Talk about potential Schwab bid for TD Waterhouse has advisors bracing.
Times were when providers of custodial services wondered how long their financial advisor clients would stay in business. Now the tables have turned.
After the experience of recent months, financial advisors were stunned by two separate news reports. In March, the Vanguard Group announced that it was disbanding its business unit that provides advisors with custodial services. Shortly thereafter, Vanguard entered an informal agreement to steer advisors looking for a new custodian to TD Waterhouse.
Then came a bombshell. News reports surfaced in early May that TD Waterhouse was being put up for sale. The reports were quickly denied by Waterhouse in correspondences to its advisor clients.
But several analysts feel that, despite the denials, there is truth to the reports that Toronto-Dominion Bank is looking to sell its U.S. discount brokerage arm if the price is right. "It sounds as if it's pretty definite," says Matt McGinness, an analyst with Cerulli Associates in Cambridge, Mass. "From our perspective, it's an established fact."
One reason a sale is considered possible is that Toronto-Dominion Bank, Canada's second-largest bank in terms of assets, has already signaled its intention to pull back on its foreign operations and focus on its domestic market. The bank, which suffered its first annual loss in 47 years in 2002, bought TD Waterhouse in 1996 for more than $500 million. Some sources estimated that today the discount brokerage operation, including its institutional arm, might attract up to $1.5 billion.
On top of all the other issues facing them, advisors must also contend with figuring out which providers are going to be left standing a year or two from now. More than a few advisors were further shocked by reports that Charles Schwab could be one of the bidders.
Schwab, meanwhile, is in the process of forcing changes of its own on advisors. On July 1, Schwab is scheduled to hike its minimum-account fees and requirements-a move that will force up to 1,800 of Schwab's advisor firm clients to pay more, increase their account sizes or move their assets to another custodian.
In yet another development, advisors saw their custodial service options grow larger with the announcement that two former Jack White & Co. executives, who also worked at TD Waterhouse after it acquired Jack White, were launching a brokerage and custodial services firm in June that is focused specifically on fee-only independent advisors. The firm, Shareholder Services of San Diego, highlighted its policies against charging advisors any fees for holding accounts or having minimum-account requirements.
Industry Consolidation
Analysts speculate that the potential bidders in a TD Waterhouse sale could include Schwab, Fidelity Investments and Ameritrade Holding Corp., the latter of which has been aggressively marketing its own custodial services-particularly among small advisory firms-since entering the market more than two years ago. Adding to the intrigue was a confirmation by Charles Schwab, Schwab's chairman and co-CEO, that his firm would be interested in such a deal.
"We'll be a very competitive bidder on that particular property," Schwab told Bloomberg News Service. "We're one of the few players that can do an all-cash transaction, if that were required." However, observers also believe that privately held Fidelity could probably outbid Schwab if it wanted to do so. It's also unclear if a bid by Schwab, the market leader, would trigger an antitrust review.