Logo of jester cap with thought bubble.

Image source: The Motley Fool.

TD Ameritrade Holding Corp (NASDAQ:AMTD)
Q4 2019 Earnings Call
Oct 22, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to TD Ameritrade Holding Corporation's September Quarter Earnings Results Conference Call. [Operator Instructions] With us today from the Company is President and Chief Executive Officer, Tim Hockey and Chief Financial Officer, Steve Boyle. A file containing Mr. Hockey's and Mr. Boyle's comments on the quarter can be found on the Company's corporate website amtd.com under Investor Relations. This call is intended to address related questions from investors and analysts. Questions from reporters can be directed to the Company's media relations team or you can follow their Twitter handle at TD Ameritrade PR, which will be live tweeting this morning's call.

Let me take a moment to compile the questions. Your first question comes from the line of Rich Repetto. Your line is open.

Questions and Answers:

Richard Repetto -- Sandler O'Neill + Partners -- Analyst

Yeah. Good morning, Tim and Steve, and thanks for all the information and the run down of the business initiatives that you're focusing on. And I guess, my first question would be, you mentioned a lot of areas. We expect that you're working on investing on where you could see growth. Is there any way you could prioritize them and Tim or Steve, like which one, two or three have the greatest possibility of impacting the top-line and by how much and on what timetable?

Tim Hockey -- President and Chief Executive Officer

Hey, Rich. It's, Tim. So I want to take a first stab at that. And let me actually talk a little bit more about the process, because I think it's probably important. When the announcement came out and we make the decision to go to zero, the first thing we did was we got the team together, the senior executive team and took a look at our strategy, and then at our priorities for 2020 and started to reprioritize those in light of the new environment. And so many of these initiatives were under way. Some of them were a little further out, simply because we thought they were not as important in the environment we used to be in. And so then we recalibrated those, much of what you see in Steve's work [Phonetic] in his commentary.

In terms of prioritization, again it is relatively early days in terms of their absolute size. These would be relative guesses to what we think they would be projecting in the out years, and we were frankly conservative in our expectations of revenue growth in the 2020 forecast. So we're not going to be able to disclose much more in terms of the absolute, but just thought it was important to help you understand that these initial first couple of week stage, how we went through and prioritized and obviously there'll be further fine-tuning as we learn more.

But over to Steve for more.

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. I just see, Rich, a couple of things. So we started our strategic resiliency project about a year ago, when we've been focused on putting in place customer profitability aligning our cost to our with our strategic priorities, and I think the organization has a new more wholesome view of where we're making our money and where we're expanding our resources. And I think that's going to be a -- was going to be a big area of focus anyway, and it's going to, I think, is taken on even more urgency with some of the changes that we have. Fully paid lending is one that's pretty exciting you saw in the quarter, how strong stock lending revenue was for us. That's something that we've talked about over the years and that has never risen to the top of the list. And now with some changes in personnel and the new environment and we're really excited about that. We haven't really put about one month of that in the plan for next year, but that's a significant initiative for us.

Asia has been a big initiative and we see growing momentum in Asia. We're really excited about that and, of course, institutional has always been a very strong growth business for us, but as we, again, segment out those customers and the RIAs, we see that those high net worth customers are particularly valuable to us, and we're going to have some new things introduced this year and some increased focus on that. So we think that's a great opportunity too.

Richard Repetto -- Sandler O'Neill + Partners -- Analyst

Okay. Thank you. And then my one follow up would be in the commentary of the prepared remarks you talked directly about and I think quote sustainable competitive scale benefit and specifically you say looking back to Scottrade purchase was a prudent decision. So I guess given that everything that's going on with the zero commission and looking for efficiency, some say consolidation is way to maximize efficiencies. But I'm just trying to get an update on how Ameritrade and the Board look at consolidation now that we're in a Zero Commission Environment going forward?

Tim Hockey -- President and Chief Executive Officer

So, Rich, the team here were joking about after having a number of quarters, where we didn't have an M&A question on the call. How many we would get, in how many different ways that flows [Phonetic], and so that's one. And our standard answer on that is, we will take a look at anything that makes financial and strategic sense. But you're right that we did make the comment that the Scottrade deal was fortuitous timing, scale is important. We have scale, we're very comfortable with our earnings power now even in this new environment.

Richard Repetto -- Sandler O'Neill + Partners -- Analyst

Got it. Okay. Thank you very much, Tim and Steve.

