Service and technology drive the custodian's success.

The mood at this year's TD Waterhouse Partnership 2004 National Conference, which took place February 4-7 at the Walt Disney World Dolphin Resort in Orlando, Fla., was almost festive. The market was rebounding, as TD Waterhouse's business was taking off.

Coming only a few weeks after its Toronto-based parent decided not to merge the brokerage with E*Trade, the conference was well attended and it was well received by the advisor community. Benjamin A. Tobias, CFP, CPA, CIMA, of Tobias Financial Advisors in Plantation, Fla., who has attended numerous TD Waterhouse events, declared this year's conference "without question their best conference ever."

At the opening session of the conference Frank J. Petrilli, president and chief executive officer of TD Waterhouse USA, painted an upbeat picture of the recent past and alluded to a bright future for both TD Waterhouse and the advisors it serves. In January 2004, customer assets held at TD Waterhouse were 40% higher than they were in January 2003.TD Waterhouse is now home to $125 billion in customer assets housed in 2.1 million accounts; 210,000 of those accounts and $9 billion of the assets represent new money.

The Advisor Service business is the fastest-growing segment of the company. In the year 2000, the advisor business accounted for just 4.3% of revenues and 11.5% of assets. At the end of 2003 advisors accounted for 9.3% of revenues and 21.9% of assets.

To further emphasize the importance of advisors to TD's future, Petrilli pointed out that in 2003 Merrill Lynch attracted $3.0 billion in net new assets. Of the $9.2 billion that TD Waterhouse USA attracted, Advisor Services was responsible for $6.4 billion. In other words, the roughly 2,600 advisors who do business with TD Waterhouse attracted more than double the net new assets that Merrill Lynch's much larger sales force was able to capture.

TD Waterhouse clearly believes that customer service and technology are driving their success in the Advisor Service sector. A recent study by Tiburon Strategic Advisors would appear to confirm this.

TD Waterhouse led the competition in the area of customer service and operations, garnering a score of 9.3 out of a possible 10. Fidelity ranked a close second, with a score of 9.0, while Schwab received a middling score of 7.3.

In the area of technology offerings and support, TD Waterhouse again led the pack with a score of 9.0. Fidelity ranked second in this area as well with an 8.5, while Schwab scored a respectable 8.0. (Readers can obtain a free copy of the study by completing a survey at FABestPractices.com). Of course, the study contained a few inconsistencies. For instance, Schwab received the highest overall satisfaction rating while doing less well in individual areas.

According to Brian Stimpfl, first vice president at TD Waterhouse Institutional Services, the customer service scores did not come as a great surprise: "Advisors have always told us that this is TD Waterhouse's strength. We have always been customer focused, and we are glad to have it validated."

The technology scores, however, have Stimpfl "extremely excited." Initially, he says, "Technology was a big problem for us. We were playing catch up with Schwab." Stimpfl believes things really started turning around with the introduction three years ago of VEO, TD Waterhouse's Web-based platform for advisors, and continued to progress with the subsequent introduction of VEO Express and the establishment of partnerships with strong third-party providers.

Internally, TD believes that their platform meets or exceeds that of the competition, but perceptions change slowly. "Until recently, we really weren't recognized for our technological prowess. I think our technology scores on the Tiburon survey took our competitor by surprise."

Competitors may have been surprised at Waterhouse's technology scores, but advisors doing business with the firm apparently were not. When Ray Mignone, a CFP licensee in Little Neck, N.Y., was asked about TD Waterhouse, he replied: "Their technology is excellent. They are constantly making improvements. The technology support people are very good, very helpful."

Anthony J. DeVito of ADV Investment Management & Financial Planning in Pelham, N.Y., characterized their technology as "very good" and their responsiveness as "excellent."

If there was one fly in the ointment of some otherwise strong scores, it was in the area of education and training. Fidelity led the pack with a score of 9.0, Schwab's rating was 6.4 and TD Waterhouse trailed with a 6.0. Stimpfl puts a positive spin on the relatively poor showing in this area: "We are moving in the right direction," he says. "We continue to get better. I view this as an area of opportunity."

