Brian Davis is a nice guy—almost annoyingly so for the writer assigned to his interview. Asked to brag about himself, Davis instead goes out of his way to make it about “the team,” which number about 100 employees tasked with building out Scottrade’s institutional platform.
All well and good, but how specifically did he come so far so fast? No luck; he won’t budge and once again describes the pride he feels in “the team” for continuing to expand on the company’s service metrics.
If you haven’t heard of Scottrade Advisor Services, you’re forgiven. Started in 2005, it resides in the decidedly non-financial hub of St. Louis alongside its better-known retail counterpart. But the institutional business is coming on strong, finding a niche among Schwab, TD Ameritrade, Pershing and smaller clearing and custody firms, not to mention the entire independent broker-dealer industry.
“Our strong consumer brand works to the advisor’s advantage,” Davis, the division’s director, explains. “The institutional brand certainly isn’t as well known, but clients know Scottrade and feel comfortable placing their money with us, as opposed to what could possibly be some sort of Bernie Madoff situation.”
Maybe it’s a Midwest, plain-vanilla sort of thing, but the Bernie Madoff reference is important. Davis notes the firm isn’t big in the alternative investment space, especially the “pure play private placement stuff.” It’s a surprising answer given the need for non-correlated asset classes in the current market craziness, but one he says stems from a lack of demand from their advisors, something rarely heard from other firms.
“It’s not what we do,” he says. “For those advisors that want [access to alternative investments], we offer qualified third parties that are the experts in that area.”
The attitude translates to other areas beyond alternative investments. The institutional division is not a supermarket like other firms, Davis adds. Some advisors need hand-holding and others don’t. Because of the unique, customized situation in which many advisors find themselves, Scottrade has narrowed it down to offering best-of-breed vendors that can help those advisors who want hand-holding, as well as those who don’t.
So, of course, when the subject of value is mentioned, Davis immediately seizes upon it.
“Value is a subject of cost,” he explains. “It is drilled into everyone’s heads here at Scottrade to deliver as much value as possible for the given level of cost. We do that through our superior service and through partnerships with first-rate technology and software providers, like with MoneyGuidePro. But we look at it more macro than that; value and cost [are] ingrained in our culture.”
In other words, the company is known for its low costs, but it doesn’t translate to low-quality service.
“Our service is something that advisors continually mention, and it’s something of which I’m extremely proud,” Davis adds. “It’s not a phone bank type of thing. When the advisor calls, they get a direct line to a dedicated representative to help with their situation.”
That level of service translates to more wallet share for the company. Contrary to the majority of RIAs and broker-dealers listed in Investment Advisor’s 2012 Broker-Dealer Reference Guide (see June 2012 issue), Davis says most of the advisors he’s signed use Scottrade Advisor Services exclusively.
“Typically, our partners only use Scottrade, as opposed to multiple custodians,” he says. “It’s stressful enough making the leap to a new clearing and custodial partner; getting to know multiple platforms is even more so. So they like to get their feet wet with just one.”
Whatever the case, something’s working. The firm reached a milestone recently, announcing in early April that it surpassed 1,000 advisory firms in its client base (as we said, coming on strong). According to the company, the institutional division “has seen progressive growth year over year, with 2010 assets growing by 50% and 2011 assets growing by 45%.”
“It’s a 50-50 split as to where the advisors are coming from,” Davis claims. “Half come from wirehouses and half from independent broker-dealers.”
While they have the ability to serve advisors of all stripes and experience levels, their sweet spot is the state-registered advisor with less than $100 million in AUM; those advisors who might have recently left the wirehouses with $80 million, or those who are just starting out with $20 million or less.
For the smaller advisors, he sees a growing trend related to “planning networks,” like Garrett Planning Network, which offer clients hourly fees, as opposed to charging them based on AUM.
“We enjoy a great relationship with Garrett Planning Network, which is structured in a unique but effective way of which advisors can take advantage,” he says. “By pooling the AUM, the advisors and clients can enjoy the hourly rate relationship, but from Scottrade’s perspective, we’re still receiving the assets under management.”
If only the discussion of value and service could end there. Competing against dominant players like Schwab and Fidelity means Scottrade suffers many of the same headaches experienced by Schwab and Fidelity; namely headline risk and the recent Facebook IPO debacle, which NASDAQ now counts as 30 million improperly executed shares.
In late May, Scottrade was criticized (along with its competitors) by The New York Times and other news outlets for incorrect trades and what it saw as poor customer service in the days following Facebook’s market debut.