Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week we have an extra special bonus podcast. Last
Speaker 1: month I went to the t D Elite Link Conference,
Speaker 1: which is a small gathering of about two hundred advisory
Speaker 1: firm executives that run over three hundred billion dollars. This
Speaker 1: is an annual event goes from city to city each year.
Speaker 1: This year it was in lovely Dana Points. If you
Speaker 1: know that part of California, next to Laguna, It's just
Speaker 1: spectacular ocean front. As lovely a location for a conference
Speaker 1: as you'll find. I had the privilege of interviewing Tim Hockey.
Speaker 1: He is the CEO and president of td A merrit Trade,
Speaker 1: a company that serves both individual investors and independent r
Speaker 1: i A s. They have total client assets of about
Speaker 1: one point three trillion dollars as of the end of
Speaker 1: the second quarter. They are the custodian of choice for
Speaker 1: a number of r A r i A s UH.
Speaker 1: They are one of my two custodians we work with
Speaker 1: t D and Schwab at r W M and UM.
Speaker 1: The other person I interviewed was Tom Nallly. He is
Speaker 1: the president of td A Merritrade institutional which provides custody
Speaker 1: and brokerage services to more than seven thousand UH independent
Speaker 1: r i A s. That's about six hundred and fifty
Speaker 1: billion dollars under custody. This is very much an inside
Speaker 1: baseball conversation. If you are an r i A, if
Speaker 1: you're interested in the investment management or financial planning business,
Speaker 1: then this really is uh inside baseball stuff that is
Speaker 1: must listen. So, with no further ado, my interview with
Speaker 1: Tim Hockey and Tom Nally. So the real brief introduction.
Speaker 1: When I was doing the homework for this, t D
Speaker 1: manages or custodies one point three trillion in total client assets,
Speaker 1: eight hundred and sixty thousand average clients trades per day UM,
Speaker 1: generating about a billion and a half revenues a year.
Speaker 1: That is a really substantial set of data UM, and
Speaker 1: it says a lot about what this organization is about. So,
Speaker 1: so let's start with some questions, beginning with Tim, So,
Speaker 1: what does it mean to be a CEO of such
Speaker 1: an enormous organization? How do these challenges differ from other
Speaker 1: roles you've played within the company. Well, I was talking
Speaker 1: to the advisor panel this morning and I've said it's
Speaker 1: now been three and a half years since UH, since
Speaker 1: I took on the job as CEO UH and having
Speaker 1: come from the TD Bank in Canada. It's very dramatic difference. UM.
Speaker 1: The dramatic difference is you know the phrase the buck
Speaker 1: stops here. You feel that in spades UH in in
Speaker 1: this job and this rule in particular, an enormous sense
Speaker 1: of responsibility UH to the all of the constituents. Doesn't
Speaker 1: matter whether it's your associates, or your clients, or your
Speaker 1: your shareholders or frankly the communities that that all of
Speaker 1: our people work in. It's just that sort of UM.
Speaker 1: Don't want to let people down. I guess is the
Speaker 1: UH is the largest issue, the biggest shift from the job.
Speaker 1: If you graduate into this rule and to see role
Speaker 1: and get promoted in is is literally the time horizon.
Speaker 1: Your time arizing, by definition has to shift out. UM.
Speaker 1: If you want a geek out on management theory for
Speaker 1: a second, the basic premises, organizational hierarchies, levels of an
Speaker 1: organization six, seven, eight, nine, whatever it is, UM, they
Speaker 1: all depend on what sort of time arising you have.
Speaker 1: So if you're a if you're a bank teller, you
Speaker 1: know you've got a time arising in one day, right,
Speaker 1: it's your shift. If you are processing a piece of
Speaker 1: paper as an administrator, it's a one day time arising.
Speaker 1: If you're an entry level supervisor that second level, then
Speaker 1: it's a very short period of time, probably a week,
Speaker 1: maybe a couple of weeks. As you go up your organization,
Speaker 1: your time arising apps to shift out. So if you
Speaker 1: go from Tom's level six seven levels in your organization,
Speaker 1: you can have a time arising up saying how do
Speaker 1: I transform the institutional business with five to ten years
Speaker 1: of time rising? And then at the CEO of the
Speaker 1: firm level you should be running from ten to twenty
Speaker 1: years and that that means you've got to try and
Speaker 1: keep all your balls moving to be able to um,
Speaker 1: you know, hit those objectives a long way out with
Speaker 1: a lot of variabilities. So anyway, enough geeking out. But
Speaker 1: that's that's the biggest difference in this job. So let
Speaker 1: me pull it back from the geek side. When when
Speaker 1: you find out um, you're going to be CEO, you
Speaker 1: say to yourself, I don't think people really know who
Speaker 1: I am. Maybe I should write a bo look and
Speaker 1: tell a little bit about myself, explain the thought process there. Uh. Well,
Speaker 1: thankfully it wasn't a book that would have taken too long.
