Scottrade rakes in small RIAs

You probably know Scottrade Inc. as the company with the CEO [ Rodger Riney] in the helicopter and the $7 commissions.

What you probably haven’t seen much of is ‘Scottrade’ and ‘financial advisor’ used in the same sentence . That equation could soon change.

The St. Louis-based brokerage firm is bringing aboard an RIA per business day and it has more than 700 of them that call Scottrade home, up from just 350 RIAs in 2007. Scottrade Advisor Services was started four years ago. Its executiives declined to disclose its total assets in custody.

The company’s growth accelerated in February when a wide swath of brokers on Wall Street with $50 million or less got pushed out and went looking for a home. This breakaway activity accounts for 40% of the new advisors coming to Scottrade.

Another 50% of its new advisors come from existing RIAs. Many of them are diversifying their assets away from other custodians to see what kind of service they can get for $7 a trade. Other Scottrade RIAs say they left because they wanted to avoid the low-balance fees levied by some custodians. The last 10% of new advisors recruited by Scottrade are CPAs and attorneys who give some financial advice as a sideline to their core profession.

The strategy of welcoming the smallest, least-profitable advisors worked for TD Ameritrade and it can work for Scottrade, says Philip Palaveev, president of Fusion Advisor Network. “Why not,” he says. “It’s a beachhead.”

Crossroads

Up to now, the company intentionally avoided advertising because it didn’t believe that it had all the pieces in place to truly compete with other custodians. Now that is changing, says Doug Talir, director of advisor services for Scottrade.

Scottrade had won adherents because of its no-if-ands-or-buts $7 trades and because the smallest advisors get dedicated service personnel. In June it released a an upgraded technology platform for its RIAs. This platform has emboldened Scottrade to come out of out of the bulrushes with a more aggressive marketing campaign aimed at RIAs, Talir adds.

Scottrade Advisor Services makes its marketing
move

The success that Scottrade is experiencing with RIAs is being helped along by the fact that TD Ameritrade is competing more fiercely with upmarket custodians like Schwab and Fidelity, Talir adds. TD Ameritrade is the agglomeration of the old Jack White franchise, the old Fiserv franchise, the old Ameritrade custodial unit and TD Waterhouse. Each one was famously friendly to small RIAs.

Most recently Ameritrade was the company happiest to court the micro-practices and its merger with TD Waterhouse opened the playing field for Scottrade, according to Doug Talir, head of Scottrade Advisor Services.

“That’s a key point,” says Doug Talir, director of advisor services for Scottrade. “Ameritrade went upscale and made it more difficult for the small advisor to do business with them.”

Absolutely dedicated

Tom Nally, head of institutional sales for TD Ameritrade, disagrees.

“We are absolutely dedicated to the emerging advisor segment” as evidenced by its service teams in San Diego, Denver and Dallas-Fort Worth dedicated to their support, he says. “We don’t have any [account] minimums.”

Yet he allows that TD Ameritrade is also careful not to expend resources on one population of small advisors.

Nally adds that Scottrade is not currently visible in the marketplace as a competitor for RIAs. [TD Ameritrade serfves about 3,600 RIAs with less than $50 million of assets under management, accordiing to Nexus Strategy LLC.

“We really don’t run in to them in many deals,” he says.

Where, you might ask, is Scottrade finding hundreds of RIAs in a world that is canvassed by the marketing teams at high-powered competitors like Fidelity Investments, Charles Schwab & Co. and TD Ameritrade? Talir says much of new business comes in by word of mouth, web search or the recruiting of retail clients to advisor status.

Rodger Riney: His company has won
a phenomenal string of service awards

Its retail presence should not be [no pun intended] discounted. Scottrade has the nation’s largest branch network with 425 retail offices, and it has won the J.D. Power award for online brokers in the service category, eight of the last nine years. Such a streak is all but unheard of in any category measured by that survey firm.

Extra level of authenticity

Derek Kennedy, president of Kennedy Wealth Management in Knoxville, Tenn., says that Scottrade brings its award-winning service levels to the advisors side of the business.

“It’s not that I had lengthy list of negative experiences at Fidelity and Schwab [where he formerly held his assets],” he says. “It’s more that I’m getting that extra level of authenticity at Scottrade.”

Ken Brackett, principal with Lighthouse Financial, which manages $20 million from Wilmington, Del., says that he feels the same way about the service. “I started with Scottrade,” he says. “They made me feel important when I had nothing.”

Kennedy says that Scottrade’s big branch network is important to him. “I liked my clients’ access to bricks and mortar when I was with Schwab,” he says. “I like that they still have a bricks and mortar experience” now that their assets got moved to Scottrade.

But there’s a difference between sending a client into a Scottrade branch versus a Schwab branch, says Brian Davis, manager of business development for Scottrade. Because Schwab sells such high-level advice in its branches, it’s akin to sending the client into the “wolf’s lair,” he adds.

Schwab has a policy that prohibits its branch brokers from soliciting the customers of its RIA clients.