TD Ameritrade Courts Brokers Seeking A Break from Bulge-Bracket Banks

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TD Ameritrade Holding Corp. has signed on 260 Registered Investment Advisors (RIAs) so far this year, and is still going strong converting brokers to its custodial and trading model as more and more wirehouse brokers and independent broker/dealers search for new ground.

To be clear, the brokerage is not hiring RIAs but getting them to sign on for TD Ameritrade Institutional's independent brokerage support services, including the proprietary trading platform and custody services it currently offers to over 4,000 fee-based, independent RIAs and their clients.

This year's "breakaway" brokerage hires are up roughly 20% from 2010, and the trend shows no sign of abating, says Tom Nally, managing director of sales at TD Ameritrade Institutional in Dallas, whose firm is based in Jersey City, N.J.

Fueling the trend, he says, is an interest among both advisors and their clients in migrating from the so-called "suitability" standard of care which bankers use when offering advice, and the more comprehensive fiduciary standard with which all RIAs must legally comply.

The difference is well known to everyone in the business of doling out brokerage and planning advice: Even the best wirehouse brokers at major firms may end up selling customers on products their managements are hot on at the moment (and where commissions are more generous), so long as they can argue that the investments in question are suitable, given their client's objectives.

Fiduciary Responsibility

The gold standard, however, as Forbes recently pointed out, is the fiduciary standard: RIAs are required to act as fiduciaries, and that means they have the legal obligation to act in the customer's best interest at all times.

A key reason for the breakaway trend among brokers themselves: They're concerned that regulators will determine that all brokers will need to act as fiduciaries before long in order to comply with Dodd-Frank, Nally told eFinancialCareers. The Act, enacted last summer, gave the Securities and Exchange Commission, the task of studying the idea of making brokers fiduciaries.

It isn't only brokers who care about the way their relationships are couched, of course: Clients are also after "a more transparent," fiduciary type of relationship," says Nally.

As far back as 2009, advisors began reporting that their clients were quickly losing less confidence in the big banks, after watching firms like Lehman and Bear Stearns crash and burn, and were making the switch, in many cases, to RIAs and other independent advice-giving firms.

Executives at big brokerages have said the breakaway broker movement has been exaggerated, and Bank of America's Merrill Lynch said this week it expanded its own brokerage ranks by 546 during the latest quarter.

But Nally says the numbers don't lie. "We've just done a survey of RIAs and it shows that 56% of new RIA assets came from broker/dealers and wirehouses during the six month period from December 2010 to May 2011. Part of that reflects the fact that the big banks are so rich in assets to begin with, of course.

At the same time, however, popular advisor publication Investment News reported last week that "With the flood of new regulations facing investment advisers, clearing and custody firms [like TD Ameritrade] are taking on a larger supporting role for their clients, doing everything from lobbying in Washington to the nitty-gritty task of preparing for new cost basis rules."

Heading up the lobbying agenda are fiduciary standards being worked out by both the SEC and the Labor Department, and the role a self-regulatory organization might play in overseeing advice-givers. Some believe The DOL likely will have a final rule approved by the end of the year. The SEC's proposal, meanwhile, may be available for comment before 2012 as well, though delays are legend when it comes to such regulation.

How to becoming a Fiduciary

Becoming a fiduciary is no bed of roses: It requires that you fulfill a certification process and promise to uphold prudent investment guidelines and practices as delineated by the state. But today, more and more brokers are deciding they want to do just that, Nally says.

Pay for Ameritrade support services come from trade commission fees. "Our business model is different from an independent broker/dealer that may take a percentage of revenues for providing access to technology, compliance and insurance support services. RIAs keep 100% of their revenues," under the Ameritrade model, says a company spokeswoman.

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