Operator

Your next question comes from the line of Chris Shutler. Your line is open.

Tim Hockey -- President and Chief Executive Officer

Are you there, Chris?

Operator

Your next question comes from the line of Rich Repetto.

Richard Repetto -- Sandler O'Neill + Partners -- Analyst

I already asked and answered. Thank you.

Operator

Okay. Chris Shutler, are you able to speak?

Christopher Shutler -- William Blair & Company -- Analyst

Hi. Can you hear me?

Tim Hockey -- President and Chief Executive Officer

Yeah.

Steve Boyle -- Executive Vice President and Chief Financial Officer

Hi, Chris.

Christopher Shutler -- William Blair & Company -- Analyst

Okay. Great. Guys, sorry about that. It sounds like you're thinking about here in your pricing, your solutions, your service level depending on how engaged clients are with TD Ameritrade. Could you maybe flesh out what you're thinking about a little bit more there? Thanks.

Tim Hockey -- President and Chief Executive Officer

Yeah. Chris, I'll take that. Some of the work that Steve had been alluding to is that we've done a lot of analysis in the last little while about where our costs are being driven and the segmentation and the type of our clients. And so we put segment leads in place, they are now working through the offering, the client experience for each of those different types of segments and we really do understand the costs and the revenues associated. If we hadn't had the commission impact a few weeks ago, then I could very well have imagined in the next -- call it over the next year, we would have started to be much more targeted in the appropriate price or value for each of those clients as opposed to what I've always found interesting in this industry is, as sort of one price fits all with a high degree of emphasis and awareness of that particular price point.

In light of that, with that price going now down to zero, it doesn't preclude us from really understanding where there are opportunities to best charge for the value created. So I think that work will continue. I think the team is actually quite energized to not have that sort of Sword of Damocles is hanging over us, which is the price point. Yes, that was very painful and the revenue give up wasn't helpful at all. But it's actually a bit liberating in terms of really trying to understand where we can create value for clients and then potentially charge for it. So the good news is we've got, I'd like to say, probably 18 months head start doing that work and so that should just be accelerated now.

Steve Boyle -- Executive Vice President and Chief Financial Officer

I think similarly to, Chris, on the expense side. There is a number of things that we give to everyone today that a number of our clients really don't utilize, but cost us money, and so we think there's probably ways to value engineer that offering. So that the clients still see a great offering and really don't want it to change, but it's a lower cost to us going forward. So I think you see that as well.

Christopher Shutler -- William Blair & Company -- Analyst

Okay. Great. Thanks. And then as the follow-up, in the commentary you mentioned that in the Zero Commission Environment, you think that there could be some disruption to the IBD and full service broker industries, maybe just elaborate on that comment? And how do you see that playing out over time?

Tim Hockey -- President and Chief Executive Officer

Well, first, I would say, if you go back 45 years, this industry category, then online brokerage, the quote discount brokers was born out of price competition. At that time the price was $75. So here we are now at zero. In the last 45 years, our category has been winning share from those others -- those service categories, the wire houses. And so now that that number has gone all the way down to zero. I think that trend will accelerate. So that will be a category accelerant to all of us. More recently, the impact, of course, has been that there have been new entrants at the zero price point, that's largely been there differentiating characteristic, that is now been then gone away.

And I would say, more idiosyncratic to us at TD Ameritrade, we have been holding our diluted [Phonetic] share as the largest in the industry and gaining in Asia in the last little while. Even with the $2 price delta to our largest competitors. So that overhang, if you will, has gone away as well. So now we're competing straight up in a zero environment, and we think that all of the investments we made in the client experience are really going to start to pay off, because we've got the best experience, the best platforms, the best trading and education, the best network and not just by our estimation by a third party. So we think, in that environment we will win.

Steve Boyle -- Executive Vice President and Chief Financial Officer

And I think, Chris, on the institutional side, we think that the changes in the environment are going to drive more -- at first going to emphasize fees. That's going to create discussions with clients, friction, we think, there'll be more breakaway brokers potentially here in this environment, and more people out rethinking things tends to get them to think about the independent model. And we think that that's very good for our Institutional business.

