Podcast Center
Video Center
Webcasts
Resource Center
Events
August 25, 2014 at 10:27 AM
TD Ameritrade (AMTD) has asked the Securities and Exchange Commission to allow it to automatically offer rebates of fees to clients of its Amerivest portfolios.
The arrangement would only affect new clients and existing clients who make a new deposit of $25,000 or more. The current advisory fees for its model portfolios are roughly 0.3% to 1.25%, according to a spokesperson.
This news comes about nine months after rival broker Charles Schwab (SCHW) rolled out an accountability guarantee to its investment-advisory service clients. The firm said clients could “request a complete refund of their program fees from the prior quarter if, for any reason, they are not happy.”
But while such programs aim to increase investor loyalty and trust, one expert says they do little to address investors’ key needs.
“I see this as an irrational reaction to [the Government Accountability Ofice's] 2014 analysis on managed accounts and fees, which was issued this summer, after the GAO studied [the issues] for a past couple of years,” said Lou Harvey, president of mutual fund consultancy Dalbar Associates, in an interview.
“The pressure is on the industry in terms of [being transparent on] fees and raising awareness,” he added. “We need strategic, forward thinking. But this is just a knee-jerk reaction to the here and now.”
Another expert, though, doesn’t see the situation so negatively.
“It’s plus for consumers, who — if they’re unhappy with their results — can get their money back” for fees, said Michael Kitces, partner and director of research for the Pinnacle Advisory Group in Columbia, Maryland, in an interview.
“But will it affect their decision on who to work with and invest with?” Kitces asked. “The jury is still out.”
In an Aug. 18 letter to the SEC, TD Ameritrade’s attorneys explain that the proposal should be permitted under Section 205(a)(l) of the Investment Advisers Act of 1940.
The proposed fee arrangement is “designed to further align Amerivest’s interests with those of its clients because — to put it simply — if the client does not make money, Amerivest does not make money. The result is that the proposed fee arrangement protects the interests of clients both when performance is positive and when it is negative,” the letter stated.
“The offer is still in development but will help us test new ways to deliver value to our clients. In short, if the Amerivest Portfolio model that an eligible client is invested in doesn’t make money for two consecutive calendar quarters (before advisory fees), Amerivest will rebate the clients’ advisory fees for those two quarters, automatically,” TD Ameritrade said in a statement. “We’ll provide more details once the offer is ready to launch.”
Schwab’s program includes those using Schwab Private Client Investment Advisory services, Schwab Managed Account Connection Strategies (Windhaven, ThomasPartners Dividend Growth Strategy and Charles Schwab Investment Management Strategies) and Schwab Managed Portfolios.
