TD Ameritrade Reports Lower Profit, but, at RIA Unit, Breakaway Recruitment Is Up

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Profits and revenues fell at TD Ameritrade Holding Corp. last quarter as trading waned at the discount brokerage, but Chief Executive Fred Tomczyk said TDA Institutional has brought on 260 breakaway brokers over the past three quarters, a 20-percent increase year over year. Net new assets last quarter reached $7.9 billion, down from $11.5 billion in the preceding quarter and $8.9 billion a year earlier.

Tomczyk told analysts during today’s conference call on the earnings report that TDA was seeing breakaways from both the wirehouse and independent b/d channels. Such growth has been commented on in the past; in April Tomczyk said the company saw 95 breakaway brokers sign up in the preceding quarter, bringing average initial assets of $30 million each to the custodian platform. In his comments to analysts today, Tomczyk didn’t say how much in client assets they had brought along with them; the company also doesn’t break out how much of its assets are being custodied for registered investment advisors as opposed to retail investors. (About two-thirds of the company’s assets are retail, and the rest institutional.)

“The pipeline’s very big right now,” Tomczyk said. A struggling economy, the prospects for regulatory changes, layoffs at wirehouses, and the fading influence of retention bonuses are all creating more uncertainty for advisors, he said, an uncertainty that the RIA business model speaks to. “In the long run, that is the model that most advisors see as the endgame for them personally and also for their clients.”

Average client trades per day last quarter were about 370,000, down 15.8 percent sequentially and 10.6 percent year over year. Transaction-based revenues of $281.6 million were down 15.5 percent year over year, while asset-based revenues of $372 million rose 15 percent. Charles Schwab Corp. reported similar trends in its trading activities as well this week.

“With trading commissions and transaction fees accounting for nearly half of overall net revenue, we believe that TD Ameritrade’s earnings growth will remain tied to the health of the overall stock market for some time,” Morningstar analyst Gaston Ceron wrote in a note on Monday. A successful effort to attract RIAs “would bring greater stability to TD Ameritrade’s revenue and would allow the company to position itself as a more attractive venue for investors with longer-term horizons.”

TD Ameritrade reported third-quarter net income of $157.4 million on revenues of $684.8 million. For the comparable quarter a year earlier, it had net income of $171.7 million on revenue of $718.2 million.