Operator

Your next question comes from the line of Mike Carrier. Your line is open.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning and thanks for taking the questions. You guys mentioned feeling confident and keeping expenses flat over the next few years, while maintaining healthy net new asset growth, I think, in the high single digit. So assuming there is some comp and other costs associated with the net new assets that come in the door, so maybe what are some of the offsets to keep the expense base flat over the next few years?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Sure. So as I mentioned, we've been sort of gearing up for this. I think the biggest emphasis is that we're really focused on those places where we really think that we excel where we can win and where we're trying to stop things. So we announced the branch closures last year. We refined our branch network, still incredibly important, but a little bit streamlined. We've shut down our trade architect, duplicate platforms. We shuttered our invest tools business. We closed our -- we sold off our Trust business in June. So we're really focusing on what is our core competency, where can we grow not trying to be all things to all people.

And we've also been really enhancing our automation. So we're providing a much smoother digital experience for our clients. We're reducing client hear [Phonetic] attempts, we're reducing their reasons to call us. We've got an AI tool that helps us understand why clients are calling and we're addressing the things that drive the most call volume into our call centers, where looking at the flow through our branches to make sure that we're really providing value-added activities to our customers, and not just doing servicing or for doing servicing, we're doing it with a lower cost. Customer service reps as opposed to financial consultant. So whole host of things that we think will be powerful in 2020 and beyond as we go forward.

Tim Hockey -- President and Chief Executive Officer

So just a couple of other things on that as we alluded to the strategic resiliency work was really trying to bucket our costs again three categories of things. The first one and the most important is those things that are really differentiated for us, our platforms, our education offerings things that make us stand out relative to the competition and our clients really value. Second category is the -- just keep the lights on what you need to do and your focus there, of course, is to make that more and more efficient and automation really helps there. And the third category are those things that aren't differentiated. There are things that we might have tried that we're keeping on life support, but our clients are saying, they don't really value and that category, you should be slimming down or getting out of entirely. Steve, gave you a few examples of decisions made already, and we have others in the hopper that will all be driven by the data that our clients tell us we value or not. So we think there's good opportunities to make sure we continue to streamline our dollars into the things that differentiate.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay. That's helpful. And then just a quick follow-up on some of the new initiatives. One area you mentioned was building on a more compelling offering, I mean, solutions for both engaged investors and then for the higher net worth or A clients. I guess, just curious, when you think about what you offer today, what do you think is needed to be more successful there?

Tim Hockey -- President and Chief Executive Officer

So Tom's business as we know has been growing at huge rates, but there are some offerings in sort of the family office side that our clients with larger books that are interested in having donor advised fund is something that we're working on and should have out relatively soon. Some of the -- at the higher end services that our private charitable giving, trust accounting, cash management capabilities, all of those things that are helpful to the higher net worth clients and they have been asking for a while, and those are important to us.

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. And I guess, we've also been looking at what our engaged investors what they see as advice or help from us and what they really value in that. And we think that there is opportunities to provide extra services for people that there'll be willing to pay for and we're working on some of those offerings in the upcoming year.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

All right. Thanks a lot.

Operator

Your next question comes from the line of Chris Harris. Your line is open.

Chris Harris -- Wells Fargo -- Analyst

Thanks. Good morning, guys. With respect to the commission cuts and the decision happens really quickly and it is permanent, but I know you guys have been thinking about this, I'm sure for quite some time. So can you walk us through your thought process on why zero right away as opposed to maybe dropping it to a few dollars and seeing what happens from there?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. Thanks, Chris. The -- so if you imagine, this has been a bit of a slow moving train for literally decades, the discussion about what price point will be here when they said, it's gone from $75 down to now zero. What we have done over the last couple of years, especially in early 2017, when the last round of price cuts happened, that it [Phonetic] really understand customer price sensitivity curve and so we've done a lot of analysis as to at what point clients are going to be too sensitive and too sensitive as and we would have too high an attrition risk, were we not to move. So at the same time we sort of start thinking about how do we get our strategic resiliency program ready and standing up, at the same time we're getting prepared for what we thought would be perhaps an eventuality, although probably not as early as it actually happened, going to zero.

What the analysis told us, is that about a, call it, $2 or $3 price point. You can eke out an extra premium, if you will, for the value proposition that you provide. Below that price point and especially at zero, there is -- when the major competition goes to zero, then it is a pretty much game over from that particular price being commissions per trade. We don't necessarily believe that that's true for all prices, through all service is different, obviously sensitivities of clients for different offerings. But at that particular the flash point of zero, we needed match and so that's why the decision was made on the day and we went a couple of days later.

Chris Harris -- Wells Fargo -- Analyst

Okay. Got it. And then with respect to some of your longer-term planning, can you remind us when the agreement with TD Bank comes up for renegotiation and could there be some potential relief with that agreement given what's happened on the commission side of your business?