Speaker 1: But after being at a TD for thirty two years
Speaker 1: and pretty much knowing everybody knowing me, when I came
Speaker 1: to TD and merit right, I realized it was going
Speaker 1: to be an unknown quantity. And anytime you have a
Speaker 1: new boss, what does everybody think? They say, all right, well,
Speaker 1: what's he or she like? You know, what's their management style?
Speaker 1: What do they value? And we generally with a new boss,
Speaker 1: will spend literally months or years trying to figure that
Speaker 1: person out. And so what I did when I got
Speaker 1: here was to recognize that that was what you know,
Speaker 1: Tom and the rest of the team was thinking about.
Speaker 1: And I actually spent some time on a very rainy
Speaker 1: weekend at my place in South Carolina and pen something
Speaker 1: I called it was the User's Manual to Tim or
Speaker 1: Users Guide to Tim. Uh and it just basically it
Speaker 1: was an open book. I said, here's what I what
Speaker 1: I think about management, Here's what I believe, here's you know,
Speaker 1: everything you would want to know about me, and and
Speaker 1: you know, taking glass of red wine and and read
Speaker 1: it and hopefully it'll be helpful, and then hold me
Speaker 1: accountable to it. Uh. And that's that's the that's the trick.
Speaker 1: And so then I sent it out to my leadership
Speaker 1: team and they then said, well, can we send it
Speaker 1: to our leadership team? And they said, and we send
Speaker 1: it to our leadership team. And that was the theory
Speaker 1: behind it. Very very good practice to go through. I
Speaker 1: would highly recommended it, not just because I think it's
Speaker 1: helpful for as a new leader in an organization. H
Speaker 1: I actually went through with my wife and my two boys,
Speaker 1: and they're the harshest critic and so they read the
Speaker 1: first draft in the second draft and they said, yeah,
Speaker 1: that's that's not right, so change that, fix that. Um.
Speaker 1: But it does force you to be crystal clear and
Speaker 1: your expectations of yourself and and live up to those
Speaker 1: with your team. And I could say it was incredibly
Speaker 1: helpful for somebody who was trying to understand, Okay, who
Speaker 1: is this guy that just you know has shown up
Speaker 1: on the scene that based upon a relationship with t
Speaker 1: D kind of have some level of familiarity with him
Speaker 1: because of his previous role and you get to see
Speaker 1: him once a year and this big giant convention speak.
Speaker 1: But then to actually see this and understand who he
Speaker 1: is as a person. It just gives you a nice
Speaker 1: roadmap to to figure out, Okay, how do I interact
Speaker 1: with him? And it was really incredibly helpful. So Tom,
Speaker 1: let's let's talk a little bit um about you. You've
Speaker 1: helped rant t D up to seven thousand independent r
Speaker 1: I a s tusting in with two D America Merritrade
Speaker 1: Internet Institutional Um. That's a giant success by any measure.
Speaker 1: What was that process like and where did you encounter
Speaker 1: major road roadblocks? I would say it was a long slog.
Speaker 1: We've been at this for you know, more than two
Speaker 1: decades now, and uh I think it all started with
Speaker 1: just having a really keen focus on understanding, you know,
Speaker 1: what the needs of the advisor actually are and trying
Speaker 1: to craft a value proposition that delivers on those needs
Speaker 1: and make sure it was able to evolve over time
Speaker 1: as those needs change, as the market change, and so
Speaker 1: on and so forth. And it's been uh an incredible,
Speaker 1: you know, right. I mean, we've been trying to take
Speaker 1: advantage of this massive secular trend towards the independent are
Speaker 1: a model that is we don't think going to slow
Speaker 1: down anytime soon. It's great for our industry. It's it's
Speaker 1: great for UH financial services in general. You know, it's
Speaker 1: amazing when you see the beauty of just putting the
Speaker 1: client first, what can happen, and that goes for us,
Speaker 1: it goes for you. It's been a wonderful road and
Speaker 1: you know, we feel like we're just getting some momentum
Speaker 1: here as people become more aware of what it is
Speaker 1: are as actually do and how it's doing the right
Speaker 1: thing for for clients, which is fantastic. So what were
Speaker 1: the big surprises on the road to seven thousand and
Speaker 1: and beyond. Well, I think just the change that's taken
Speaker 1: place in our space. You know how advisors businesses have
Speaker 1: have evolved in change. When I first started, most are
Speaker 1: A firms were portfolio allocation shops, and then they started
Speaker 1: to become comprehensive wealth management firms, adding on more and
Speaker 1: more services. And today basically, you know, all of you
Speaker 1: are being asked by your clients to be all things,
Speaker 1: you know, give me advice on all things that have
Speaker 1: to do with money in my life, and think about that.
