Charles Schwab 1Q16 Investor Update Notes

The Charles Schwab (SCHW) Walter Bettinger – President & CEO

Clients really didn’t even panic during the first half of the quarter

“Interestingly, client cash balances remained relatively consistent, they grew pretty much in proportion to organic overall client growth that indicating, I think, the clients really didn’t panic even during that first half of the last quarter.”

You’re not going to see an accelerant away from active in the RIA space as result of DOL because that’s already been happening for 10 years

“I don’t think that you are likely to see an accelerant in the RIA space away from active because largely that’s played out already over the last ten full years and you have seen it in the declines one source balances from the RIA, so I don’t think you see something meaningful that comes out of that. ”

Digital or online advice ultimately isn’t that differentiated

“With respect to the digital or online advice I am going to go back to the broader response I have had on that in the past which is you could possibly see some money moving that way but I just think that everybody is going to have if they don’t already everybody is going to have these types of products these types of solutions. And so, you might see some money headed that way but I would be surprised if you see major market share move as a result of it because it’s just not that differentiated in many cases from one firm to the other”

DOL regulation wont cause major shift in RIA pipeline

“I think the factors that have led to that and we all know that there is modes trend of brokers going independent and you don’t have the reverse occurring so that’s played into more accelerated growth in the RIA space than maybe the wire house space, but I don’t think the DOL regulation has much impact on that. ”

Doubt that there will be general market share shifts from the DOL regulation

“I have great doubts about major market share shifts coming out of this what I think will happen is people will change people, people firms will change their model if you trust your broker your adviser, and that person comes to you and says we have been working in the following way for the last 15 years together and now we are going to need to make a shift because the laws changed you are still going to be trusting that person and so when they tell you that we are going to do this differently the odds are not great that you are going to take that impetus to go out and find a new adviser or new broker. So there will be an economic hit potentially to both firms as well as individual broker advisers, but I have a I guess a doubt that you are going to see big market share move as a result if you do see market share move I like our position market share movement I like our positioning.”

TD Ameritrade FY 2Q16 Earnings Call Notes

TD Ameritrade’s (AMTD) CEO Fred Tomczyk on Q2 2016

Did see slower growth from existing RIAs

“The institutional channel delivered solid results this quarter but saw a slower growth from existing RIAs, as a result of the market conditions during the quarter. That said, our new RIA sales pipeline is quite strong. And coming out of our National LINC Conference in February, we won more opportunities than we ever have before. We do not see the trend towards the RIA model slowing down and advisors remain optimistic about their outlook for the future as well.”

This is the kind of environment that drives increased activity

“As we’ve said before, this is the kind of environment that drives increased client trading activity. April trades to date are currently averaging 454,000 per day. Those who are trading remain quite active. ”

DOL rules still need more analysis

“the details around the application of the fiduciary standard and its associated obligations still need to be more fully analyzed and understood. IRA rollovers and education are two areas that we’re focused on and we’re investigating the best ways for us to sell to and to service IRA clients in light of the new rule.”

call center people are all series 7 licensed

” all of our call center people that interact with clients are licensed. So that is — we made that change probably seven or eight years ago and have stuck to that. In fact when you start in our call centers today, you have six months to get license. So, they all have Series 7 license, that’s the first point. ”

The heart of the DOL thing is around compensation for conflicts of interest

” in the DOL the sort of a bias against conflicts of interest, particularly with respect to how you compensate your people. So, anybody that’s got differential compensation or advantageous compensation, the presentation of proprietary products versus non-proprietary products, I think that’s an adjustment they’re going to have to make but we don’t have to make that adjustment. ”

Building a lot of robo sort of capabilities

“Well, we continue to believe that Amerivest is core of our money management strategy. When you think about what we’re building out, we’re building out an enhanced experience including goal setting and goal planning, performance tracking against that goal, embedding education, portfolio allocation systems, account linking and live person and chats. So, we’re building on a lot of functionality inside Amerivest. And so that will be the core engine. We continue to believe that for the broadest part of the market, it’s the combination of the technology and with some human help that is the right model.”

TD Ameritrade FY 3Q15 Earnings Call Notes

No signs of breakaway broker trend slowing down

” We don’t see any signs of the breakaway broker trend slowing down. These advisors are attracted to our open-access technology model. We make it easy for them to move assets because they don’t have to worry about changing vendors, and we have the flexibility to add new technology as trends evolve.”

