Having acquired four wealth-management firms in the past 18 months, E*Trade is still just getting started on its acquisition strategy, says Jon Foster, head of wealth management for the firm. “My wife may not stick around if I visit another 70 advisory firms this year,” he jokes. “But you can't find the right firms unless you visit a lot of people. And we're not slowing down, we're accelerating.”
Most recently, E*Trade purchased Dallas-based Retirement Advisors of America, which has $1 billion in assets under management and 1,300 clients. That acquisition brings E*Trade's total advised assets to around $3 billion. You might think the traditional online discount brokerage firm is getting something of a late start in the advice game. After all, Charles Schwab has been offering its clients financial advice through its Institutional division since 1987 and managed $406 billion in advised assets at the end of 2005. Indeed, the wealth-management marketplace is a congested one, with private banks, trust companies, wirehouses, independent broker/dealers and insurers all scrambling for the same boomer clients.
But E*Trade says that its own 3.4 million trading and banking clients have expressed an interest in discretionary advice, and this potential supply of referrals is very attractive to the small wealth-management firms E*Trade is courting around the country. Plus, the firm says it has found that demand is highest in the mass affluent category — individuals with $250,000 in assets — a niche that not all of E*Trade's rivals are eager to serve.
In addition to firms already acquired in Boston, Los Angeles, New York and Dallas, E*Trade is shopping for RIAs in Philadelphia, Washington, D.C., Atlanta, Orlando, Chicago, Denver, Scottsdale, San Diego, Orange County, Silicon Valley and San Francisco.
Seth Dadds, an analyst at Garp Research Corporation, who personally owns stock in E*Trade, says the new advice offering should help the firm gather greater wallet share of current clients. Clients in the firm's stock option administration program — which managed around $34 billion in vested unexercised options as of March 2006 — are a particular opportunity for the firm, he says. “Before, without a complete service offering, that was money that would leave E*Trade when the options were exercised.”