Speaker 1: I mean, it's basically everything. So we're trying to keep
Speaker 1: up with the evolution of what your clients are demanding
Speaker 1: from you and enable you to deliver great client experience,
Speaker 1: you know, at scale, high quality. So it's it's it's
Speaker 1: been amazing just to watch that happen and see how
Speaker 1: the industry has evolved. The other thing is just the
Speaker 1: shift and the trend towards are as versus the wire houses.
Speaker 1: You know, in the last ten years, wire houses have
Speaker 1: lost about eleven points of market share and the ra
Speaker 1: A channel has captured about eight eight points of that,
Speaker 1: which is which is spectacular. And the more and more
Speaker 1: consumers get smarter about the relationships that they enter into,
Speaker 1: you know, that will continue to change. The more advisors
Speaker 1: recognize that I can do this better on my own
Speaker 1: rather than being in a captive environment, will continue to
Speaker 1: see advisors shift and and go independent and join existing firms.
Speaker 1: We've seen an enormous amount of capital flow in So
Speaker 1: it's it's it's been an amazing, amazing ride. So, Tim,
Speaker 1: you have to balance your your attention on two different groups.
Speaker 1: On the one hand, you have all of your R
Speaker 1: I A clients. On the other hand, there are shareholders
Speaker 1: and there are owners of TV that UM need to
Speaker 1: be satisfied. How do you balance the two of those
Speaker 1: where's the focus and do you ever, um find the
Speaker 1: place where it's sometimes challenging to strike the exact right tone.
Speaker 1: I don't think it's actually a trade off between the two. Um.
Speaker 1: You know, my general philosophy and I think I wrote
Speaker 1: it down down that book was you take care of
Speaker 1: your associates, they take care of your clients, and the
Speaker 1: clients then take care of the shareholders in that sort
Speaker 1: of sequence. UM. Actually I can I can draw a
Speaker 1: little bit on your last question of Tom to sort
Speaker 1: of make the point everybody in this room is participated
Speaker 1: in this extraordinary shift to the r A channel of
Speaker 1: the last ten years, said this morning, it's it's tripled
Speaker 1: in size and um in ten years. But Tom's business
Speaker 1: he started stuffing envelopes in institutional business, you know how
Speaker 1: many years ago? And now was it twenty five years?
Speaker 1: I wasn't gonna out it, but okay, but it was
Speaker 1: twenty five years ago. He started in the institutional business
Speaker 1: for for T d A. And we've grown six times.
Speaker 1: And so you have that sort of focus on doing
Speaker 1: right by your clients and helping them be successful, and
Speaker 1: the shareholder gets massively rewarded. And UM, I also you
Speaker 1: know shared this story with the panel this morning. I
Speaker 1: thought it was a great one because we actually went
Speaker 1: and did a long term view of our of our
Speaker 1: performance as a company. Here we are as a as
Speaker 1: a wealth management firm, we should take a look at
Speaker 1: our own performance and say how have we done? So
Speaker 1: here's here's other MathWorks and I think it's a fun story.
Speaker 1: We I pot as a company in adjusted price a
Speaker 1: buck fifty, so here we are now at fifty and change.
Speaker 1: So there were forty six hundred public companies back in
Speaker 1: those h in interveting years. Twenty four hundred of those
Speaker 1: forty six hundred, uh were bought, so they consolidated into
Speaker 1: the others. Eleven hundred of those hundred companies basically, UM,
Speaker 1: we're delisted and so they're got so about eleven hundred
Speaker 1: companies left. We're still one of the eleven hundred. Then
Speaker 1: if you say, all right, what was the size of
Speaker 1: those companies? Of those eleven hundred, there was about six
Speaker 1: hundred that had this similar market cap to we did
Speaker 1: when we I POD about two hundred million dollar market cap.
