Coming this year: the new E-Trade?
Custody is a scale business and E-Trade Financial wants in on it — or at least more of it.
That’s why the company, traditionally known for its retail trading platform, has been building a new infrastructure for its custodial platform, which currently services more than 225 RIAs.
The new and improved platform will be ready in the second quarter , and it is one of E-Trade’s top priorities for 2020, according to CEO Michael Pizzi, who discussed the matter on an earnings call with shareholders and analysts last week.
“We want to be a place in the market that has a very strong platform, leads with technology, makes the advisor’s life easier, provides excellent service to all tiers of advisors, and that's what we're building,” Pizzi said on the call. “That's our mission for our institutional channel.”
Apart from its new tech platform, E-Trade has been making investments in, and recruiting employees to, its platform for RIAs in recent months.
At the beginning of 2019, the platform rebranded as E-Trade Advisor Services (it was previously dubbed TCA by E-Trade)
Later that year it made two key hires: Gabe Garcia, a former executive at Pershing Advisor Solutions, joined as head of business management and strategy for the company’s custodial channel; and Charlie Latimer, former director of national recruiting at Private Advisor Group, signed on as vice president of sales.
Pizzi anticipates the company’s investments will pay off in terms of growth, particularly amid the expected Schwab-TD Ameritrade acquisition, he said on the call.
“We see clear opportunity here as evidenced by the number of RIAs that have reached out to us,” Pizzi said. He also highlighted that there are advisors unhappy with the deal, but did not specify the reason why. Advisors have told Financial Planning they have concerns over matters including client service and technology.
However, E-Trade faces one big hurdle impeding its forward momentum. The company still has to manage the technology conversion. E-Trade’s custodial division emerged from its purchase of Trust Company of America in 2018. TCA is a bank custodial platform — not a brokerage — according to Garcia, who spoke with Financial Planning twice in the past three months about the new platform.
Even so, Garcia said, the conversion shouldn’t be a hassle for advisors or their clients because it won’t require any repapering or any work on their part.
“We are handling all of that on the back end for them. We want to make this as minimally disruptive and as efficient and streamlined as possible,” he said, adding that the E-Trade team will take a “staged approach,” testing with small groups at first, then moving on to a broad-based conversion.
“It’ll all happen in a fairly confined period of time,” he said.
Garcia said that the new platform will be well worth the wait for advisors. It’s constructed from scratch, not off existing infrastructure, and is designed to be simple, intuitive and modern, he said. Furthermore, the E-Trade team is paying attention to the details, including how many clicks it takes to complete tasks
“We're moving quickly, but we need to get it done right,” he said.
The company also has plans to build out its Advisor Network, which it launched at the end of 2018.
“We're building quite nicely. We're signing advisors. The referral program is scaling. I think this business is on a solid trajectory to continue to accelerate,” Pizzi said, but noted that some “larger national advisors” are waiting for the technology to be completed so they don’t have to do a separate conversion.
Even as E-Trade invests in its custodial division, it's reducing costs elsewhere as other business units recently reported revenue declines. The firm started moving its New York headquarters to New Jersey in the winter to reduce expenses after the firm followed competitors Schwab and TD Ameritrade's move to drop commissions.
Garcia and Pizzi both expressed enthusiasm for E-Trade’s positioning in the RIA segment of the wealth management industry.
“The E-Trade culture — marrying that with a really solid foundation from the TCA custody platform — I think is going to bring something unique to the marketplace,” Garcia said.