Since dropping commissions for online exchange-listed stock, domestic and Canadian exchange-traded funds and option trades Oct. 3, TD Ameritrade experienced a 49% increase in average daily new account openings compared with what was seen in the quarter ending Sept. 30 prior to the change, according to the firm.
At the same time, according to Tim Hockey, its CEO and president, the firm has seen a “wave of price-sensitive” customers “coming home” to TD Ameritrade after transferring some or all of their assets to rivals over the years, he said Tuesday in his commentary on the quarter’s results that were posted on the firm’s website. Those clients ranged from smaller accounts to those with multimillion-dollar portfolios, he noted.
Hours after Schwab announced plans to eliminate commissions on online trades for stocks, ETFs and options starting Oct. 7, TD Ameritrade said Oct. 1 that it planned to do the same, albeit four days earlier, on Oct. 3. Like Schwab, TD Ameritrade is now charging 65 cents per contract for options trades.
While it’s “possible that the lower price point could have an impact on trading volumes,” Hockey said Tuesday it was “too soon to identify any definitive trends.”
TD Ameritrade had an offering in the late 1990s and early 2000s called Freetrade, whose clients were “significantly more active than our core client population,” he pointed out. But that was a “very different value proposition in a very different time, so it’s not likely that we’ll see exactly what we saw back then,” he predicted. The firm will, however, “monitor it closely,” he noted.
Meanwhile, “as we take stock of the new world of zero commissions… we see a number of opportunities for profitable growth,” CFO Steve Boyle said in his prepared commentary. Explaining one key part of TD Ameritrade’s strategy, he said: “Rather than trying to be all things to all people, we will focus efforts on our target customers we have identified as core to our retail strategy — those who are engaged in the investing or trading process, or who want a third-party RIA to manage it for them.”
Although TD Ameritrade stopped charging commissions on many trades, that “doesn’t preclude us from really understanding where there are opportunities to best charge for the value created,” Hockey went on to tell analysts on the firm’s earnings call Tuesday.
The company’s investment team, meanwhile, was “quite energized to not have that sort of sword of Damocles hanging over us, which is the price point,” Hockey told analysts. Although dropping commissions was “very painful and the revenue give-up wasn’t helpful at all,” he said it was “a bit liberating in terms of really trying to understand where we can create value for clients and then potentially charge for it.”
Indeed, Boyle said in his commentary that monetization could take the form of “recurring fees for premium services or charging for episodic advice.”
Hockey, noting that discount brokers like TD Ameritrade have been “winning share” from other brokers over the past 45 years, predicted “that trend will accelerate” as a result of $0 commissions.
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