Speaker 1: Now we're thirty billion. So out of those six hundred
Speaker 1: companies that remain, UM, we rank ordered them in terms
Speaker 1: of total shareholder return, and we are number eleven out
Speaker 1: of six hundred over those twenty two years since our
Speaker 1: I p O. No big surprises to uh, who's number
Speaker 1: one Apple? But I think that's long term success and
Speaker 1: performance as a company going back from the I p
Speaker 1: O days, comes from being a combination of the right things.
Speaker 1: Great leadership. You know, I've only been here three years,
Speaker 1: but you know, guys like Tom twenty five years and
Speaker 1: Fred and Joe and our founder UM riding a wave
Speaker 1: of success focusing on your clients and the value you
Speaker 1: can deliver, and the shareholder gets intensely rewarded for that.
Speaker 1: So this has just been a great right for us.
Speaker 1: So Tom, let's talk a little bit about some of
Speaker 1: the elements that have led to this success, starting with technology.
Speaker 1: If there's a question I hear from advisors more than
Speaker 1: anything else, it's how can I be cutting edge UH
Speaker 1: and provide the technology I need to run my business
Speaker 1: and my clients want without getting distracted by every new
Speaker 1: shiny object that comes along. Yeah, I mean it's a
Speaker 1: great question. I think you know. Our view is technology
Speaker 1: is the great enabler, right. It enables you to deliver
Speaker 1: more services to your clients and you know, have a
Speaker 1: more robust value proposition. And I think you almost need
Speaker 1: to break that into two different things, right. The first
Speaker 1: thing is there's probably a lot that are mature technologies
Speaker 1: that are out there that you can take advantage of
Speaker 1: now in the immediate term to improve your efficiency your
Speaker 1: client experience. Many times that's you know, one and the
Speaker 1: same and work on implementation. On the second half of it,
Speaker 1: you really need to keep your ear to the tracks
Speaker 1: around what are consumer trends, What are you know, the
Speaker 1: expectations of the consumer, not just in financial services, but
Speaker 1: in just the way they interact in their life. You know,
Speaker 1: with Amazon, Google, you know, Apple, a lot of the
Speaker 1: top companies, to see how those trends are evolving, and
Speaker 1: then work with the firm like ours to give us
Speaker 1: insights into what it is that you need what you need.
Speaker 1: What we're seeing is a lot of firms getting pushed
Speaker 1: into adding these additional services. So how can we partner
Speaker 1: together to deliver your you technology you know at scale
Speaker 1: l that you might not be able to do on
Speaker 1: your own. So I think there's a commodation of factors
Speaker 1: that you need to focus on there. But technology really
Speaker 1: is the biggest opportunity out there because if you think
Speaker 1: about everything in your business is pretty much going to
Speaker 1: be automated, which is a good thing. Technology is a
Speaker 1: tool for all of us to utilize across every facet
Speaker 1: of of whether it's trading, rebalancing, you know, risk management, CRM, portfolio,
Speaker 1: you know, reporting, the whole nine yards, and that just
Speaker 1: frees you up to spend more time deepening relationships with
Speaker 1: your clients, which is what clients really care about. You know,
Speaker 1: we have one advisor to say to me one time,
Speaker 1: and it really stuck with me, and I continue to
Speaker 1: bring this up. Nobody ever walks in the offense says
Speaker 1: I want to beat the SMP by five points. They
Speaker 1: walk in and say, am I gonna be okay? And
Speaker 1: technology enables you to have all of those tactical things
Speaker 1: done in an automated fashion, so you can spend the
Speaker 1: time really getting to understand what are the hope stream
Speaker 1: spheres of those clients and make sure that you're you're
Speaker 1: meeting those needs and and delivering on what they're most
Speaker 1: concerned about. So, so you mentioned rebalancing is a technology,
Speaker 1: how do you decide internally, hey, we can build something
Speaker 1: that will push a button and automatically rebalance and do
Speaker 1: some tax loss harvesting, or oh maybe there's a company
Speaker 1: out there that might be much more mature and further
Speaker 1: along and it will be faster and more efficient to
Speaker 1: buy it like I Rebound. How does that decision build
Speaker 1: your by be made and what sort of elements are
Speaker 1: you thinking about? See from our perspective when we go
Speaker 1: through that you know, uh equation. I mean, we really
Speaker 1: are looking if we're gonna make an acquisition where there's
Speaker 1: got to be white space where we can be an
Speaker 1: industry leader and it fits within our core capabilities of
Speaker 1: the services that we type, we try and deliver and
Speaker 1: get strategic advantage like with I Rebound. Now, I rebould
Speaker 1: has you know, probably more than fifty market share in
Speaker 1: that rebalancing space, so there was an opportunity there. If
Speaker 1: we don't think that we can can carve that out
Speaker 1: for ourselves, we would rather have an open up which
Speaker 1: our technology platform is very open architecture, you can plug
Speaker 1: in many different types of systems. Um we'd rather partner
Speaker 1: with industry leaders and then work to give advisors advisors
Speaker 1: guidance on how do you put the best technology stack
Speaker 1: together that meets your and your client's needs, so it's
Speaker 1: more it's a build by partner type arrangement. Now from
Speaker 1: a from a build at yourself perspective, we do try
Speaker 1: and be very focused around sticking within our swim lane
Speaker 1: so that we can, you know, not have to spread
Speaker 1: our resources too thin and make sure that we're not
Speaker 1: leaking into areas where some of our technology partners within
Speaker 1: the space are going to do a better job than us.
