TD Ameritrade FY 2Q17 Earnings Call Notes

Tim Hockey – President and Chief Executive Officer

Partnered with Dimensional funds

“You should expect efficiency to remain a top priority for us. We’re also looking at ways to further monetize our asset base. Our scale puts us in a great position to get creative and try new things. Product distribution as we’ve discussed on past calls is one area of focus, but there are others as well. For example, we recently joined forces with Dimensional Funds, the largest mutual fund family on our platform, in a strategic relationship that allows us to leverage each other’s vast distribution network. It also makes DFA’s funds available to advisors for a reduced rate and introduces new educational and practice management resources. We’re evaluating other opportunities as well and we’ll share more once details have been finalized.”

News flow drove strong engagement

“Engagement remained high as investors continued what they started last quarter, aligning our portfolios with the sectors they think will best benefit from the new administration. A high frequency of news and information coming out of Washington has helped prolong that activity, although market dynamics in general have been relatively tamed. Intraday volatility has been historically low. The VIX, for example, had its lowest quarterly average in more than 10 years and yet the number of accounts trading was up 10% from last year.”

Decreased commission rate to 6.95

“Throughout this quarter, we had a unique opportunity to offer even more value to our clients, decreasing our commission rate to 6.95 per equity trade. The strong organic growth we’ve experienced over the last ten years has helped position TD Ameritrade as a firm with tremendous scale. We expect that scale to only improve once we close on our acquisition of Scottrade, a company that has long been known as a value conscious player in the industry. In fact, the additional scale we achieve is the hedge against the lower commission environment.”

Snap was good for us

“When we talk about why the revenue has been fairly modest, what we’ve seen is that even though we’re starting to see a little bit of a pickup in IPOs, and particularly the Snap IPO is sort of a mega IPO that some of these really large ones that come out are above the sweet spot for our securities lending. So, it came out and sort of instantly had a lot of market liquidity, and so there wasn’t a lot of scarcity out there to drive rates up. So, Snap was good for us in a lot of ways. We saw strong trading. We saw a lot of clients that opened new account, that Snap was their first trade, but we didn’t see much selective securities lending around.”

Even if commission rates went to zero we’d still be profitable

“Yeah, so there is a few things. First of all, the good news is that even if commission rates went to zero tomorrow, we’d still be profitable and that’s before our integration with Scottrade and the scale enhancements we get as a result of that. So, we reached that critical mass size where we’re fully able to work with the competition in terms of the price structure that seems to make sense, having said that we’re quite comfortable with the pricing that we have in the marketplace. If you remember, there are zero dollar players in the marketplace now and have been for quite some time. It’s been tried for many, many times over the years. So, there are different revenue models at play in the industry and we happen to have a simple price all-in for the best platform on the street.”