E-Trade Financial Corp. says it has struck a deal to buy Trust Company of America (TCA), which provides custody services and technology to the independent RIA market, for $275 million in cash.
Denver-based TCA has some $17 billion in institutional assets under custody and more than 180 RIAs on its platform as of Sept. 30. These RIAs include about 7,000 financial advisors.
“I am pleased to announce the acquisition of TCA, a leader in their field, which will help us tap into a growing segment of our industry, and bolster our ability to attract and retain customers in need of higher-touch services,” said E-Trade CEO Karl Roessner in a statement.
“TCA’s superior technology solutions in the RIA space are a natural complement to the cutting-edge digital experiences we offer to retail investors,” Roessner said. “Beyond the ability to offer enhanced services to certain segments of our client base, we are confident that the extension of the E-Trade brand will provide the TCA team with some additional firepower to accelerate growth.”
E-Trade says the transaction should be neutral to earnings in 2018 and accretive in 2019. It plans to close the deal in the second quarter of 2018, subject to customary closing conditions and regulatory approvals.
At least one industry insider questions the price tag being paid by E-Trade.
Michael Kitces, partner of Pinnacle Advisory Group asked on Twitter Friday: “TCA had $17B of custody assets. At 0.25% [of] 12b-1/sub-[transfer asset fees] that’s $42.5M of revenue. E-Trade bought for 6.5X rev???”
“Trying to figure out massive ‘hidden asset’ in the TCA deal to justify this? Not a bad company to buy at all. But $275M for $17B assets?” he added.
One advisor, Kim Miller, CFP, replied that E-Trade’s motivation was centered on “captive trading volume.”