Speaker 1: So it's being really focused and understanding, you know, how
Speaker 1: you're going to deliver value. Just to add on a
Speaker 1: little bit um, Really three types of decisions, three types
Speaker 1: of acquisitions you want to make. The first is when
Speaker 1: you need to do a strategic pivot. There's just a
Speaker 1: you know your end of life with your particular business
Speaker 1: model and say okay, I've got the capital, I've got
Speaker 1: the cash cow, and now let me buy something that
Speaker 1: gives me a brand new capability, no synergies. You invariably
Speaker 1: pay too much for it, but in the long term
Speaker 1: it pays off because you're safe. The second one is
Speaker 1: a scale play, right um. And the third one is
Speaker 1: that capability ad. I remember, back when we did the
Speaker 1: scott Trade deal, a couple of years ago. The Wall
Speaker 1: Street Journal article the day after that was announced was
Speaker 1: written by an article by a journalist who said, oh,
Speaker 1: they they're investing too much in the old model, as
Speaker 1: in the consolidation the scale play of Scott Trade in ourselves,
Speaker 1: they should have bought a robo advisor And of course
Speaker 1: at the time they were saying we should have spent
Speaker 1: five million dollars or thereabouts for uh in a robo
Speaker 1: advisor player with you know, no assets to speak of.
Speaker 1: We looked at that and we and I sort of
Speaker 1: laughed because this the creation of the of the value
Speaker 1: by doing the Scott Trade deal was enormous and to
Speaker 1: all to make the equation of buying a robo player
Speaker 1: at five million versus building it yourself in terms of
Speaker 1: the capability at about five million, right, so you would
Speaker 1: have paid you know, a hundred times what the what
Speaker 1: it would take you because we already had the capability
Speaker 1: to put the pieces together and spend a fraction of
Speaker 1: the price. So that's sort of the equation. So so
Speaker 1: since you bring up robo, let's talk a little bit
Speaker 1: about swab has an automated solution vanguard across the hundred
Speaker 1: billion in that what do you think of this space?
Speaker 1: Is this the sort of thing UM Betterment recently pivoted
Speaker 1: and began offering a white label version of their robo
Speaker 1: to advisors. What do you guys think of this space?
Speaker 1: Is something we could see UM a little higher profile
Speaker 1: or not not in your swim lane. Yeah, so we've
Speaker 1: long thought that robo isn't a business model. It's a
Speaker 1: technology that is just another version of what Tom was
Speaker 1: talking to. It's a tool that comes along and it
Speaker 1: provides yet more automated versions of services and UM so
Speaker 1: there are different versions of that if you go fully automated.
Speaker 1: The current maturity of of our space and our client's
Speaker 1: desire is most people try the fully automated model and
Speaker 1: then realize, you know, you need to bolt on a
Speaker 1: human element to make it really successful. Because of the
Speaker 1: pricing that of the business models. My view is you
Speaker 1: can't really get to scale until you're at a fifty
Speaker 1: or sixty billion dollar asset level, and that's really tough
Speaker 1: for the soul providers and and the the fintech upstarts.
