Last week, E*Trade announced its first foray into the registered investment advisor custody business, acquiring Denver-based Trust Company of America for $275 million. Most TCA advisors had a positive view of the news and weren’t worried about potential competition with the company’s discount brokerage.
TCA, with 180 RIAs and about $17 billion worth of institutional assets under custody, has long differentiated itself from the big box custodians, billing itself as one that doesn’t compete with RIAs by having a discount brokerage or an automated advice platform. E*Trade has both. But so far, that isn’t scaring off TCA advisors.
“While there is always some level of anxiety around a change like this, E*Trade should be able to bring additional resources and technologies to the table to enhance both the advisor’s and client’s experience over time,” said Byron Green, president of Green Investment Management in Fort Worth, Texas.
“This is a great opportunity for all of us to be creative and develop new and better solutions and processes to help clients with all of their financial challenges,” said Rick Peterbok, CEO of Interactive Financial Advisors in Chicago.
For one thing, TCA will be able to leverage E*Trade’s technology, Peterbok said.
“It’s such an expensive issue for everybody to deal with, that TCA would’ve been caught playing catch-up with a lot of things,” he said. “And with a new partner and owner, they have the availability of a lot of things that they just didn’t have.”
“E*Trade brings to the table their outstanding retail account-owner interface along with $307 billion in AUM that is not currently under advisement,” said Ronald Colson, president of Colson Financial Group in Bellingham, Wash.
E*Trade’s discount brokerage will also bring a built-in source of referrals for folks who have more complex needs, Colson said.
“E*Trade was previously lacking the ability to refer ‘orphaned’ account owners to providers of investment advice who would then continue to custody those client accounts with them,” he said. “TCA advisors will be able to significantly grow our AUM in a very short period of time with a relatively low cost of new client acquisition.”
In fact, Colson said he already has a strategic growth plan in the works to staff-up and build-out his firm in preparation for the rapid rate of AUM growth.
Peterbok is a little more skeptical of the referral opportunity.
“That’s the big implied benefit: They’ve got one million people on the books, and everybody’s eyes light up and think, ‘Wow they’re going to all come my way,’” he said. “I’m a firm believer that that’s great, but it’s going to always be the old-fashioned way. You work to go out and develop relationships and to be able to have this funnel that’s going to come in your door ready to sign and do business, I think it’s nice to hear, but I think it’s totally irrelevant to me anyway.”
E*Trade has always been an online player and doesn’t have many retail branches.
“So I think people are less worried about E*Trade just because the road ahead for them to build branches, to hire advisors, to do all that stuff would be so much work, and it’d be expensive,” said Tim Welsh, president and founder of Nexus Strategy. “The only reason advisors get disturbed is when branches have an alternative; there’s a person sitting there that can offer asset allocation advice, can offer managed accounts, can offer wealth management services at a lower price than they can.”
That said, Robb Baldwin, founder and CEO of custodian TradePMR, maintains that having both retail and wealth management under the same roof presents some sort of conflict of interest.
“The retail channels are just as aggressive to go after existing clients in the wealth management division as they are to go after clients at a separate firm,” Baldwin said. “So it makes it competitive for those advisors in areas where there’s a lot of retail facilities nearby their offices.”
While E*Trade is currently letting TCA operate autonomously, Baldwin said it makes logical business sense to move advisors’ assets onto the E*Trade brokerage system. TCA is currently on a trust company accounting system, so advisors don’t have the ability to move positions and accounts to another firm through the Automated Customer Account Transfer service. It costs each advisor $25 per position in the customer account to move assets from TCA to another custodian.
“So it’s a tough pitch to move an advisor from TCA,” Baldwin said. “I think that’s an advantage if they do move to the E*Trade system, and they move to the brokerage account, it’s an advantage for these advisors because it does allow them the flexibility to move assets around at will without having to go through the tedious process or the expense that could be generated by having 50 positions in a customer account.”
“If E*Trade wants to play friendly and everything gets done right, heck, it could be a big, good deal for everybody,” Peterbok said.