Head of discount brokerage's custody arm says larger firms already talking up the virtues of the financial instruments; expand 'beyond asset allocation'
Advisers need to boost their use of options — or possibly risk losing business to larger rivals.
At least, that was the message coming from J. Thomas Bradley Jr., president of TD Ameritrade Institutional, who spoke Thursday at the National Association of Personal Financial Advisors' national conference. He warned that advisers at larger outfits already include options in their client pitches.
“You're up against these big firms, and they're going to be talking about this stuff,” he said.
In fact, advisers have more than doubled their use of options over the past two years, TD Ameritrade data show. From January to March of this year, daily average option trades were up 142% over the comparable period in 2008.
But Mr. Bradley thinks advisers should ramp up their use of options even further. He said the derivatives can help advisers generate more income, boost returns for clients and protect their portfolios on the downside, as well as compete more effectively against broker-dealers. “The pitch needs to be expanded beyond asset allocation,” he said. “You need to show how you are smarter and better than the folks down the street.”
While touting the virtues of options, Mr. Bradley also sounded a warning about their use. “You need to educate yourself on this,” he told attendees, noting that the dangers of getting something wrong are serious.
“Every major error that I've seen since I've been in this business has had something to do with options,” he said. “It's very easy to make a mistake — a big mistake. You have to be careful, you have to know what you're doing.”
Mr. Bradley, of course, has an interest in promoting both the potential — and potential perils — of options. In June, parent TD Ameritrade Holding Corp. acquired thinkorswim Inc., an online brokerage that specializes in options trading. The latter also provides online investor education services, and plans soon to start rolling out modules aimed at educating advisers about the use of options. That rollout should start this summer.
