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Tom Bradley answers 10 questions about TD Ameritrade's competitive stance in his 25th year

The industry veteran takes time out from TD's Orlando, Fla. conference to talk about about how his RIA custodian can compete with bigger and smaller competitors alike

Friday, February 3, 2012 – 6:02 AM by Guest Columnist Timothy D. Welsh
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Tom Bradley: We're not seeing any inroads to our business from these smaller players.

Brooke’s Note: TD Ameritrade’s conference is a big one on the calendar so when our East Coast RIA reporter, Lisa Shidler, got hit with a flu bug as she packed her bags for Orlando, I placed a few urgent phone calls. One of them was to Tim Welsh. I didn’t want Lisa’s time with Tom Bradley to be lost and thankfully Tim was up for stepping in. The industry consultant asked a series of questions for this article that bring us up to speed on a wide range of issues involving TD Ameritrade Institutional from its president’s perspective.

Under sunny skies this week in Orlando, Fla. thousands from RIA community gathered at the Annual TD Ameritrade Institutional Conference for four days of networking, keynote speeches, educational sessions, technology demonstrations and parties.

Kicking off the conference on the morning of Feb. 2 was president of TD Ameritrade Institutional, Tom Bradley, who shared his thoughts and views on the current state of the RIA industry.

Top focus areas for Bradley and TD Ameritrade are how to help advisors better manage market volatility and make the most of technology. See: Third-party vendors vouch for TD Ameritrade’s API at first general session, take advantage of the giant transfer of wealth that is coming to the next generation, better accommodate women investors. See: TD Ameritrade launches an effort to develop women advisors., all while assisting advisors in the quest to build, grow and manage better businesses.

In his 25th year in the investment advisory business with TD Ameritrade, Bradley is the most experienced and long-lasting executive at any of the major custodians. That quarter-century of experience while overseeing a vast operation that services roughly $160 billion in assets for 4,000 RIAs, provides him with a unique perspective.

As a guest columnist for RIABiz, I had the unique opportunity to sit down with Bradley to drill down about top RIA industry issues today. (Full disclosure, TD Ameritrade is one of my clients.)

How well are you competing with the other major custodians for big RIAs and why are you winning more of them?

Larger advisors today are running substantial operations and they need technology to streamline their businesses and provide scale to grow. They look to us for that technology and that is why we have made significant investments such as our acquisition of Think or Swim for options trading and the integration of that capability into Veo, our advisor workstation and portal. See: TD Ameritrade’s technology, Veo, wins high praise from advisors so RIABiz took a look. These firms (and really all advisors) are looking to go paperless and simplify processes, which we’ve been able to accommodate with electronic signatures and continued upgrades to our platform. Other key initiatives are our big focus on technology integration through the Veo Open Access platform initiative as well as having iRebal to automate portfolio rebalancing for the hundreds and sometimes thousands of portfolios larger RIAs manage. See: Once good for a few million, TD Ameritrade’s foot-in-the-door strategy is starting to net billions.

Are you still competing effectively with small custodians for small RIAs such as SSG, Scottrade and Trade PMR?

We’re not seeing any inroads to our business from these smaller players. In fact, we’re having a record year with breakaway brokers, many of whom come to us in smaller asset ranges. Additionally, we’re doing very well with the one- and two- person shops as they need to leverage the technologies we have that will help them run a significant sized business, even with a small staff. See: A peek inside the rising RIA custodians fighting to overtake the Big Four.

Why have you not made more progress with the aggregators, like Focus Financial Partners, LLC, HighTower and Dynasty Financial Partners?

We do work well with these firms and have excellent relationships with them. But strategically, we are focused on staying on the RIA side of the business and working directly with the RIAs themselves. The key differences here are that we aren’t looking to do the commission side of the business. We’re not going to wear two hats. Our focus is on providing the best experience for RIAs while working with friendly broker-dealers to provide those other commission-based services. See: M&A market reaching a new normal based on RIA-driven deals, say competing reports from Pershing, Schwab.

You mentioned that you have a breakaway pipeline of $300 billion. How many of those do you expect to close?

