial accounts, have become to Waterhouse’s business. In 2003, advisors produced $6.4 billion in net new assets for Waterhouse, nearly 70% of the $9.2 billion total that the firm brought in. This year, advisors are expected to generate 11.2% of Waterhouse’s revenues and 27% of its assets, up from 9.3% and 21.9%, respectively, in 2003.

At the conference, which attracted more than 1,000 attendees-including some 500 advisors-Bradley announced that Waterhouse had struck a deal to offer Morningstar Inc.’s Advisor Workstation research product at a discount to the brokerage firm’s clients. He added that Waterhouse is now studying integrating Advisor Workstation into its Web-based Veo advisor platform.

Bradley also says that he has increased the level of practice management advice Waterhouse provides to advisors. The firm’s Business Situation Group, he says, now provides Web-based training sessions; three-day advisor seminars on both coasts; and, for the largest clients, office visits by Waterhouse experts.

Waterhouse’s biggest advisors, Bradley adds, can expect “white glove” service from their custodian. But while the firm especially wants to attract advisors with $50 million to $250 million in assets, its average advisor client still has only $11.5 million with Waterhouse. “We have a lot of advisors who are just dipping their toes in the water,” Bradley concedes.


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