Speaker 1: To get to that level, there'll be one or two
Speaker 1: survivors of In my view of robos as a as
Speaker 1: a business model. But what you see is the maturation
Speaker 1: in the industry, which is all the established players come
Speaker 1: to the party, usually a little later, and they offer
Speaker 1: that capability and they already have the distribution strength, they
Speaker 1: have the brand, they have the client perception, and then
Speaker 1: they tend to gather assets a lot faster. It's really
Speaker 1: interesting though, just to add on too, that we were
Speaker 1: because we have an open architecture technology platform, we were
Speaker 1: one of the first adopters to go out there and
Speaker 1: partner with about a dozen, you know, different robo technology
Speaker 1: firms that some were going directly after the consumer and
Speaker 1: we're going to be an r A themselves, and found
Speaker 1: because of all the challenges that Tim dis mentioned, they
Speaker 1: don't have the distribution, the brand, the capability. They quickly
Speaker 1: pivoted to, hey, now we're going to distribute through advisors.
Speaker 1: And they were expecting advisors to have a bifurcated business
Speaker 1: model where they were going to go down market and
Speaker 1: utilize the robo as the solution while they're keeping their
Speaker 1: high net worth offering the same and they didn't really
Speaker 1: see that materialize. So we saw very low adoption and
Speaker 1: we actually have a product for our retail clients and
Speaker 1: was built with the ability to pivot and deliver those
Speaker 1: capabilities to advisors if the demand is surfaced, and it
Speaker 1: really hasn't come to fruition. We haven't seen a lot
Speaker 1: of advisor adoption of that type of technology because they
Speaker 1: just haven't figured out how to you know, biflicate the
Speaker 1: market and so on and so forth. So both of
Speaker 1: you have made reference to what's going on in fees.
Speaker 1: There's been a transition to some degree from active to passive,
Speaker 1: but the bigger transition seems to be from expensive too cheap?
Speaker 1: How much lower can fees get? How cheap is cheap? YEA, Uh, well,
Speaker 1: I think there's a pressure on um price. Period. It
Speaker 1: doesn't matter what sector you are in industry, let alone
Speaker 1: in wealth management, whether it be asset management, whether it
Speaker 1: be commissions on trades. There's a constant pressure. So why
Speaker 1: is that, Well, because they're clearly excess rents. They're being
Speaker 1: earned um. If a competitor can enter the space eke
Speaker 1: out a profit, a rational profit or a reasonable profit,
Speaker 1: and a return on their capital and at a lower price,
Speaker 1: they're going to do that, That is absolutely a That's
Speaker 1: a good thing for consumers. That's a good thing for
Speaker 1: the economy to have price competition. UM, so what does
Speaker 1: it force you to do? Well? It forces you to
Speaker 1: get big enough so that you can have scale to
Speaker 1: be able to match that. On the way down, it
Speaker 1: forces consolidation in the industry, which is not always good. Um,
Speaker 1: but it certainly keeps everybody on their toes. I don't
Speaker 1: think the pressure is going to abate, because it hasn't
Speaker 1: to date the h you know we were formed. I'd
Speaker 1: like to say back to that date when our industry
Speaker 1: was formed, when the regulation has changed. Think about the
Speaker 1: regulation that was changed was allowing price competition amongst brokers. UM.
Speaker 1: I had a chance to to get a copy of
Speaker 1: It's a galley copy. It's not yet published. It's the
Speaker 1: it's the autobiography from our founder, and so I'm reading
Speaker 1: through it and I'm getting these sort of interesting little
Speaker 1: anecdotes from uh when uh you know pre I P
Speaker 1: O and in nineteen seventy five, and the reason why
Speaker 1: the term discount brokerage actually got coined. I didn't realize this.
Speaker 1: It was a risory term that was coined by the
Speaker 1: full service firms because it was supposed to be negotiated commissions.
Speaker 1: But they do said another, you're a discount broker, you know,
Speaker 1: you're just you're just discount notably cheap as in no
Speaker 1: value add and the time has happened or you know,
Speaker 1: and and back down because of course it was trades
Speaker 1: were fifty bucks and sixty bucks of trade and seventy
Speaker 1: five bucks of trade, and that was a that was
Speaker 1: the discounted price in and here we are at you know,
Speaker 1: now call it off that price point or that price
Speaker 1: point in the intervening period of time, and we're still
Speaker 1: talking about the prices are going down to you know,
Speaker 1: four or three two one zero. UM. My own view
Speaker 1: is there's no such thing as a free lunch. There
Speaker 1: never has been. Uh, there will always be, UM a
Speaker 1: margin that needs to be eked out if there is
Speaker 1: value provided to clients, and clients will happily pay for
Speaker 1: for that value. So so let's talk a little bit
Speaker 1: about that because I love that topic. I think people
Speaker 1: get so enthusiastic about cheap, which is great, they don't
Speaker 1: realize free is misleading because nothing is free. You're paying somewhere.
