TCA’s system uses omnibus accounting rather than individual brokerage accounts to manage money, Baldwin said, which makes it difficult to transfer accounts, manage fixed income or use margin.
“You have to wonder how E*Trade is going to capitalize off this purchase, unless they’re going to convert the trust [structure] to individual brokerage accounts,” he said.
The deal may also raise competitive concerns for TCA advisors. The custodian has marketed itself as an institutional-only firm that doesn’t compete for clients, a claim it can no longer make being part of E*Trade.
“I know many [advisors] who went [to TCA] for that reason,” Baldwin said of the competitive concerns. “It’s going to be interesting to see what comes of it.”
The transaction is expected to close in the second quarter of 2018. E*Trade expects the deal to be neutral to its bottom line, including the cost of the preferred stock it will issue to fund the purchase.