Tim Hockey -- President and Chief Executive Officer

Yeah. The agreement actually, we have to notify each other by July of 2021, whether we wish to renew it and extend it, and that would be effected 2023. So there's a lots of time between now and then, and then lots of times after, but yes, there is an opportunity to have discussions with TD and see what their appropriate price for depositor.

Chris Harris -- Wells Fargo -- Analyst

All right. Thank you.

Operator

Your next question comes from the line of Devin Ryan. Your line is open.

Devin Ryan -- JMP Securities -- Analyst

Great. Good morning, Jim and Steve. So I wanted to touch on the 49% increase in new accounts. Since the move to zero that really stood out to us and if we can maybe dig into that a little bit more, I'm curious if net new assets corresponded with the new account trend just over the kind of short period of time and where those accounts coming from, if you can, the older active trader clients that are just moving over? And then any expectations looking forward just around what new account growth could look like, especially now that price has been removed as an impediment?

Tim Hockey -- President and Chief Executive Officer

Yeah. So I'll take that. And so first, I would say, the data we have so far, a couple of weeks in really is quite anecdotal. There is the initial euphoria of zero or -- literally our client advocacy scores go up literally daily, we track them daily. They got 10 points in the last couple of weeks and which is great given that we've also had about a 10 point increase over the last year. So a pop on a steady increase is fantastic. Then we got all of the activity of new clients being attractive because of the headlines and probably the new stories. And as we alluded to, there is lots of great anecdotes of clients coming home that is that, hey, we loved your service. But in fact, we thought the price point was better elsewhere. So therefore, there is no differentiation point and now will come back to everything that you have.

So unfortunately, all of this is relatively anecdotal, some of the NNA data we have, it takes time to build, especially in our Institutional business. But we've seen some very encouraging signs. The ACAT, that account transfers that we can track daily that's coming in are quite positive. And that our sales teams themselves are actually using it as an opportunity to talk to our clients and to bring them back. So I'd say there is no anecdotal negatives that we're hearing, other than perhaps fun storied clients who were calling and saying, hey, we're worried that zero that you can afford to give me the service that you're willing that you've been giving me. So I'd be more than happy to pay the $6.95 price to get the service I have been having. And of course, we've been happy to assure them that they will get the service that they're used to at a 0 price point. So we're thrilled about this and our teams, I can tell you, our associates are incredibly thrilled to be to have the cloud of the price differential taken away and so we can compete head up, because on that game, we will win.

Devin Ryan -- JMP Securities -- Analyst

Yeah. You should take the commissions. A real quick follow-up. Just on the balance sheet, you bought some treasuries in the quarter, I'm just curious how you guys are thinking about using the balance sheet from here just in the overall asset liability management and how much you could or would think about expanding that?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. So I don't think we'll expand it too much. That was sort of a opportunistic thing that we are able to do. I think you'll see most of the changes that we do going forward in the BDA balances. What we did at the time this summer, the treasury and the swap curve sort of all, a skew, and it was much more advantageous for us to put on duration on the treasury curve and most of it is in the Holdco, and so it's not mark-to-market, but there is a couple of hundred million that's in the broker outside of seg [Phonetic] cash. And those treasuries have about a 10-year duration. So I mean, you do see some decent movement with the rate changes.

Operator

Your next question comes from the line of Brennan Hawken. Your line is open.

Brennan Hawken -- UBS -- Analyst

Good morning, guys. Thanks for taking my questions. And for those keeping the score at home, here is question number two on the M&A front. So we've got commissions now at zero, as some would argue that previously was a impediment or a potential risk for competitive response to any deal in motion. How do you think about that when you consider an industry where scale is now increasingly important and also, maybe Tim, can you add how this, the fact that there is a leadership transition happening now, that feeds into or may impact your decision to pursue any strategic alternatives?

Tim Hockey -- President and Chief Executive Officer

So on the M&A question, I think asked and answered, but on the CEO transition, I think that's important. So the process is under way. Certainly the Board has convened a search committee, they've have the search firm, there are candidates being considered. I can tell you that the move to zero has absolutely improved the opportunity to get a good quality CEO in here. I can tell you that when I was considering coming to TD Ameritrade a number of years ago, of course, the -- that Sword of Damocles is about when is price point going to zero going to happen. Nobody wants it to happen on their watch, well I did on my watch, but I can tell you that that's now gone away. So having a new CEO come in, I think just made it easier to attract them.

