To make up ground, Vanguard Group also partnered with Newport Group

May 8, 2018 — 12:40 AM UTC by Brooke Southall


TD Ameritrade Institutional will be the exclusive custodian to RIAs managing assets on Vanguard Group's recordkeeping platform who prefer more sophisticated choices and performance reporting.

The arrangement between the Omaha, Neb.-based broker and the Malvern, Pa.-based index giant, which involves transferring about $3 billion of assets to TD, may also help some RIAs regain a perk they lost last year -- the ability to trade Vanguard ETFs for free. See: TD Ameritrade angers RIAs who feel 'blindsided' after TD Ameritrade's actions prompt the departure of all Vanguard and some iShares ETFs from its NTF platform.

The two firms have a history of comity going back to 2003 when Vanguard quit the RIA custody business and sent $10 billion of assets into TD's custody care. Vanguard asked that the cash be put in the Vanguard money market fund. 

Now, according to the April 25 release, "plan sponsors may elect for their participants using a brokerage window that have also partnered with a financial advisor to grant access to their portfolios through Veo-TD Ameritrade's dedicated account management and trading platform for advisors." See: TD Ameritrade shocks RIAs most accustomed to its largesse with a letter, a contract and a tight deadline to sign.

Go Veo

The other part of the deal gives plan participants the opportunity to invest for themselves. Any RIA that wishes to assist one of these investors must custody assets with TD Ameritrade. See: TD Ameritrade launches a 'Goldilocks' 401(k) approach aimed at competing with big wolves -- like Fidelity and Schwab.

Before TD Ameritrade took custody of these assets they resided on Vanguard Group's own discount brokerage platform -- albeit one with a significant drawback: "It wasn't built for the institutional plan sponsor," says Laura Edling, spokeswoman for Vanguard. See: Vanguard's new CEO Tim Buckley hints the next move for his firm's RIA's 30-basis-point fee may be down, down, down

Under the new arrangement RIAs will still have access to the commission-free ETFs TD took off its no transaction fee platform during last fall's reboot. Most of those Vanguard funds were replaced by cheaper ones managed by State Street. 

"This allows RIAs to manage the full book of business on Veo before they had to log on to Vanguard," says Edling. " See: Vanguard Group gets under RIAs' skin by launching ETFs supposedly aimed at helping them.

Advisor confidential

The deal follows the template of an arrangement TD has with other providers.

"RIAs that custody at TDAI will have access to manage their individual client’s Vanguard 401(k) brokerage account utilizing Veo," writes Kristin Petrick, director of marketing and communications at TD Ameritrade, in an email. 

"We currently offer this feature to over 20 different service provider relationships that use TDA’s 401(k) brokerage window. We do not promote this feature, but make advisors aware in case they have clients that have access to a TDA 401(k) brokerage window. " See: TD Ameritrade calms the RIA Twitter storm but not questions about the spreads on the ETFs replacing the super-liquid Vanguard and Core iShares.

The TD-Vanguard deal is part of a larger Vanguard initiative to appeal to plan consultants who choose and advise plans, Edling says.

"I think it’s fair to say that we’ve seen an increasing number of plan sponsors partnering with consultants to help them navigate the many decisions surrounding their 401(k) plans, from investment options to plan design and changing regulations."

As part of the effort to abide consultants, Vanguard is partnering with Walnut Creek, Calif.-based Newport Group Inc. to manage non-qualified assets, which are assets invested using after-tax dollars. See: How Merrill Lynch 'shot to hell' the RIA fiduciary citadel by casting its $7.5 billion fiduciary 401(k) unit as smaller, purer and more future-minded on paper.

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