Brooke’s Note: TD Ameritrade is the feisty number-three RIA custodian but it doesn’t act content to stay in that position. It tries different strategies and even, at times, seems to dig deeper into its pockets in its effort to close the gap. TD had plenty of updates to provide at its Elite Advisor Summit, which wraps up today. This article catches us up on the company’s ambitious plans to win breakaways and do it with an iconoclastic approach to providing technology to financial advisors and to how it interacts with the third-party vendors using API.
In April it came to light that TD Ameritrade Institutional was beating fellow RIA custodians to the big-breakaway punch by providing software at no cost, and both consultants and competitors have questioned whether the number three custodian could sustain the expensive practice.
The answer is yes. The Jersey City, N.J.-based custodian plans to judiciously make these deals available to certain prospective breakaways from independent broker dealers and wirehouses.
Yet in an interview Wednesday at the 2011 Elite conference, Tom Bradley took exception to the premise that the practice is the equivalent of offering financial inducements to RIAs to sign on the bottom line.
“The strategy behind the incentives is to provide value-added services that help the advisor achieve scale without growing their back offices,” said Bradley.
“Our strategy is to deliver flexible solutions to meet the unique needs of advisors who choose to work with TD Ameritrade Institutional,” said Kristin Petrick, spokeswoman at TD, in an e-mail. “That includes offering a variety of practice management and technology tools to help advisors run more efficient and effective practices, which is good for the advisors and for us.”
The effectiveness of providing free software as a means of cementing deals with breakaways was reported in two articles about TD’s success in winning five big advisory practices from Commonwealth Financial Network.
Bradley said that his firm will continue to provide technology to new clients on an ad hoc basis, not as a uniform policy. The firm does, however, consistently provide its iRebal rebalancing software gratis to new firms with $500 million or more of AUM. See: Tech Review: iRebal thrives after TD Ameritrade acquisition
The president of TD Ameritrade also commented, “We do less [of this] than the competition. It’s common practice to give pieces of tech to advisors coming on to a platform.”
But in the articles, advisors said that TD was at pains to be generous in the amount of technology they offered. Though advisors made the point that they didn’t join because of the financial advantages, they say that the tech inducements went a long way to convincing them that TD really wanted their business.
Peter J. Nagle, 60, took his assets to TD from Commonwealth as part of the process of becoming an RIA with an eponymous name in December.
“TD is impressive and their technology is great,” he said in an earlier interview. “They made a competitive offer and acted like they wanted the business. [The technology reimbursement] was a sweetener.”
Technology wants to be free
In line with this philosophy, TD has also been employing an open-code policy to enable its platform, Veo, to interact efficiently with third-party technology providers, and plans to continue that practice as well.
The open-code policy “gives us a competitive advantage,” says Bradley. “Advisors are fiercely independent. They don’t want to be told what’s the best system for them. Open up the platform, let companies decide and let them integrate with TD.”
To this end, TD has actively been working with vendors to make the Application Programming Interface sharing process more seamless, as evidenced by last winter’s summit with TD vendors and CRM and financial planning companies, says John Patullo, TD’s director of technology solutions. See: Third-party vendors vouch for TD Ameritrade’s API at first general session
Future releases of API, he said, will feature trading and transactional self-service features like the ability to submit check requests and make universal changes to address changes, etc.
“It’s about choice and efficiency. We think it breeds innovation in the marketplace,” Patullo says.
Bradley said that the firm’s core constituency, comprising a wide swath of RIAs with between $50 million and $500 million of AUM, represented the custodian’s fastest growing segment in terms of total business. Historically, TD has been known as a place where advisors came aboard with $50 million or less.
While Bradley declined to break out how many RIAs in each of the firm’s three segments: under $50 million; $50 million to $500 million; and $500 million plus, had joined TD this year, he did say that breakaway brokers across the asset groups were signing onto TD at the fastest rates.
TD has added 180 breakaway brokers in the last two quarters and is on track to sign up about 380 for the fiscal year ending October 31, according to the company’s projections. That compares with 207 in 2010 and 218 in 2009.