Margin loans at record levels and client cash at historic lows. People are increasingly turning to derivatives

“Margin loans are also at record levels and client cash as a percentage of total client assets remains near historic lows. In light of this low volatility in the equity markets, clients are increasingly turning to trading derivatives which were a record 44% of trades per day in the quarter and up 15% year over year.”

In a low volatility environment with most people fully invested, active traders are a higher percentage of volume

“Well, first off, I think we are in an environment where I think the retail investor is pretty fully invested and we’re having pretty low volatility in a narrow range market. So the market really is staying inside a very tight range. And so, when you have that kind of market, it’s really going to be your active traders trading certain symbols or names and using derivatives that are going to make-up a higher and higher percentage of your trade volume.”

We were surprised at how strong trading was given the low volatility. It’s picked up with the Greece resolution

“Now, to be quite honest, I mean, we were surprised at how strong trading was given how low volatility was during the quarter. And you can see so far in July, trading has been pretty strong with some resolution with respect to the Greece items, what’s happening with Greece and then it’s earnings season. So we’ve seen trading pick up a bit.”

Amerivest is robo-like but not robo

“we have Amerivest today which we would call robo-like but not a robo. And we believe in the best combination of digital and the human experience. We are investing to improve the investing experience, taking some things from the robo-advisors in terms of the ease of use, the leveraging of technology and newer technologies. And so, we think there’s lots of opportunity to improve the on-boarding experience and the post-sale experience, leveraging things that we’ve learned from the robo-advisors and in fact enhancing on those.”

Brokerage clients are not as sensitive to interest rate changes on cash yield

“our clients are just not as sensitive to interest rates on cash yield. That’s not to say that they are not sensitive to interest rates on margin loans or commission rates, but they are less sensitive on cash rates. And that’s been – we’ve had that – we’ve looked at it a number of times and continue to see that.”

Vs. robos, we think a combo of a person with a digital channel is the best way to target people who have money

“when we look at what the robos have done, I mean, you always look at new competitors and say is there something you can learn on it. We still believe that using the combination of a person with a digital channel which I think Vanguard is using and doing pretty well is the right combination and so we believe that’s the right model for the broadest part of the market for people that have money.”

Good luck on September’s potential rate hike

“Macrae Sykes – Gabelli & Company, Inc.
Great. And thank you. Best wishes for September’s potential rate hike.

Fredric J. Tomczyk – President, Chief Executive Officer & Director
Okay, well, thanks, Mac.

William J. Gerber – Chief Financial Officer & Executive Vice President
We’re hopeful.

Fredric J. Tomczyk – President, Chief Executive Officer & Director
We’re all hopeful.”

TD Ameritrade FY 2Q15 Earnings Call Notes

Probably not going to get higher rates in 2H

“the tailwinds with higher rates that we were expecting in the latter half of the year appear to have been delayed. At the beginning of the year, the expectation from economists was that the Fed would begin raising rates in June of 2015. Today, it appears unlikely that that increase will take place within our fiscal year.”

Going to have to take down guidance

“The yield curve has also flattened. The forecast at the start of 2015 was for the seven-year swap rate in March to be 256 basis points; instead, it’s at 179 basis points. If these new revised macroeconomic expectations hold true over the next six months, we would expect earnings per share to come in within the lower half of our guidance range for the year.”

Clients remain invested. Cash at 13.6%

“Cash as a percentage of total client assets ended at 13.6% for the quarter as our clients remained invested in the markets. ”

Entering a historically slow trading period

“we are now entering the time of year where historically trading has tended to slow. So, we will see how this year shapes up.”

We set an algorithm for share buybacks each quarter

“At the beginning of each quarter, we set an algorithm. Bill and I sit down and decide what that is. And then, the shares either get bought or they don’t. And in the past quarter when we set it – I forget what the stock was, but it was obviously lower, and just the algorithm didn’t go off this quarter. As we come into the third quarter, the June quarter here, we’ll revisit that algorithm for the June quarter.”

Liquidity is more important than collateral

“all the clearing organizations, the central clearing organizations are starting to put in what I would call more pro-cyclical liquidity and collateral call provisions. And so, we just want to make sure we’ve got plenty of liquidity. I think when financial institutions have issues, usually if you have capital shortage you can get through it provided you can get through the short-term liquidity is the important thing.”

We’re planning for next year. The plan is to invest in technology

“where we are as a management team at this point will go into its planning cycle now for next year. And we’ve been pretty consistent that any of our investments all go into – basically it’s going to be technology initiatives, because we do believe the world’s changing, basically due to cloud computing, mobile computing, social media, data and analytics and we’re investing into all – three of those four trends. The cloud we’re not using as much, but the other three we’re using heavily, and developing things to use them heavily.”