We have a very solid pipeline that is full with opportunities that represent $300 billion in the aggregate and we’re very optimistic. Last year we had over 340 breakaway brokers join us and the momentum is growing. In our last fiscal quarter, we gained 100 and are reporting record net new assets. Looking forward, there will be even more opportunities for us as many of the retention packages begin to expire. Whenever there is a disruption, such as a contract ending, that creates opportunity. These wirehouse advisors will then look at their options, with some jumping to another similar firm and some seeking independence, which we know in many cases can be a much better solution for the advisor and their client. See: TD Ameritrade paves the way for breakaway books of business to transfer intact.

How successful has your partnership with Orion Advisor Services, LLC been with RIAs like Mercer and do you expect it to continue?

In our business, the reason people work with you starts with the relationship. Technology can be a hook to cement the deal, but our business always starts there. As part of that process we strive to be consultative and match up our platform for what is right for the advisor. See: The TD Ameritrade-Orion pairing again proves productive — this time to wrest assets from a $3.6 billion Schwab RIA. In the case of Orion, if we can use that as a head start and perhaps pick up the first year’s costs to do the best thing for the advisor, we’ll continue to do that. See: TD Ameritrade will continue to provide free software to breakaways on an ad hoc basis.

How successful is the retail referral business at TD Ameritrade?

The AdvisorDirect program has been extremely successful. We currently have 160 advisor participants, which we think is a good number that matches up with our branch system. Closing rates are up over 40% and we’re currently referring $10 billion to advisors every year. See: Advisor spotlight: TD Ameritrade referrals help turn quiet advisory into a fast-growth operation.

Do you keep an eye out for acquisitions of RIA custodians?

The custodial business is an industry that is really dominated by a few top players, and the last time I checked, no one is for sale (Bradley laughs). But at the same time, we historically as a company have always been open to strategic opportunities. That’s why we have a very strong balance sheet and cash on hand so that if an opportunity does arise, we’re well positioned to make a move.

How is the API technology approach going, what might we see from that in the future, and what are the keys to get advisors to adopt technology globally?

The API approach is going very well. Phase one has been to get the integrations started with Veo and the vendor community, which is where we are now and we are seeing great results. Phase two will be to take those integrations even further by having the vendors integrate among themselves to form a seamless application to automate processes end-to-end. Historically, advisors have been slow sometimes to adopt technology. They tend to sit back and watch, which occasionally is not a bad strategy, however with the more complex environment they are operating in, they need to quickly embrace these new technologies. I believe we can help them get there by showing the systems, demonstrating the capabilities and once they see it, that will get them excited to move forward. That’s why we have these conferences and are making the Open Access initiative a major part of the event. See: TD Ameritrade brings software elite to Dallas for an API summit.

Succession planning for advisors has become a popular topic these days as the industry ages. What is your assessment of the succession readiness of RIAs?

We are starting to see some M&A activity driven by the succession issue. But by far, what we are seeing is that firms are bringing in younger folks that they can develop internally by coaching and training, as well as sharing ownership. There is definitely a lot of work to be done, but that has shown to be one of the best ways to manage the transition as clients are better taken care of and the transition internally is a much more smooth process. See: Have an aversion to succession plans? Consider a continuity pact as a vital baby step.

Twenty-five years is quite an accomplishment. What are your most proud moments during your career?

To see the growth of the industry is something I’m particularly proud of. RIAs are emerging as the leader in the financial space. They’ve grown dramatically from just a handful of advisors and assets to being the fastest growing segment, hands down, in the entire industry. I’m also very proud of what we’ve built here. We’ve got a very strong bench of senior people who have been with me for 12, even 20 years. They love the business as much as I do and to see them develop into leaders in their own right is extremely gratifying. See: Where TD Ameritrade has come since its 2006 merger and where it is headed in 2010.

Timothy D. Welsh, CFP, is the president and founder of Nexus Strategy, a leading consulting firm to the wealth management industry and can be reached at tim@nexus-strategy.com or on Twitter @NexusStrategy.

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Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Nexus Strategy
Consulting Firm
Top Executive: Timothy D. Welsh

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