TD Ameritrade's deal with Scottrade: Taking advisors to Main Street

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In its plan to buy Scottrade, TD Ameritrade is making a big push into the retail space, potentially quintupling the number of its client-facing offices.

The $4 billion proposed acquisition, expected to close Sept. 2017, will give TD Ameritrade access to Scottrade's 500 brick-and-mortar locations, out of which 1,000 full-time brokers, or "investment consultants" as Scottrade calls them, work. The locations, commonly found in retail centers and strip malls, are expected to switch over to the TD Ameritrade brand. Currently, TD Ameritrade has 100 such locations.

At this point, it's unknown how many of the brokers will remain with the new firm, Scottrade's spokeswoman says.

The deal also would add 800 Scottrade RIAs to the 5,000 TD Ameritrade already works with, according to a spokeswoman for the custodian, depending on how many of these independent planners stay.

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Those Scottrade advisors who do stay will get a big technological boost and more resources, experts say.

"That falls under the category of arming the advisors with better, more sophisticated tools for running their business," says Joel Bruckenstein, a Financial Planning columnist in Miramar, Fla., and co-creator of technology guides for advisers, including Technology Tools for Today’s High-Margin Practice.

"Clearly, TD has a better advisor workstation [than Scottrade's], a much wider choice and somewhat more sophisticated tools," he adds.

There may be hurdles for some, including a minimum level of assets under management, he says.

The greater scale that TD Ameritrade offers also should put Scottrade's RIAs in a better position to face any legal challenges arising from the Labor Department's new fiduciary rule, experts say. "From Scottrade's perspective, you're spreading out any potential litigation costs," says Louis Diamond of Diamond Consultants in Morristown, New Jersey.

The discount online broker wasn't even on Diamond's radar screen, he says, until TD Ameritrade announced its plan to purchase Scottrade along with its largest stakeholder, Toronto-Dominion Bank.

"It makes the Scottrade offering a lot more relevant and user friendly for the advisors it supports," Diamond says.

With more and more automated advice coming online, new zero-cost trading platforms and ETFs squeezing brokerages, the deal makes sense for the RIA space, he adds.

"The overall business model on the discount brokerage side is under siege, and this was a way to gain scale and weather the storm, rather than keep managing two firms apart," Diamond says.

The greater scale afforded by the deal will benefit both parties, says Bill Willis, CEO of Willis Consulting. Scottrade's client base comprises more than three million accounts with $170 billion in AUM.

"As a custodian, the more [business] you do, the lower your cost," he says.

Willis points out that custodians are in a fierce price war for new business, and that TD Ameritrade may have pulled off a strong strategic move in the RIA space against competitors like Fidelity and Schwab. "Here in one fell swoop they've brought in a ton of it," Willis says.

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RIAs M&A Robo advisors Joel Bruckenstein Bill Willis TD Ameritrade