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TD Ameritrade Reports Record Earnings for 2014; Advisor Business ‘Firing on All Cylinders’

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TD Ameritrade (AMTD) announced Tuesday record earnings per share on record net revenue for its fiscal year ending Sept. 30, along with record net new client assets. In an interview, TD Ameritrade Institutional President Tom Nally said the company’s advisor business was “firing on all cylinders” as measured by growth in assets custodied, along with a “significant uptick in trading,” especially in options, and that its “sales pipeline is at an all-time high.”

TD Ameritrade President and CEO Fred Tomczyk said during the company’s earnings call with analysts that earnings per share for fiscal 2014 were up 16% to $1.42/share, on a 13% rise in net revenues to $3.1 billion. In the call and in a separate interview, he highlighted the 10% rise in net new client assets, to $53 billion, the sixth straight year the firm had double-digit growth in assets.  

“When we started out our best year was $12 billion” in new assets, Tomczyk recalled, and as part of its earnings outlook for 2015, the firm expects 7% to 11% growth in net new assets. Over the past five years, TD Ameritrade has gathered $219 billion in net new client assets, or “one-third of our total client assets,” according to Tomczyk. He also expressed pleasure at the record 24% growth, to $309 million, in investment product fee revenue.

Bill Gerber, chief financial officer, said on the call that “Interest rate-sensitive assets have grown to a record $100 billion, mitigating the impact of the macroeconomic environment and giving us the flexibility to invest in and grow the business.”

In the fourth quarter, TD Ameritrade had net income of $211 million, up 6%, on net revenues of $795 million, with net new client assets up 8% to $13 billion, and average client trades per day of 403,000.

On the call, Tomczyk mentioned that wirehouses are getting better at retaining their brokers, while at the same time wirehouse brokers and larger IBD advisors are increasingly attracted to TD’s offerings, especially in terms of its iRebal rebalancing software, its options trading offerings and its VEO open-architecture technology platform.

“People at wirehouses may leave due to the compensation grid or something the company wants them to push,” Tomczyk said in the interview. “They may want level fees, or they want to annuitize or sell their practices — a whole variety of reasons. When they look at us, the support services and the great technology” TD Ameritrade offers, many conclude “this is the place I want to be. The Veo open access platform allows them to run their business the way they want to.”

Nally agreed, saying that while “historically, wirehouses provided state-of-the-art technology platforms, there’s been a big 180,” and that TD’s technology “trumps what the wirehouses have put out there.”

As for wirehouses retaining their biggest producers, Nally said “one of the biggest things they’ve done is to write seven-figure checks” to their brokers, but wondered “how sustainable is that? That’s a drag on the wirehouses and end clients wind up” paying for those bonuses.

“Those forgivable loans,” many of which were made during the height of the financial crisis, “are coming due,” Nally said. Now, however, “they can go out on their own,” though “the wirehouses will be lining up” to write more checks.

He referenced the Financial Industry Regulatory Authority’s proposed rule on “making those bonuses public” when a wirehouse broker changes firms. “They say they’re moving for the client’s ultimate benefit,” but “FINRA has walked back” that proposed rule. Instead, “they’ve watered it down” to a disclosure document.

The first question from analysts after Tomczyk and Berger made their prepared presentations on the earnings call concerned Schwab’s announcement yesterday on its digital advice platform, called Schwab Intelligent Portfolios, which the analyst called “free.” Tomczyk responded by saying “nothing is ever free,” and that you “need a combination of a digital and human approach to get the client comfortable.”

In the interview, he expanded on those comments, saying that “in our experience, since we’ve had [the online retail advice program] Amerivest available for a decade, it doesn’t scale well.”

Positioning the offering of digital advice in a broader business context, Tomczyk said for consumers, providing a product or service through multiple channels with different price points, “people find it frustrating.” Instead, they want “one price point [that they can] buy through any device. That’s the way clients think. The distinction between mobile and Web is going to dissipate.”

He promised that TD Ameritrade would watch robo-advice offerings “carefully, but we haven’t seen anyone succeed with multiple price points.”

Nally last week presented TD Ameritrade’s approach to robo-advisors in an interview, saying it allows its RIAs to build their own robo-advice platform or adopt ready-made platforms offered by partners available on the Veo platform. 

“I’ve been raising this issue for several months,” he said in the interview Tuesday, warning that “the commoditization of investment management” should lead advisors to price their services to reflect the value they offer clients. He concluded that “we’re looking at a period of disruption in how advisors charge” for their services.

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