TD Ameritrade to keep waiving money-fund fees

TD Ameritrade Holding Corp. will continue waiving fees on many money market funds for the rest of its fiscal year to ensure that clients who sweep cash into the funds don’t lose their principal, the company’s chief financial officer said today. The Omaha, Neb.-based discount broker said in January that it had begun waiving fees on several funds to deal with the rock-bottom returns that Treasury and most other money-market funds have been yielding. The fees on top of the low returns would yield a flat or negative return on many funds, the firm said. “Fee waivers are built in for the balance of the year,” William Gerber said at an investors’ conference in Florida today. He described the decision as one of several “head winds” affecting the brokerage firm’s revenue, since advisers and other clients park billions of dollars in the funds and tend to increase those holdings when equity markets fall. TD Ameritrade, along with other brokers and clearing firms, also are suffering declines in margin loan revenue as clients borrow less and interest rates on the loans fall. TD Ameritrade’s margin loan balances have been cut in half to about $4 billion, and “the rate has been dramatically cut as well,” Mr. Gerber said. He did not disclose the number of funds or assets affected by the fee waivers, but a TD spokeswoman said clients had about $30 billion of assets in money market funds at the end of the firm’s first quarter in December, with almost 90% in Treasury funds. The waivers apply primarily to the Treasury funds, she said. TD Ameritrade is not alone in waiving fees or making adjustments to its funds. The Charles Schwab Corp., the San Francisco-based discount broker and the biggest custodian of registered investment adviser assets, began waiving fees on its large U.S. Treasury Money Market Fund in January, and also stopped taking new assets. The fund, which is currently yielding 0.01%, had about $30 billion of assets as of the end of September. In another effort to assuage fund investors, Schwab on Feb. 28 lowered the expense ratio cap on its Schwab Hedged Equity Fund to 1.49% from 2% for "investor class" shares, and to 1.33% from 1.77% for "select class" shares. The fund follows a long/short investment strategy, and its fees are now "significantly lower" than the average fund in that category, Schwab said. Schwab recently announced that it would no longer custody alternative assets — including most hedge funds — for RIAs because of expected new regulations that could raise its potential liability. Mr. Gerber said it’s not all bad news at TD Ameritrade, which has been rapidly attracting new assets from clients in its self-directed, branch and RIA channels. In its first fiscal quarter that ended in December, net new assets totaled almost $8 billion, after climbing almost 100% in 2008 over the previous year, to $23 billion. TD Ameritrade says it is the largest discount broker by equity trades executed and the third-largest custodian of RIA assets after Schwab and Boston-based Fidelity Investments. Most of the new assets are coming from clients discontented with large brokerage firms, Mr. Gerber said, referring to “large wirehouses” without specifically naming such competitors as Citigroup Inc.’s Smith Barney, Bank of America Corp.’s Merrill Lynch and Morgan Stanley. “I think the dislocation that’s going on in New York is not over, and we expect that we will continue to benefit from that,” he said. TD Ameritrade, which earlier this year cut overhead by about $60 million through layoffs and other expense programs, consistently generates pre-tax profit margins of about 50%, which Mr. Gerber said is “spectacular” for any industry. He also said that the company has enough free cash to continue its aggressive program of acquisitions. Shares of TD Ameritrade were up nearly 9%, or 91 cents a share, to $11.54, in late morning trading as most financial stocks rose.