Deep-discount broker Scottrade is stepping up the marketing of its products and custody services to registered investment advisers.
Scottrade Inc., which charges $7 for stock and mutual fund trades and has no minimum asset levels for RIAs, launched an adviser services unit in 2005. But the firm is just now taking steps to differentiate itself from larger competitors.
Scottrade last week said it has broadly expanded its fund platform, tripling the number of no-transaction-fee mutual funds it offers advisers. About 5,000 of the 14,500 funds or share classes it offers carry no fees or waive loads for advisers, making the offerings comparable to those of large competitors such as The Charles Schwab Corp., Fidelity Investments, TD Ameritrade Holding Corp. and Pershing LLC.
“The enhancement was initially aimed at the needs of our advisers,” Carrie Trent, a Scottrade spokeswoman, wrote in an e-mail, noting that the upgrade includes screening tools and Lipper Leader ratings charts to help advisers evaluate funds by fee structures, performance and other criteria.
Picking up a marketing slant from its bigger competitors, Scottrade last week also issued an upbeat study showing that 49% of all RIAs in the United States reported growth in their client base over the past year, primarily because of their ability to attract assets from full-service brokerage firms.
Still a big gap
A large gap still divides Scottrade from bigger competitors. It has about 730 RIA clients, far below the more than 6,000 at Schwab and the more than 3,000 apiece at Fidelity and TD Ameritrade.
Brian Davis, manager of business development at Scottrade's custody business, said the firm has been adding about 20 RIA firms on a net basis monthly this year, and expects the pace to rise to 25 a month in 2010. He would not disclose assets under management that Scottrade holds, but said advisers with client assets under $50 million tend to be “underserved” by most custodians.
About 40% of Scottrade's adviser clients are new to the independent fee-oriented business, joining from full-service brokerage firms or from independent broker-dealers, he said.
Ms. Trent said the firm would not disclose the total assets managed by its RIAs, some of whom also keep assets with rival custodians, but the total is well behind the leaders', according to industry consultants.
Scottrade has been upgrading its technology and support offerings. Last year, it purchased a portfolio management software platform, Portfolio Director, to help advisers store and report client data and performance, and renovated its previously “archaic” website, said Ken Brackett, president of RIA firm Lighthouse Financial Advisory Group, which manages nearly $25 million of assets from about 60 clients. “They are constantly upgrading and taking more input on how the platform should look and interact with us,” said Mr. Brackett, who launched his firm almost three years ago and uses Scottrade as his prime custodian.
Scottrade also claims to be ahead of its discount-brokerage rivals in managing channel conflicts between its core retail and custody businesses. “We will never compete for your customers,” the firm's website for advisers blares. “Unlike other brokerage firms, our 400-plus branch offices do things differently. They will never offer advice, solicit or compete for your customers. You can rely on our branch network to provide assistance for you and your clients' online trading needs.”
A spokeswoman at Schwab declined to comment, and a TD Ameritrade spokeswoman did not return calls.
Fidelity's branch personnel are encouraged to refer high-net-worth clients to RIAs who keep assets under custody with the firm, and are not allowed to solicit RIA clients for direct business, said Stephen Austin, a Fidelity spokes-man.
Pershing does not have a direct retail-brokerage network that competes with RIA clients, though it is a major provider of clearing services to competing broker-dealers.
Scottrade still must persuade advisers that it has the bench strength and executive direction to support its offerings, an effort that was set back in late October when Doug Talir, the director of adviser services, left the company. “We are currently looking to add a new member to the leadership team,” wrote Ms. Trent. She declined to comment on the departure “out of respect for Doug's privacy.”
The firm's service teams generally support no more than 50 RIAs, Ms. Trent said, though levels of support grow with an RIA's assets.
“There are two people on my adviser service team and it's really personal,” said Derek Kennedy, president of Kennedy Wealth Management, who has worked with Fidelity and Schwab as custodians and declined to disclose his firm's assets under management. “Obviously, Scottrade has very low transaction costs, but their systems are very straightforward, and they don't try to hurry me off the phone, even with oddball requests.”
While Scottrade has been pitching its services largely to small and startup RIAs, it also has been working harder at getting a foot in the door with larger clients who work with rivals. “It has never made more sense to use multiple vendors for your custodial services,” according to its website. “Scottrade should be added to your list.”
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Its strongest weapon, of course, remains pricing.
Schwab and Fidelity this year introduced promotions that reimburse account transfer fees for new client accounts introduced by RIAs (it also waived commissions and reduced some technology service fees for those clients). The promotions end next year.
Scottrade introduced its transfer reimbursement program 18 months ago and has no plans to phase it out, Ms. Trent said.
'Hand-holding' needed
Independent advisers, of course, seek much more than cheap pricing from their custodians.
“They need all the hand-holding they can get,” said Robert Ellis, head of securities industry research at Novarica, a consulting firm for -broker-dealers and financial-technology providers. “You may be able to find one fee schedule more attractive than another, but people select their institutional provider on general support and, more specifically, on technology support.”
E-mail Jed Horowitz at jhorowitz@investmentnews.com.
