ETrade launches national adviser referral network

Giving advisers access to millions of retail investors expands the discount brokerage's move into the custodial space

Dec 18, 2018 @ 9:35 am

By Jeff Benjamin

ETrade Financial Corp. has launched a national adviser referral network to enhance its financial adviser custodial business.

The ETrade Advisor Network, which was cited as a driving force behind the custodial relationship ETrade announced last month with Edelman Financial Engines, is a national referral program that connects independent financial advisers to potential clients who need wealth management services beyond the scope of ETrade's in-house offerings.

The referral network is seen as a logical enhancement of the TCA by ETrade custodial business.

"This will be attractive to RIAs, because getting referrals is the hard part," said Alois Pirker, research director at Aite Group.

Referral programs have become staples for most custodians, but ETrade's launch might be particularly attractive because it offers potential access to a previously untapped market of millions of loyal online brokerage clients.

"The basic underlying trend is most of the clients are boomers, heading toward retirement and needing advice, and that need is growing by the day," Mr. Pirker said. "Most of those online platforms were started 25 years ago, at a time when you had a bifurcation of those seeking advice and those going to online brokerages. And the online brokerages did a good job of retaining those clients and tending to their needs. And they now need advice."

ETrade serves roughly 4.9 million brokerage accounts and 1.7 million stock plan accounts over the phone, online and in-person at 30 ETrade branches across the United States.

TCA by ETrade president Josh Pace has said that not all advisers who custody assets with the firm will be eligible for the referral program.

The referral network launches amid the rollout of a number of additional enhancements by TCA by ETrade, a provider of integrated technology, custody and practice management support, according to the announcement.

Most recently, TCA by ETrade nearly doubled the funds available in its ETF Custody Advantage program and added four third-party money managers to its Money Manager X-Change program, providing more investment choices to help clients pursue their financial goals.

The TCA by ETrade custodian business, which was formed through ETrade's $275 million acquisition of Trust Company of America in April, has secured more than $12 billion in commitments to its RIA platform and has added more than $2 billion in net assets under custody.

While Mr. Pace said ETrade's branch advisers will help identify which clients might be ready for a "full-blown adviser," the criteria likely won't hinge entirely on portfolio size.

"More and more advisers are leveraging technology to realize they can make small accounts profitable," said Joe Anthony, president of the marketing and consulting firm Gregory FCA.

The referral program was inevitable, Mr. Anthony said.

"As a custodian, you need to find a competitive advantage, and if you're late to the party you can at least match what's out there or bring something new," he said. "ETrade has the advantage of seeing what has and has not worked, and they have a chance to offer something better."

At Fidelity Clearing & Custody Solutions, there are 84 advisory firms participating in the Wealth Advisor Solutions referral program, according to Fidelity spokeswoman Nicole Abbott.

"The program provides participating RIAs with qualified referrals that align with their core offering," Ms. Abbott said. "It has helped participating firms grow both in terms of AUM and geographic footprint."

At TD Ameritrade Institutional, the AdvisorDirect referral program "has referred as much as $30 billion annually to our RIA clients," TD spokesman Joseph Giannone said.

TD has been able to tap into Scottrade's online brokerage business following the September 2017 acquisition, similar to the way that TCA and ETrade are leveraging the custodial and discount brokerage operations.

"With the addition of Scottrade, TD Ameritrade now manages more than 360 branches across the country serving more than 11 million individual investors, which we expect will increase the number of potential referrals to RIAs," Mr. Giannone said. "With our referral program, investors can determine whether they want the services of an RIA and then which firm represents the best fit."

Since most large RIAs have multiple custodian relationships, TCA by ETrade is hoping to move up the list of considerations.

Part of the bait could be ETrade's corporate services business, which administers stock purchase plans for 20% of S&P 500 companies, placing about $150 billion worth of vested and pre-vested stock on the ETrade platform every year.

But to ETrade's frustration, about 85% of those stock holdings leave the platform within 12 months of being vested to individuals with whom ETrade has no formal relationship, because its relationship is with the employer operating the stock plan.

Asked earlier this year about the lost opportunity of corporate stock plans, Matthew Wilson, senior vice president at brokerage ETrade, cited the potential of a referral program.

"The investors in the stock plans tend to need help with their bonuses and stock plans once they're vested, and we feel we can ... get those clients in front of RIAs to keep those assets in-house at ETrade," he said. "Having seen those types of programs at other custodians, it becomes an asset-gathering arm and a nice add-on service."

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