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October 24, 2016 at 10:52 AM
TD Ameritrade Holding Corp. (AMTD) said Monday that it is buying Scottrade Financial Services for $4 billion in cash and stock.
Both discount-brokerage firms have been expanding their work as custodians for RIAs and have a combined $945 billion in retail-investor and RIA-related assets.
The news had been anticipated for several weeks, and comes nearly a year after Scottrade founder and CEO Rodger Riney disclosed he was being treated for blood cancer.
The timing of the TD partnership, though, comes as rival Charles Schwab kicks off its yearly Impact conference for RIAs.
“It looks like they waited to make their noise … and steal a bit of the limelight [from Impact],” said Tim Welsh, president of the consulting group Nexus Strategy, in an interview with ThinkAdvisor, before his flight to the Schwab event in San Diego. “I haven’t seen any firm be as successful as [TD Ameritrade] is now … What a bombshell!”
The deal “makes a lot of sense” from a strategic point of view, according to Welsh, as TD Ameritrade tries to grab market share in the advisor space from Schwab, Fidelity and Pershing. “It’s a segmentation strategy.”
While TD Ameritrade and Scottrade attract advisors with less than $50 million in client assets, Schwab and Fidelity require that the RIAs working with them have this asset level or higher. Pershing, he adds, wants accounts of $250 million and up.
“TD Ameritrade is making a very strategic consolidation play at the bottom of the market by doing this,” Welsh explained. “They can grow and grow and even go after bigger RIAs. Economies of scale are important in this business.”
With rivals insisting on $50 million or more in RIA assets, “This leave the field open for TD Ameritrade to own the bottom half” of the market. And every $1 in custody is very profitable … It’s a brilliant play.”
