TD to RIAs: We’re still on your side

TD Ameritrade Institutional continues to leverage one factor that distinguishes it from its larger competitors for the assets of advisers: its advocacy efforts

TD Ameritrade Institutional continues to leverage one factor that distinguishes it from its larger competitors for the assets of advisers: its advocacy efforts.

The custody unit of TD Ameritrade Holding Corp., which $140 billion in assets, is running a distant third behind the two behemoths of custody: Schwab Advisor Services ($655 billion) and Fidelity Institutional Wealth Services ($496 billion).

TD Ameritrade officials want to be seen as doing right by advisers, and haven’t been shy about speaking up for what advisers want.

During the opening session at the firm’s national adviser conference in San Diego last week, Tom Bradley, president of the custody business, and Fred Tomczyk, chief executive of the holding company, reminded advisers of the firm’s advocacy efforts.

“There’s no question” that the firm’s advocacy has given it some separation from competitors, Mr. Bradley said in an interview at the conference.

“We were a pioneer in [the fight against] the broker-dealer exemption rule,” which exempted fee-based brokerage accounts from the Investment Advisers Act of 1940, he said. “We were the only one to come out against it.”

The exemption was rejected by a federal appeals court in 2007.

Last week, the firm urged its adviser clients to tell their elected representatives to speak up on another hot issue: keeping the Securities and Exchange Commission as the main regulator of advisers.

BACKS USER FEES

The firm offered up a sample letter for advisers to send to elected officials. The letter supported the use of user fees to pay for expanded examinations.

“I think it’s going to go the direction” of user fees, said Skip Schweiss, managing director of adviser advocacy and industry affairs at TD Ameritrade.

“One thing Congress isn’t going to do is give the SEC a bunch more money,” he said.

Mr. Schweiss, who also is president of TD Ameritrade Trust Co., estimated that user fees for a typical retail registered advisory firm probably would be several thousand dollars a year.

TD Ameritrade officials acknowledged that the Financial Industry Regulatory Authority Inc. likely will play a role.

“In the near term, we think the right way to go is to have the SEC and the states examine pure RIAs and outsource to Finra the dually registered advisers,” Mr. Bradley said.

Finra examiners would have to be instructed on the differences between advisers and brokers, and the SEC’s own hiring and training program “needs to be carefully examined and enhanced,” he said.

TD Ameritrade supports a fiduciary standard of care when advice is given, but not in a pure selling environment, such as discount brokerage, institutional sales or offering products to sophisticated investors, Mr. Bradley said.

“When the [fiduciary] model becomes conflicted, is when [full-service brokerage firms] produce products that their brokers don’t want to sell,” he said. “That’s where things get complicated.”

The list of advocacy projects on which TD Ameritrade has worked is extensive.

Mr. Schweiss said TD Ameritrade was successful in getting the SEC to back off from some onerous aspects of proposed changes in the custody rules. A final rule went into effect last March.

And the firm has supported Labor Department rules to eliminate conflicts in selling higher-cost funds to 401(k) plan participants, Mr. Schweiss said.

The firm also has been involved for years on issues involving best execution.

A session at the conference on market structure was well-attended by advisers, who saw ETFs get hit hard in the flash crash May 6.

“ETFs are the No. 1 target” for reform, said Chris Nagy, managing director of order routing strategy at TD Ameritrade, who has been the firm’s point person on best-execution issues.

The firm also wants to see wider use of circuit breakers for more securities so that trading stops temporarily if a stock moves up or down more than 5% from the opening trade, he said.

“I’m a big proponent of a consolidated audit trail,” Mr. Nagy added.

Last month, TD Ameritrade filed a rulemaking petition with the SEC, asking for reforms in how stock exchanges price and distribute market data. The firm thinks costs are too high and the data are too limited to provide a transparent view into the equity market, where the displayed best prices may have little depth.

Of course, speaking out on behalf of advisers won’t be enough to attract new advisers and assets.

“We will continue to focus on organic growth” by focusing the firm’s resources on marketing, service and technology,” Mr. Tomczyk told attendees.

HIGH ON TECH

On the technology front, 11 outside software vendors demonstrated products they have developed to allow integration with TD Ameritrade’s platform.

The custodian is pursuing what it says is a unique strategy of offering vendors access to its databases — after those vendors have passed a security screen — so the outside developers can work with TD Ameritrade’s systems.

It hopes to attract more software providers and, as a result, more advisers.

With a total asset base of $386 billion and strong gains in new assets this year, TD Ameritrade is on track to reach $400 billion in total assets (including its discount business) in the first quarter of this year. That would be almost double the $210 billion the firm had during the 2008 financial crisis, Mr. Tomczyk told advisers.

Advisers account for about 66% of the firm’s net new asset growth.

The $400 billion, “for us, will be a milestone,” Mr. Tomczyk said.

E-mail Dan Jamieson at [email protected].