Other option is to invest in sales and marketing

“second, has been either marketing and/or salespeople, and we will look at both of those. And we continue to see good opportunities.”

International is an opportunity, but a lot of people have failed at it

“We continue right now, as we work through our strategy, look for what we call dealing with our opportunities. We see International as an opportunity, but there’s a lot of people that have failed at it. So, we want to make sure we’ve thought it through and we see it and we take baby steps before we take any major steps.’

Which way is the yield curve going to flatten long end down or short end up

“The hard part with this is which way the yield curve going to flatten, is the short end coming up or is the long end coming down, and worst of those two is the long end coming down. We certainly are more sensitive to the shorter end of the yield curve. So, worst-case scenario, longer end comes down, yeah, that’s going to be difficul”

Everybody’s in right now

“we’re at six-and-a-half years of an up market. You’re seeing margin balances at record levels. You’re seeing lots of net buying activity. You’re seeing client cash as a percentage of assets down. You’ve seen the IMX basically arise. It’s a little softer right now. It’s just we’ve never had seven years of up markets. It has been my personal opinion, it’s much more – it’s just everybody’s in right now. We’ve got a lot of monetary stimulus in the system. Everybody is in the equity markets. And I just hope as this all comes out, I’ve said this is going to be volatile and it’s going to be choppy and we’ll see how this plays out. But it’s a little bit mixed, but it’s more just, because we’re low points on both retail and institutional in terms cash as a percentage of clients assets, it’s mix a bit, but it’s both channels are the same. They’re at lows we haven’t seen for a long time.”

A correction plus increased rates is a great environment for us

“the best scenario right here would be to see a modest correction and some volatility with interest rates rising. Would be – if you had a 5% or 10% correction and then basically the markets were choppy because the Fed was going to change the Fed funds and it did, in fact, after six-and-a-half years increase Fed funds, with a generally underlying bullish trend, like if it went down and then started to come back up, that’s a perfect environment for us.”

We’re in the latter stages of a very strong bull market

“We haven’t seen client cash as a percentage of assets at these levels in a long time. As I said, I think this is more just we’re at the end of a six-and-a-half year up market. Margin loans are at records, client cash is at low levels. Net buying activity is at levels we haven’t seen. And so, you just – I think you’re in the latter stages of a very strong bull market here from after a pretty severe financial crisis. So, it is what it is here and you’ve got a lot of monetary stimulus in the system. I think most investors don’t know where to go right now, but they’re going into U.S. equities, viewed as the best risk/reward right now. One day that’ll change. Anybody that can predict that when that is, let me know.”

TD Ameritrade FY 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Fed funds movement has a much greater impact than a shift in yield curve

“It is important to note that a severe drop in the yield curve, like what happened in mid-October, would have a minimal impact to our overall results next year. Since the movement of the yield curve only impacts new extensions, only balance growth prior extensions rolling off the ladder and being re-extended would be impacted. Based on the timing of balances rolling off the ladder in the next 12 months, a 30 basis point drop in the yield curve would drive an approximate $0.01 downside impact to our earnings per share next year.

Remember though, fed funds changes would have a material immediate impact to the next 12 months. For fiscal 2015, we do expect balances to grow 5% to 10% with a potential to see a slight lift in yield. The overall result should be an increase of 5% to 15% in revenue. Finally, the overall extension strategy is unchanged.”

Looking to earn 1.45-1-70 in FY 15

“Our earnings per share range for fiscal 2015 is $1.45 to $1.70 with a pretax margin of 41% to 43%. The variability of results will primarily be driven by trading volumes, balanced growth and interest rates in that order.”

Not sure who came up with the term robo advisers, but it’s out there

“The robo-advisers has certainly got a lot of media coverage. There is no question about that. I am not sure who came up with the term robo-advisers, but anyways it is there.”

There is no way that the Fed pulls out and everything stays calm

“I have said before that basically when the fed starts to pull out, there is no way that they do that and everything is nice and calm.”

The wirehouses have gotten a little better at retaining their people, but there’s always someone who is unhappy

“I do think the wirehouse has gotten better at retaining their better brokers and producers and having said that, our experience is that there continues to be lots of opportunity. And there is always one player, whether it be one of the big wirehouses or one of the independent broker-dealers that is doing something, whether it’s on their payment grids or compliance or something else that causes some people to be dissatisfied and whenever they are dissatisfied they will consider that opportunity.”