Speaker 1: Some of your competitors will go without being mentioned, UM
Speaker 1: offer free asset allocation, free robo adviser, and then there's
Speaker 1: a little asterisk, and it turns out that free is
Speaker 1: kind of expensive. You've discussed this in public in the past.
Speaker 1: What what are your thoughts on free? Yeah, so again,
Speaker 1: theory from my point of view is you don't want
Speaker 1: to just compete on absolute price, because price itself is
Speaker 1: a race to the bottom, and it just means you
Speaker 1: have to be cheap, cheap, cheap, cheap. If if you're
Speaker 1: if you're having a choice between competing only on price,
Speaker 1: or primarily on price, or on product or on the
Speaker 1: client experience, and it is a race to the bottom.
Speaker 1: You know, I've said to my team many times, we
Speaker 1: think we can create the most value and stand out
Speaker 1: from a client experience point of view in terms of
Speaker 1: all the capabilities we had for our clients. If we
Speaker 1: had enough value, you will pay a reasonable price for
Speaker 1: that value, UM by investing that return, if you will
Speaker 1: for for the next little while, if prices go down
Speaker 1: to zero, let's just imagine that. You know, five years
Speaker 1: from now, UM, prices are gonna go down to zero.
Speaker 1: Now there's two ways to compete, product and the client experience,
Speaker 1: because prices now equated to zero for everybody. And if
Speaker 1: that's the case, you better have wished you've differentiated yourself
Speaker 1: on the client experience in needs reading time, because now
Speaker 1: how do the cheap players compete? Right, they've been very cheap.
Speaker 1: They probably don't have the differentiating factors. Uh, and as
Speaker 1: a result, they're going to be stuck a little bit
Speaker 1: making a difference. So having said that, there is no
Speaker 1: zero there is no absolute free lunch. And as you said,
Speaker 1: there are different pricing models, some of straight up front
Speaker 1: and some of it has got hidden costs that the
Speaker 1: client does end up playing somewhere your champion. Yeah, I
Speaker 1: mean just two things. I mean from an r A perspective,
Speaker 1: what's interesting is it's one of the areas and financial
Speaker 1: services where you haven't seen a lot of price compression,
Speaker 1: But what you've actually seen is just being advisor being
Speaker 1: forced to add more services in order to differentiate their
Speaker 1: value proposition, which adds expense, which makes technology and efficiency
Speaker 1: that much more important so that you can maintain profitability
Speaker 1: and so on and so forth. So technology really is
Speaker 1: the key, and we think that's going to continue to happen.
Speaker 1: I think you also need to look at relative value.
Speaker 1: It's amazing to me when you see one of the
Speaker 1: major Wirehouses just lowered the cost of their you know,
Speaker 1: basic out of the box separate account program from two
Speaker 1: hundred and seventy five basis points to two hundred and
Speaker 1: fifty basis points is the max fitting. And they didn't
Speaker 1: go to one fifty, right, so you lets you know
Speaker 1: that people are still paying that price. And if you
Speaker 1: think about what a consumer is getting when they're going
Speaker 1: to an r A firm that uses t d A
Speaker 1: and the services that they get in the fact that
Speaker 1: their advisors sitting on the same side of the tables
Speaker 1: them and the technology experience they're able to have on
Speaker 1: a relative basis, they're basically paying less than half for
Speaker 1: a much better experience. It's it's all about relative value,
Speaker 1: I think. So you raise a valid point and I
Speaker 1: want to throw it towards the audience. How should advisors
Speaker 1: who are more or less charging similar fees communicate their
Speaker 1: value add to both clients and perspective clients. It's one
Speaker 1: of the biggest challenges that we have because what's happening
Speaker 1: is as advisors add more and more services, some of
Speaker 1: those services become commoditized depending on what type of business
Speaker 1: you run. You know, there are many firms out there
Speaker 1: that are just not trying to generate alpha, just utilizing
Speaker 1: index funds and so on and so forth. But yet
Speaker 1: they are still charging a percentage of assets under management.