Brennan Hawken -- UBS -- Analyst

Okay. And then when we think about, and but Tim, this is nothing negative about you. You know how I felt about your leadership. I said it during the last call, I was kind of confused about the announcement of the transition. So this is meant with [Indecipherable] and clear due respect. Can you explain to us what the process is for review, given the fact that there is a CEO transition in place, there are some really monumental changes happening to the industry, and while I have full faith and confidence in your judgment, you are not going to be there beyond February and so like dealing with the repercussions of decisions having like continuity through this very, very difficult period. It's pretty important and one of the questions that we regularly debate with around with investors is, whether or not that factor is impacting Ameritrade? How involved is the Board in these dynamics, in these discussions, in these decisions, if you could just shed a little light on there, and sorry, it's a bit of an awkward question? I am...

Tim Hockey -- President and Chief Executive Officer

I appreciate the question. In fact, I think it's the perfect question, because it is on everybody's mind. And it shouldn't be the elephant in the room. Look, a couple of things happens after my announcement in July. The first thing was to get together with the team; my leadership team first, and say, look the free values is me, is we. There is no more CEO. There is now a senior leadership team that is going to take the organization forward. So I can tell you that after July, the discussions both with the Board and collectively came up with a very, very tight and cogent set of strategy and tactics that I could hand over to my successor in the middle of our fiscal 2020. And it's the tightest I've ever seen, frankly. And then, of course, the world changed in early October.

In terms of the Board, I think that's an incredibly important discussion, the Board, we probably had more conversations with the Board collectively since July to make sure that there is very tight alignment with the Senior Operating Committee around both the strategy. And the day the announcement around the price competition came out, we convened the Board within, I think, 6 hours and we had 100% there and 100% support we walked through the analysis, we walked through our research, we walked through what it happened in the industry. And there was 100% support for the team's collective decision on what to do moving forward.

So it is a great question. I can tell you, I will -- as I told the team, I will be here swinging with every breath I have until my last day. And I am very confident, both the team and the Board with the new CEO will be able to compete even more strongly and powerfully in the new environment. Great question. I appreciate your comment.

Operator

Your next question comes from the line of Bill Katz. Your line is open.

Bill Katz -- Citigroup -- Analyst

Okay. Thank you very much for taking the question here. Just sort of change tack a little bit, just wondering if you go back to some of the fiscal '20 guidance assumptions. And just wondering if you could sort of maybe unpack on the revenue side a little bit? I guess where I'm struggling a little bit is just sort of the underlying number of rate cuts you are assuming versus what the forward curve might be anticipating? And then if we peel back the 10 basis point decline in the net interest margin year-on-year, just given the lot of moving parts and so how do you get to that dynamic, just given what looks like BDA guidance where the yield, the exit yields are for a client balances what have you?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. So Bill, and maybe I'll start with the interest rate assumption. So we wrapped up our plan a little bit earlier, as Tim mentioned this year than usual and rates were sort of all over the place. We started just to land on a scenario and stick with it. And so we do have in sort of a mid point scenario, one rate cut in March. But we've given you all the changes that we would expect, what the impact of an additional rate cut would be. And you can move that a different points in the year and whatnot. So that was why we tried to be as explicit in our footnote as we were, so that you can take that for what you are there [Phonetic].

On the net interest margin side, there is a lot of moving parts there, as you know, margin spreads are higher than BDA spreads. We've had a lot of movement in segregated cash. But generally the decline is because rates are starting to come down here and that's going to be probably a factor into next year as well.

Bill Katz -- Citigroup -- Analyst

Okay. Just a follow-up, and thanks for taking the question this morning. Just coming back to the net new asset outlook for you, you like others so suggested that that removes the impairment for growth, yet your organic growth rate has sort of stayed the same in terms of your assumption year-on-year if you look at fiscal '19 guide versus, I think, what the industry guiding for this year, is that just a point of conservativism? Is there anything that's different, that sort of tempers some of that view? And then as you think about that mix going forward just what -- how does the yield on an incremental growth compared to the legacy book of business?

Tim Hockey -- President and Chief Executive Officer

Yeah. So on the actual growth rate, what we decided to do with our 7% to 10% range, was to not adjust that as a result of the most recent change given when we were putting that, it was really at two weeks end. As we said earlier, the anecdotal trends that we're seeing are very strong, but I think we will have to come out with subsequent quarterly revisions, obviously with performance and once we got a little bit more time under our belt.

