TD Ameritrade CEO Fred Tomczyk

TD Ameritrade (AMTD) said it had net income of $205 million, or $0.38 per share, in the quarter ended March 31, up about 8% from $189 million, or $0.35 per share last year.

Profits met analysts’ expectations, though revenue of $846 million for the period did not, despite a 5% jump from the year-ago period. Roughly 56% of total sales were asset based.

The firm says it had $14.1 billion in net new client assets, down from $16.3 billion a year ago and $17.5 billion in the earlier period. It also reported average client trades per day of some 509,000, representing an activity rate of 7.6%.

Total assets stand at $711.2 billion, up from $695.3 billion last year. Fee-based investment balances ended the quarter at $161 billion, up 3% year over year, while interest sensitive assets expanded to $112 billion, up 11% from last year.

“We continue to execute well, resulting in solid quarterly performances for each of our major revenue streams,” said CEO Fred Tomczyk, in a statement. “Our focus for the rest of fiscal 2016 will be maintaining our momentum, our CEO transition [in September], aligning our business model with the Department of Labor fiduciary rule, and of course continued investments in our business.”

During a call with investment analysts, Tomczyk explained that roughly $225 billion of TD Ameritrade’s total assets are in IRAs. More than half of these IRA assets are held in independent RIA accounts. About 30% of net new assets come from IRA rollovers.

In terms of the firm’s hybrid strategy, he says “the combination of the technology and with some human help,” is what the firm sees as “the right model” for the broadest part of the investor marketplace; this approach “basically allows us to scale up and down the market whether you want to use the human being or you don’t want to use human being.”

The CEO also was clear on the significance of the Department of Labor’s recently released new fiduciary standard and the impact it would have on the company’s finances.

“We have some things we want to invest in; one of them is the Department of Labor. It is what we would say is the biggest change in the brokerage industry in many years, some would say since the deregulation of commissions, which is over 40 years [ago],” he explained.

In the latest quarter, TD Ameritrade’s institutional channel had slower growth from existing RIAs “as a result of the market conditions,” Tomczyk said during the call. “That said, our new RIA sales pipeline is quite strong.”

He added that the firm does not believe the growth trend in the RIA model is slowing down overall, “and advisors remain optimistic about their outlook for the future, as well.” Still, he acknowledged that the DOL rule created uncertainty in the advisor field.

The CEO explained on the call that asset flows into Amerivest Portfolios and AdvisorDirect advisor service slowed in the quarter ended March 31, as was the case for flows to existing RIAs. More DOL Views

Tomczyk was upbeat on some updates made to the final DOL fiduciary rule: “For example, we were happy to see that they eliminated the list of permitted assets in the best interest contract exemption, which now allows investors to trade options in IRAs as appropriate,” he said during the call.

The firm will be reviewing the details of the 1,000-plus page rule earnestly, he added: “IRA rollovers and education are two areas that we’re focused on, and we’re investigating the best ways for us to sell to and to service IRA clients in light of the new rule.”

Still, TD Ameritrade is optimistic about what the broader changes represent. “We do think our business model is in a relatively good position inside the overall brokerage industry to adjust to this, and we do see opportunity relative to other players in the market,” Tomczyk said.

As for the costs involved, CFO Steve Boyle says the firm expects to add some internal staff and consulting expense in the short term. Major implementation efforts would be planned for 2017, he told analysts.

The CFO agreed that the firm’s combined investment in advice products and DOL issues is likely to be $20 million to $25 million per quarter. We do have some additional incremental investments that we’re going to do in the second half of the year,” he said.

Specifically, Boyle acknowledged that the firm is “looking at 2% year-over-year increase in expense, so still fairly modest, but definitely a ramp-up in the second half on the non-marketing piece versus what we’ve seen previously.”

— Check out Schwab Profits Up 36% in Q1 as Assets Flow Into ETF, Robo Platforms on ThinkAdvisor.