Breakaways say they appreciate the economic boost and that it makes them feel welcome

April 18, 2011 — 2:10 PM UTC by Brooke Southall

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What a whirlwind trip it’s been for Richard Prout, who is on his third asset custodian in two years but has now found a home with TD Ameritrade.

The principal of Wealth Management Group left Commonwealth in March 2010 after 25 years for a new life of full independence as an RIA with assets at Schwab Advisor Services. Impressed with the quality of its people in the sales process, he eventually decided the service had less of a personal feel than he had been accustomed to at Commonwealth.

“We weren’t used to that style” of being serviced by a larger team, he said. His RIA has five employees and $150 million of assets under management.

Significant reimbursement

At the beginning of the year, ex-Commonwealth advisor Mike McNamara suggested he give TD Ameritrade a try. The service had the personal touch they were accustomed to, McNamara said. TD also was offering a financial incentive to make the move: a significant reimbursement for key technology and services.

“We found TD to be really interested in the growth of our firm and they put together an economic package that was superior to the Schwab package,” Prout said.

TD’s conventional approach may mark an important upping of the ante in the RIA custody business — giving breakaway brokers more aggressive financial incentives.

“It’s been under the radar, but it’s getting out and people are becoming aware of it. It shows that TD is being creative and saying: What can I put on your plate to help you? Most of the time, that concept is not being followed,” by other custodial suitors, says Ryan Shanks, CEO of Finetooth Consulting.

The reimbursements came on the radar after TD Ameritrade completed a remarkable recruiting spree in New England. During the last six months, it won the business of five big Commonwealth reps with combined assets of nearly $1 billion of assets under management.

TD Ameritrade executives declined to be interviewed on this subject of financial incentives, but the company confirmed that it has made substantial reimbursements part of the recruiting of certain advisors.

Several offers

“We have several technology related offers to meet the different needs of advisors. For example Orion and IAS services are free for the first 12 months,” says Kristin Petrick, spokeswoman for the Jersey City, N.J.,-based company.

McNamara’s ADV II says the firm receives a number of “additional services” from TD including: Orion Data Conversion, Morningstar Workstation, Litman/Gregory’s AdvisorIntelligence, Forefield, Naviplan, and Redtail Technology.

TD is making a big reimbursement of Prout’s costs of dbCAMs software, Prout said. Neither TD, the advisors, nor the technology providers would say how much the total reimbursements were worth, but the advisors say it was substantial.

“We get a very nice deal,” Prout says.

Broker-dealers – and especially wirehouses — of course have long paid huge bonuses to encourage the movement of assets. Asset custodians, operating on a different business model, have reimbursed conversion costs – like data conversion or account termination fees at the previous custodian or broker-dealer — but traditionally have not made big reimbursements for software licenses or offered other significant financial incentives.

If custodians take a page out of the broker-dealer book, it can be viewed positively.

Dialed in

“This just shows that the independent landscape is dialed in to the practical aspects of the business,” Shanks says, adding that the willingness of TD to shoulder more advisor technology costs should be viewed by advisors as a positive.

One reason that custodians have been cautious in doling out substantial benefits is to avoid any appearance of conflicts of interest. An RIA doesn’t want to appear to be receiving a kickback from the custodian. The language in TD’s agreement is very explicit about only reimbursing for technology that directly benefits end clients and anything marketing-related gets no reimbursement, Prout says.

Fidelity Institutional Wealth Services sticks to the more traditional reimbursement scheme, according to its spokesman, Steve Austin.

“But as is common in the industry, we do have a formal program designed to potentially cover conversion costs during the first year that an advisor joins our platform,” he says.

Schwab Advisor Services adheres to a different philosophy in how it allocates its resources – reimbursing some start-up costs for new advisors but also keeping a keen eye on its existing 6,000 advisors, according to Jon Beatty, senior vice president of sales and relationship management, Schwab Advisor Services.

Right balance

“We … look to strike the right balance between assisting new entrants and in supporting our more than 6,000 existing clients. The growth in the marketplace certainly creates a more competitive environment, but we continue to see both a steady stream of successful advisors who want to work with Schwab and a significant inflow of assets from the clients we have served for many years, which tells us that we’re getting the balance right.”

Eric Clarke, CEO of Orion, says that TD’s new strategy is commendable because of the level of help it provides to breakaways.

“TD is really stepping up and saying: How can we help you?” he said. “They’re really looking at the amount of assets they’re buying.”

Advisors who received the TD deal say it wasn’t the reason they broke away from their broker-dealer or even why they chose TD over other custodians.

Still, they allow that it made a favorable impression on them. The reimbursement helped cement the sense they had that TD was hungry for their business.

Peter J. Nagle, 60, took his assets to TD from Commonwealth as part of the process of becoming an RIA with an eponymous name in December.


“TD is impressive and their technology is great. They made a competitive offer and acted like they wanted the business. (The technology reimbursement) was a sweetener.”

The reimbursements also impressed Mike McNamara, who also recently left Commonwealth to become an RIA using TD for asset custody. See: How Mike McNamara became a TD Ameritrade RIA and pruned his book in one move

“TD made a strong offer right out of the box; they wanted to put real-live money into the equation.”

Shanks says that TD Ameritrade’s move may cause competitors to consider offering similar programs.

Fought to keep the business

Prout says Schwab fought to keep his firm. In early March, he says, he had a joint call with four or five Schwab executives and managers who expressed concern about his planned departure and wanted to know what they could do to keep him.

He said Schwab matched TD’s reimbursement deal in the end. But he had made up his mind.

“I think TD’s approach has forced Schwab to look at how they’re handling their business,” he says.

Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Commonwealth Financial Network
RIA-Friendly Broker-Dealer, Tech: Other
Top Executive: Wayne Bloom

Finetooth Consulting
Consulting Firm
Top Executive: Ryan N. Shanks

Share your thoughts and opinions with the author or other readers.


gary miller said:

January 25, 2012 — 4:54 PM UTC

Perhaps if Schwab was not advertising to compete for advisory customers,they would end a growing advisor receptivity to other offers.

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