Steve Boyle -- Executive Vice President and Chief Financial Officer

I think, that's right, and we are at 7 last year. So it's sort of the low end of the range. I think the fact that we're now in a zero rate environment and obviously that was not in last quarter at all, it happened on October 1st is we think a positive factor going forward.

Tim Hockey -- President and Chief Executive Officer

I can see other point, I am not sure, Bill...

Steve Boyle -- Executive Vice President and Chief Financial Officer

This is exactly your question, but we have heard from a number of folks, why do we think -- everyone to saying that zero was going to help them. Why do we particularly think that? I think the fact that we were growing without zero. Zero was our -- price was our biggest client here with sense [Phonetic] and in fact, we are seeing reduced revenue by the most amount of money and so by definition, our clients are going to be getting that much more value in the offering. I think those are all reasons why we're quite confident that this is going to be powerful for us.

Operator

Your next question comes from the line of Michael Cyprys. Your line is open.

Zach Firestone -- Morgan Stanley -- Analyst

Hey guys, this is Zach Firestone on for Mike. I just wanted to circle back to an earlier question, I guess what a lack of a permanent CEO being named prevent the company from executing on M&A.

Tim Hockey -- President and Chief Executive Officer

That's number 3. And so I answer is the company, including the Board and the management team will all we consider opportunities that make strategic and financial sense, it's more than just one person

Zach Firestone -- Morgan Stanley -- Analyst

Okay, that's helpful. And then I will a higher level. You mentioned kind of focus on growing in Asia, in your prepared remarks. Is there any place else nationally. And the next kind of in the near term that would make sense to expand into

Tim Hockey -- President and Chief Executive Officer

We've actually done a scan globally a number of times as we do our strategic work and we've decided to focus on our Asian opportunity that makes more sense. We think that's the biggest opportunity for us for the next little while, so no other considerations right now.

Zach Firestone -- Morgan Stanley -- Analyst

Okay, thanks.

Operator

Your next question comes from the line of Kyle Voigt. Your line is open.

Kyle Voigt -- KBW -- Analyst

Hi. Good morning. If you look at your two larger e-broker competitors, both generate significant revenues from offering proprietary products. I was wondering, if you can give some updated thoughts on the pros and cons of having a proprietary product offering and is that something you would consider more seriously now on a zero-commission environment?

Tim Hockey -- President and Chief Executive Officer

Yeah. We've looked at this a number of times over the years. The best time to have, I think, build out a proprietary product offering was probably 25 years ago. And there is a significant price point pressure obviously on active and passive. As you know, we've got a very open architecture model, our wrap products and our advisory products are helpful for us. But there is that we feel secular pressure on that particular category as well. And we also think that there is something that's helpful when we, in fact, have an open offering that isn't the branded specifically TD Ameritrade and make all things available for our clients. But as we know, you need absolutely massive scale for an offering and asset management fees base and so we don't think that makes sense for us.

Kyle Voigt -- KBW -- Analyst

Okay. Thanks. And my follow-up is just with respect to one of the bullet in prepared remarks taking a hard look at your contracts to review the value attained, could you just clarify, was that more a reference to your expenses or your revenues or both. And with when you're referencing these contracts and the value attained, would that include relationships with market makers and order routing revenues and you think there could be some incremental revenue opportunity there over time? Thanks.

Tim Hockey -- President and Chief Executive Officer

The short answer is that anytime delivering what we deliver is an ecosystem with lots of partners and so they all have contracts and as a result, we're going to examine all of them and prioritize and bake the small. And so for example, about 50% of our costs are third-party contracts. So those would be something on the expense side, but we look at things on the revenue side as well.

Kyle Voigt -- KBW -- Analyst

Thank you.

Operator

Your next question comes from the line of Brian Bedell. Your line is open.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks. Good morning guys. Maybe just question number four on M&A and strategy together. But Tim just, yeah, obviously as you sort of begin to exit over the next several months, just to get your view, given what we've -- what's happened now in the industry, do you think consolidation makes more sense -- in-market consolidation makes more sense or do you think the organic growth initiatives that you laid out, and thanks again for laying out all of these in the prepared remarks, actually makes more sense and that the independent firms can thrive better on their own with these initiatives?

