United Capital's chief executive, Joe Duran, admits that three years ago, he would not have considered putting any of his millionaire clients' money with TD Ameritrade Institutional.
But his firm, which has around $10 billion in assets under management, is now in the midst of transferring some of its largest accounts, each worth about $10 million in assets, to the custodian, which Mr. Duran said has become a clear competitor in the ultrahigh-net-worth space.
“Frankly, we've never taken them that seriously until two or three years ago,” he explained. “Now we view them to be a legitimate alternative to Schwab or Fidelity.”
Mr. Duran's change of mind comes after TD Ameritrade spent the past few years upgrading its technology, introducing new software, such as its automated rebalancing program, iRebal, and tailoring its service to cater to large registered investment advisers and their wealthy clients. The firm is betting that more personalized, concierge service and new trading options will help it evolve beyond the mass-affluent market and give it a crack at a more significant share of RIA assets.
“We are getting a higher-average- size adviser in the last couple quarters than we've seen historically,” TD Ameritrade's chief executive, Fred Tomczyk, said on an earnings call in July. “That's all because of things we've done with iRebal, the strategy desk, the technology — all those things that have allowed us to move up to bigger advisers.”
STIFF COMPETITION
TD Ameritrade, which holds around $300 billion in RIA assets, has lagged behind some of its large competitors, including Schwab Advisor Services, Fidelity Institutional and Pershing in the size of the RIA firms it attracts.
TD Ameritrade has around 4,500 RIA accounts on its platform, which translates into about $67 million per account.
By comparison, market leader Schwab has about $1 trillion in assets under management and about 7,000 accounts, which averages to $143 million per account.
TD Ameritrade Institutional president Tom Nally said the firm has accounts of all sizes, up to its largest client with $12 billion in assets. He acknowledged, however, that the firm has spent a lot of time adding tools and technology that will appeal to the higher end of the market.
“I don't want to say that we've been moving upmarket because that would seem like we have turned our back on the emerging market,” said Mr. Nally. “But we've expanded the scope.”
“The average RIA at TD used to be very small,” said Alois Pirker, a research director focused on wealth management at consulting firm Aite Group. “Now you see that average going up as they have been pushing toward addressing more of the bigger firms in the RIA space and giving Fidelity and Schwab more of a run for their money.”
TD Ameritrade's move to attract higher-end advisers comes as the largest RIA firms control more and more of the wealth management market. Firms with more than $1 billion in assets now control 54% of the market, up from 42% in 2008, according to research from Cerulli Associates Inc.
The move upmarket also presents an opportunity to capture growth from more wirehouse breakaways with a higher-net-worth clientele, according to John Furey, an industry consultant with Advisor Growth Strategies.
Schwab draws around 170 adviser teams per year from the wirehouses, according to the chief executive of its RIA custody business, Bernie Clark.
Unlike Schwab, TD Ameritrade does not track moves by teams but by individual advisers. The firm brought in 389 breakaway advisers during the last fiscal year. The total assets those assets brought with them climbed 68% from the previous fiscal year, according to the firm’s spokesman, Joe Giannone.
“The ultrahigh-net-worth approach to me is essentially a way of going after the larger advisers,” Mr. Furey said. “To grow at the rate that they've been growing, you need to be able to access bigger advisory firms.”
Two years ago, TD Ameritrade introduced a new service model known as the relationship service cell. It was the firm's own take on what already existed at some of its bigger rivals and offered larger advisers on the platform their own dedicated relationship manager and operations support staff.
“They have a team that deals with different aspects of wiring money out, or rebalancing an account, cashiering functions, or just the regular needs of a client,” Mr. Duran said. The company is “much more service-oriented and not as much sales-oriented.”
Around the same time, TD Ameritrade rolled out two new technology tools for RIAs on its Veo account management platform: thinkpipes and StrategyDesk. StrategyDesk allowed advisers to customize formulas to back-test trade strategies and set up screeners and alerts, while thinkpipes provided advisers with some additional portfolio management risk analysis and the ability to place more complicated orders and options trades.
TD also rolled out its iRebal automated portfolio rebalancing and tax-loss harvesting software to all advisers on its Veo platform.
Matt Cooper, a founder of Beacon Pointe Advisors, custodied only about $10 million with TD Ameritrade in 2005, and now holds almost $2 billion of Beacon Point's $6 billion in assets there.
TD Ameritrade's software has become better at aggregating clients' various IRA or trust accounts onto one master account, which is helpful for wealthy clients who can have multiple owners or households within one account, Mr. Cooper said.
TD Ameritrade brought other advantages to the market. For instance, it did not require steep asset minimums to open new accounts. Other custodians did, which was a lot to ask Beacon Pointe, as it wasn't regularly bringing in $100 million teams then, Mr. Cooper said.
Both Mr. Duran and Mr. Cooper pointed out that TD Ameritrade does not have its own advisers, and that made them feel more comfortable with TD over some of its competitors. Schwab, for example, has about 1,100 financial consultants who can work with clients in Schwab branches. Some see the in-house advisers as potential competitors.
Schwab executives deny that they are acting in the same capacity as investment advisers who custody with the platform.
While TD Ameritrade has 150 to 200 advisers in its bank channel, they are not viewed as competitors for a full-service adviser, Mr. Cooper said.
Mr. Furey said TD Ameritrade's challenge will be to get its name out to larger wirehouse breakaway teams.
“Pershing is attractive to those wirehouse [brokers] looking for more esoteric things like currency trading,” he said.
Mr. Duran agreed, saying growth will have to be driven by transitioning advisers since large firms already holding their assets in one place generally won't switch custodians given the transfer costs.