So how has TD Waterhouse managed to improve so much technologically in such a short time? Clearly, VEO was a key component.

Mignone cites VEO Express, a desktop applet, as another piece of the puzzle. "VEO Express allows me to filter and sort information, as well as to export data into MS Excel for further analysis. I also use VEO Express to upload management fees."

AdvisorClient.com empowers advisors to offer their clients online access to positions, balances and account histories. The AdvisorClient sites are personalized with the advisor's name and contact information at the top of each screen.

Strategic alliances were also instrumental in helping TD Waterhouse close the technology gap. In the portfolio management arena, Waterhouse partnered with Advent Software Inc. to provide AXYS at a discount. Advisors can either purchase the desktop version of the software and perform downloads themselves, or they can purchase a package that includes outsourced downloads and reconciliation.

Not every technology initiative has captivated advisors' interest. Since the second quarter of 2003, TD Waterhouse has offered Financial Engines' Advisor software to their clients at no additional charge, and it will remain free until at least the end of 2004. Coming almost a year after it was announced with great fanfare, some wondered if the deal wasn't vaporware. To date, more than 400 advisors have used the software at least once, but no one at the firm could provide an accurate count of advisors who use it on a regular basis.

During the conference TD Waterhouse announced a new partnership with Morningstar Inc. to provide an exclusive "TD Waterhouse Edition" of Morningstar Workstation to its advisors. "To the best of my knowledge, nobody else offers independent advisors such attractive pricing," Stimpfl says.

Three tiers of service will be available. The most basic, which includes only the research module, will be priced at $1,800. The middle tier, which will include sales and hypothetical tools, is priced at $2,150, and the comprehensive edition will cost $2,500.

TD Waterhouse, with assistance from Morningstar, will supply Web-based training to help advisors integrate Workstation in their practices. TD will offer frontline support for its advisors using Workstation, with Morningstar providing help with more complex issues as needed. By the end of this year, TD Waterhouse has promised to integrate Workstation with their custodial platform, so that the two will work seamlessly together. "No other custodian is offering seamless integration of Morningstar Workstation with their custodial platform," Stimpfl says.

Although Stimpfl sounds satisfied with TD Waterhouse's accomplishments in the field of technology over the last several years, he did not appear ready to start coasting. "Providing good technology to advisors is only half of the battle," he says. "Advisors must understand how to use technology as well. If we cannot help advisors extract value from the technology we supply, we haven't totally succeeded."

To this end the firm has launched a number of new initiatives, one of which is the Solutions Consulting Group. This group, which was launched with six full time technology consultants and will be expanded in coming months, offers technology help to advisors through phone calls, Web demos and office visits.

The creation of the Solutions Consulting Group appears to be a shrewd business move on the part of the firm, because it allows them to leverage their newfound strength in technology with their highly regarded expertise in customer service. If the initiative is successful, and there is no reason to believe that it won't be, TD Waterhouse will achieve its goals of both supplying good technology and insuring that advisors are capable of using it effectively.

When asked about the greatest challenges facing the firm technologically in the future, Stimpfl cite three broad areas: integration, ongoing improvements to the platform and account aggregation. "Integration is huge," says Stimpfl. "From a service standpoint, the advisor is at the center of the model. From a technology and integration standpoint, the custodian is really at the center because that is where the assets are held. Advisors are asking us for integration, and we will provide it to them."

One aspect of improving the platform entails offering additional third-party tools. Advisors have told the firm they want additional financial planning software choices, and the TD is trying to deliver. Another aspect of platform improvement is improving core operational functionality. For example, advisors want the ability to perform certain functions online that are not currently available to them. These include items such as entering changes of address, automatic reinvestment of stock dividends and improved cash management. Expect to see improvements in this area soon.

TD Waterhouse has made significant strides over the last couple of years, positioning itself as one of the premier providers of custody service to independent financial advisors. While additional challenges lay ahead, the firm's strengths in the areas of customer service and technology, combined with a clear plan for continued improvement, bode well for the future.