Tim Hockey -- President and Chief Executive Officer

Yeah. I would probably be rude to give exactly the same answer all over again, but I should. Asked in particular, we will continue to make sense of any offering that it's a -- we'll look at anything that has financial and strategic sense. More generally, if you're asking in an industry that benefits from scale and an industry that has small players that have had their price differential, which was their main value proposition stripped out, there will probably be some consolidation. That makes sense in any industry. But for us, in particular, we're very comfortable with our scale and our size and our Scottrade acquisition obviously helped us get there to be very competitive in a zero environment. And so we're comfortable where we are.

Brian Bedell -- Deutsche Bank -- Analyst

Okay. Thanks. And then just on the revenue initiatives, especially in the new environment, maybe see if you could just talk about the -- that sort of ability to get to that $2 improvement per account, it would that just sort of a sampling or do you think that's readily achievable in the next one to two years? And is the stock lending, sort of the easiest one to get to? And then maybe just to layer one more in on banking. Do you think there is potential to launch a more cohesive banking strategy with TD Bank like more of an online transactional banking strategy that could also generate new client activity?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. So let me start it. Brian, I do think that there is lots of opportunities including additional banking products and so clearly that would be something that we will continue to move forward on. What we did is, we looked at our segmentation work was, it shown a light on the fact that we do have a number of customers who have relatively small revenue with us and we think it -- there are number of ways, where we're providing value that people would be willing to pay for.

And so the $2 a month per account was sort of a way to think about that. So I do think it's very achievable. It's not going to come all in one fell swoop. It's probably lots of smaller things, but absolutely we'll do that. And I do think some of the other things like a fully paid lending that's going to be left on those small clients and more on clients that have substantial positions with us, but an opportunity not only for us to make money, but for them to share in what we're making some. So I think it helps our value proposition, as well as our earning.

Operator

Your next question comes from the line of Will Nance. Your line is open.

Will Nance -- Goldman Sachs -- Analyst

Hey guys, good morning. Maybe just to put a finer point on, I think, Bill's question earlier. The midpoint of the range assumes like a 1.76% at funds rate, I think the odds of October rate cut are in the 90 percentage rate. And I think the forward curve has roughly 1.30% to 1.40% rate on average next year. So I guess if we do see something more like the forward curve in 2020. Do you guys still think you're in the revenue range. And if we are more toward the lower end in that rate environment do expenses kind of match that?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. So our view would be that we've given you all the data. And you can make the rate call. I think if you did see two or three rate cuts next year, you would be toward the lower end of the revenue range. And, but we think it's -- the range is a good range and that the low end would be a good result for us if that was the scenario.

Tim Hockey -- President and Chief Executive Officer

See, what we tried to do with both the conservative on some of the inputs to the initiatives that Steve laid out and as that might be a little bit of an offset as well.

Operator

Your next question comes from the line of Steven Chubak. Your line is open.

Steven Chubak -- Wolfe Research -- Analyst

Thanks, good morning. We're just wanted to ask a question on the relationship with TD somewhat call this question 4.5 on the M&A topic. While TD had strong ambitions in US Wealth and one of the perceived hurdles that leads to a combination historically had been the uncertainty around pricing. So with commissions now at zero, growing convergence of US Wealth in digital, I'm just curious do the pricing developments change the nature of the relationship with TD. And can you provide some insight on the merits of a potential combination?

Tim Hockey -- President and Chief Executive Officer

I think that qualifies as a full-blown number 5, not 4.5, but so first of all, the price point I don't think has any bearing whatsoever on the relationship with TD. You'd have to ask TD what their plans are prolonged [Phonetic] down the road, but our relationship is strong and the price point doesn't have any impact on it whatsoever.

Steven Chubak -- Wolfe Research -- Analyst

Okay. Fair enough. Thanks for taking my questions.

Operator

Your next question comes from the line of Mac Sykes. Your line is open.

Mac Sykes -- Gabelli -- Analyst

Good morning, everyone. Two questions here. Do you expect any changes in the profitability of payment for order flow given the industry move to zero commissions both for you and perhaps other participants?

Tim Hockey -- President and Chief Executive Officer

No. We don't. And as you know, our focus is always on best execution for our clients.

Mac Sykes -- Gabelli -- Analyst

Okay. And then could you talk about the competitive threat from short duration cash ETFs to your BDA business going forward?

