The Charles Schwab and TD Ameritrade deal will create an RIA custody giant, but “smaller” and “scrappier” E*Trade is viewing the deal as a big opportunity, says the firm’s head of Advisor Services, Matt Wilson.
Wilson tells FA-IQ he has fielded many calls from advisors looking to expand their custodial choices. Advisor Services offers technology solutions, custody services, and referral network for independent RIAs at E*Trade.
E*Trade will target underserved advisors in the wake of this deal, hoping to net a few big fish as well, according to Wilson.
Wilson expects the Schwab-TD Ameritrade deal to unleash a product push that will help differentiate E*Trade since it does not have in-house products and does not compete with RIAs.
But the changing competitive landscape is not the only reason why E*Trade is in focus after the megadeal.
As the chorus for consolidation in the RIA custody space grows louder, experts are looking at Fidelity for its next move and wondering if E*Trade would make for a perfect acquisition target.
Wilson admits E*Trade may be open to “partner” with others, but adds that the firm is currently well-resourced and is actively investing in its own custody business.
He discusses the implication of the Schwab-TD Ameritrade deal with FA-IQ.
Q: What did you first make of the deal when you heard about it?
A: I smiled. I thought that we would have a nice opportunity ahead of us. To me, bigger doesn’t necessarily translate to better. And we focus on those RIAs who are traditionally underserved. So, it’s really hard to say that a behemoth like what’s been announced would necessarily make the world a better place.
The RIAs value choice. They value diversification. So, I think we emerge even stronger as a fantastic option, given the value proposition that we have.
And when I heard the rumblings last week, I had an abundance of calls from RIAs who have assets on both platforms that are being merged, and they’re interested in diversifying. I thought that was fantastic.
Q: Are you going to change your strategy to differentiate or to market yourself better to those RIAs that are underserved, given this deal?
A: I think from a marketing standpoint, we’re always looking to find ways to get in front of the right advisors. So, to us, this is a huge opportunity.
The largest product push in RIA history, in my opinion, is about to ensue. Our business model is unconflicted. There’s no product manufacturing in the retail side and no competition from existing RIAs, which is increasingly important as the competitive ecosystem really narrows.
We view service as a product. We will continue to enhance our service model and listen to the RIAs so that we’re matching the right service, the right technology and entire value proposition for the RIAs that we serve.
Q: What kind of RIA firms will E*Trade be targeting?
A: The core of the industry exists between, say $50 million to $1 billion in assets under management, but the $1 billion firms really get all the attention. We compete really well in the $50 million to $1 billion range today. And we’d like to serve the segment of a billion plus.
We do have a few firms that are billion plus, and we’d like to serve them, and we feel we serve them very well. So, with the dedicated support teams, the technology that we have, the deep understanding of their business, we think we can grow the advisors successfully in growing their businesses through the custodial capabilities that we have.
Q: In the aftermath of this deal, one suggestion that has been talked about is the possibility of a larger company like Fidelity acquiring a smaller player like you. Is that something that you see possibly — an acquisition that will help you get scale?
A: I think right now, as the industry consolidates and cuts back on service, we’re doing just the opposite and we are well-resourced. So, we’re leading with service. We’re investing in technology. And we’re finding the right mix of both that service and that technology as we build out our service model. So, we want advisors on our platform to have a great experience. And we feel that we don’t have any constraints today in providing that great experience.
Q: Are you ruling out the possibility of a merger or an acquisition for E*Trade?
A: I just think we always look at opportunities to partner. We’re always — as a good business, a steward of the business — looking at opportunities. But I would say that from a resource standpoint, as the industry consolidates, we are investing in service. We’re investing in technology.
So, as we enter this space, it allows for a huge benefit to the RIAs that are out there looking for that other player. We’ve been a smaller, scrappier player — E*Trade has — that’s always been central to us and who we are. And that proposition is front and center with a lot of the RIAs that are out there. So, we see a lot of opportunities and a lot of resources committed to that opportunity on our side right now.
Q: What are some of the challenges that you see for this deal and for the advisors because of this deal? Will technology and repapering weigh heavy?
A: I think you really mentioned them. I think those are the concerns with the RIAs … repapering. What does the service model look like? What technology are we going to choose? RIAs, essentially, are small business owners for the most part. And the larger business owners, obviously, they have a business model that they’ve created over time. And to some, this will be potentially disruptive.
Listening to the RIAs that will be going into that merger, they’re looking for diversification. [There are] concerns about disruption of their business and [they] want to make sure that they’re getting the best thing for their clients.
Q: Looking at advisors custodied with Schwab and TD Ameritrade, do you think there will be attrition from those platforms, or do you see them gaining RIAs?
A: I think time will tell. The advisors I’ve spoken with like to be diversified and have choice. It forces a service model or a pricing model that puts them in a good position.
This interview has been edited for brevity and clarity.