Online brokerage TD Ameritrade (NASDAQ:AMTD) just reported first-quarter results that showed an impressive uptick in new client assets, trading activity, and total revenue. The numbers certainly look great overall, but what about the future?
I recently spoke with Peter deSilva, TD Ameritrade's president of retail distribution, to find out. Here's what deSilva had to say about investor optimism, the trend toward lower investment fees, robo-advising, millennial investors, cryptocurrencies, and more.
Matt Frankel: "TD Ameritrade took in $22.2 billion of new client assets during the first quarter of 2018, 8% more than a year ago. Would you say that Americans seem optimistic about investing, or is this because TD Ameritrade's products are attracting new money?"
Peter deSilva: "Client engagement is at an all-time high. We're seeing self-directed investors feeling quite good about the economy, as well as net buying throughout TD Ameritrade."
Frankel: "The industry trend seems to be in the direction of lower commissions and investment fees. In fact, TD Ameritrade recently lowered its stock-trading commissions by $3. How do you see this playing out in the future, and how could this affect TD Ameritrade's profitability?"
DeSilva: "Certainly, companies like Robinhood [which offers no-commission trading] have our attention. However, we feel very comfortable at our current $6.95 price point, and feel that when you consider our technology, customer service, and available resources, we're offering a good value. It's also important to note that we are willing to negotiate our commission structure for our most valuable clients.
"As far as profitability goes, we've certainly [seen] a drop in commission-based revenue after the price reduction, but higher trade volumes [have] helped to offset it."
Frankel: "TD Ameritrade launched its version of robo-advising, Essential Portfolios, a couple years ago. Is the product catching on as expected?"
DeSilva: "Absolutely. We recently hit a couple of key milestones, such as $1.5 billion in assets under management. We're also seeing a good demographic distribution -- millennials, Gen Xers, and baby boomers are all using the product to meet their goals."
Frankel: "Essential Portfolios charges a 0.30% management fee. As I mentioned, there's lots of pricing pressure in the industry. Do you see this fee as reasonable, or too high considering the cheaper alternatives?"
DeSilva: "I agree that there is pricing pressure in the industry, particularly from companies like Vanguard and [Charles] Schwab. Having said that, I think our pricing structure is very competitive considering what you get for your money."
Frankel: "TD Ameritrade announced that its Scottrade account conversions are now complete. Has TD Ameritrade been successful when it comes to retaining those customers, and what kind of feedback have you received?"
DeSilva: "So far, it [the retention rate] has been well within our expected parameters. Scottrade customers have given us excellent feedback -- particularly that they're very pleased with our technology. This has really been a textbook conversion so far and we're quite pleased with the transition. The real question is what could happen over the next 12- to 18-month period, which obviously remains to be seen."
Frankel: "The younger generations, particularly the millennials, are critical to the future success of companies like TD Ameritrade. Has TD Ameritrade had success getting new millennial investors to come into the market, and to use your platform instead of lower-cost competitors?"
DeSilva: "Overall, millennials have been very active investors -- more than I ever thought they would be. Millennials have been doing a great job of saving for emergencies, and as a result are finding themselves in a position to start investing earlier than their parents did. And, it appears that millennials are finding our brand and investing platform quite attractive. I have to say, I'm quite encouraged by what we're seeing from the millennial generation so far."
Frankel: "One final question: What role do you see cryptocurrencies playing in TD Ameritrade's business going forward?"
DeSilva: "Frankly, we're being somewhat cautious. We've offered our clients ways to get exposure, such as bitcoin futures, but it's not a core business for us and we have no plans to make it one in the near future. Having said that, we'll have to wait and see where it goes."