Steve Boyle -- Executive Vice President and Chief Financial Officer

Yeah. So you know, we already have a number of Financial fixed income alternative opportunities available to our clients and to the extent that they have investing cash, they utilize those. We have our subsidies that are getting ready to mature here. We've seen some money move into some money market funds as the curves inverted here. And so, I am sure, it will be a lots of new products coming out, but we don't really see that as a big threat to our cash balances. We think that our cash is principally transactional cash and the clients are relatively rate insensitive on it and want it immediately investable forms, so that they can make trades when they want to make trades. So not a big issue for us, we don't think.

Mac Sykes -- Gabelli -- Analyst

Thank you.

Operator

Your last question comes from the line of Christian Bolu. Your line is open.

Christian Bolu -- Bernstein -- Analyst

Good morning, guys. Thanks for squeezing me in here. I guess, number 6 on M&A, maybe a different angle on that question. Can you talk about maybe the pros and cons of Ameritrade been absorbed by bigger rival? Is it even feasible given the TD equity stake and would there be any sort of strategic benefits to being part of a bigger, a larger group?

Tim Hockey -- President and Chief Executive Officer

So Christian, I'm glad you asked the question at number 6. So you phrased the question, can you talk about the merits, and the answer is no. I think it's been asked and answered. Look, there's lots of ways around it. But look, we will continue, the Board will continue to look at all combinations that makes strategic and financial sense. I really can't give you any more colors on that. It would be inappropriate.

Christian Bolu -- Bernstein -- Analyst

Just to be clear, I am asking it in terms of someone taking you out, not you take it somewhere else.

Tim Hockey -- President and Chief Executive Officer

I understand what you're asking.

Christian Bolu -- Bernstein -- Analyst

Okay. Got it. All right. So move on. I guess maybe on organic growth, I guess, the retail business was soft again this quarter in terms of organic growth then you alluded to a pickup in flows post zero commission. So maybe a couple of questions there. More color on where these flows are coming from, is it from peers who already went to zero or from other players? And any way to maybe quantify sort of the uplift in activity you expect or you hope to get from zero commissions, maybe if you go back to the free trade often you had in the late '90s, what was the differential in activity rates on the average featured account versus other accounts?

Tim Hockey -- President and Chief Executive Officer

Yeah. Christian, that one, I am really happy to answer. So all sorts of things that first of all, the ACAT theme, which is really our best opportunity to see from individual players, where we're getting the flows. It's from all over. You can imagine some of the zero price players. When they're competitive plank is torn out from underneath them, that would be one, but they're relatively small dollars anyway in terms of what has been over there. All the outflow, ACATs are in and out. Our outflows are flowing and our inflows are increasing, but it is pretty widespread.

You mentioned the free trade offering we had literally 20 years ago. We actually went back and looked at some of the analysis of the trading intensity of those accounts. Ironically, it was, we actually had to double check, it was over 20 times the trade rates from clients who are participating in the free-trade. Now, we don't think that that would be the case, while we'd have to buy a whole bunch of more data centers with going to zero. But there is absolutely an effect that when you remove the friction from trading that we'll get more activity. As you know and we said many times, even in a world of zero commissions, traders are by far still our most profitable customers. And we've been growing that segment in many cases, high-single digits and low-double digits over the last sort of while. So we're very excited about the inflow of new activity and we think our offering will continue to win in this environment.

Operator

There are no further questions at this time. I turn the call to the presenters.

Tim Hockey -- President and Chief Executive Officer

Great. Well, thanks everybody for calling in. As we said, even though it was a great quarter and a great 2019, it was sort of overshadowed on October 1st by all the news. But I think you've got a sense that the team is united in a series of very tight tactics to take advantage of this opportunity. And then frankly, after many, many years of having the discussion and having to answer what will you do if commissions go to zero. I think that the day is now here. Clients are better off as a result of it and we will continue to grow even faster in the years ahead. So we're quite excited and thank you all for being part of the call.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Tim Hockey -- President and Chief Executive Officer

Steve Boyle -- Executive Vice President and Chief Financial Officer

Richard Repetto -- Sandler O'Neill + Partners -- Analyst

Christopher Shutler -- William Blair & Company -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Chris Harris -- Wells Fargo -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Brennan Hawken -- UBS -- Analyst

Bill Katz -- Citigroup -- Analyst

Zach Firestone -- Morgan Stanley -- Analyst

Kyle Voigt -- KBW -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Will Nance -- Goldman Sachs -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Mac Sykes -- Gabelli -- Analyst

Christian Bolu -- Bernstein -- Analyst

More AMTD analysis

All earnings call transcripts

AlphaStreet Logo