Speaker 1: But where clients find the most value is in the
Speaker 1: comprehensive wealth management and that financial planning and a state
Speaker 1: planning and so on and so forth. So we're seeing
Speaker 1: firms start to figure out, hey, we need to experiment
Speaker 1: with minimum fees. We need to think about maybe broadening
Speaker 1: should it be based upon total net worth rather than
Speaker 1: just investable assets, because you're you're advising on so much
Speaker 1: more of a holistic, uh, you know, view of the
Speaker 1: client's life and their wealth. So there's a lot of
Speaker 1: challenges out there, especially with the introduction of the robos,
Speaker 1: where you hear, hey, this robo will do everything for
Speaker 1: twenty five basis points. That's tough to market against. But
Speaker 1: it's the new client that you have to be worried about.
Speaker 1: The existing client already realizes, oh my gosh, my advisor
Speaker 1: does so much for me. My life is in order.
Speaker 1: I couldn't imagine not having the services that they provide.
Speaker 1: I would never go to a robo that's charging, you know,
Speaker 1: so articulating that value proposition and the differentiation is is
Speaker 1: one of the big challenges you have out there. So
Speaker 1: Vanguard wrote a piece a couple of years ago. I'm
Speaker 1: sure half the room is familiar with Advisors Alpha, and
Speaker 1: it raises the perspective of the behavioral counseling is worth
Speaker 1: more than the asset allocation, more than the stock picking,
Speaker 1: more than all those things. Because if in a down
Speaker 1: draft you panic and sell, and we know tons of
Speaker 1: people who dump stocks in MARCHO nine and didn't get
Speaker 1: back for years. Um, none of that matters if your
Speaker 1: behavior is inappropriate. So how significant is the behavioral side
Speaker 1: of what everyone in this room does for their clients.
Speaker 1: I mean, that's where the juice is squeeze, That's where
Speaker 1: you know the money is made, That's where the value
Speaker 1: is delivered. Um, whatever you want to say. I mean,
Speaker 1: it's it's amazing. There's a great staff from morning start
Speaker 1: to A client can have twenty nine more income and
Speaker 1: retirement if they hire a financial planner. I mean that
Speaker 1: is an unbelievable stat And and think about most people
Speaker 1: hire a financial planner of twenty years too late, right,
Speaker 1: They've already made so many mistakes in their lives that
Speaker 1: all of a sudden, they're forty five years old and
Speaker 1: now it's time to go hire a financial planner. If
Speaker 1: we can get people engaged earlier and getting to avoid
Speaker 1: some of those mistakes, make the right decisions, I mean,
Speaker 1: that value will go up exponentially. So I think it's
Speaker 1: it's all about the you know, the coaching, you know,
Speaker 1: don't worry like we're playing the long game. When we
Speaker 1: see what happens during periods of volatility, most advisory firms
Speaker 1: shift from going out there and going after organic growth
Speaker 1: to hey, we've got to placate the base. We've got
Speaker 1: to make sure that our existing clients are keeping their
Speaker 1: eye focused on the longer time horizon in a long
Speaker 1: term goal. We should anticipate peri into this market volatility,
Speaker 1: but it's not going to knock us off track. So
Speaker 1: that is invaluable. It's it's almost a measurable Yeah, I
Speaker 1: can't can't reinforce that point enough. The power of a
Speaker 1: discipline process that you work through with your clients are
Speaker 1: just generally all of us in life. It's the compounding
Speaker 1: effect of those incremental things that you can do that
Speaker 1: will make the dramatic difference in the longer term. And
Speaker 1: that to your point, is largely holding people accountable. It's
Speaker 1: that coach. It's that uh, it's that discipline that all coaches,
Speaker 1: whether it be your financial code tree, your sports coach,
Speaker 1: or whatever else that enables you to do. Because left
Speaker 1: to our own devices, clients and ourselves as individual humans
Speaker 1: won't follow that same discipline. It's just human nature to
Speaker 1: shoot ourselves in the foot, and the advisor there to
Speaker 1: stop that. So speaking of um shooting yourself in the foot,
Speaker 1: we we know lots of advisors like bells and whistles,
Speaker 1: and they want more and more and more on their
Speaker 1: um front ends and back ends of the technology. What
Speaker 1: is the biggest request you're seeing from some of the
Speaker 1: new tech What what is this room asking from t
Speaker 1: d well. I would say there's two two things. One
Speaker 1: is around just automating all of the processing right, making
Speaker 1: sure that we can no longer have to be doing
Speaker 1: data entry to open a new account or changing your
Speaker 1: address or anything like that. How can we have a
Speaker 1: digital environment because that creates efficiency for all of us
Speaker 1: both at t d A and for advisors, but it
Speaker 1: also leads to a better client experience. You know Tim
Speaker 1: has meant in earlier we spoke to the advisor panel
Speaker 1: where it's one of the first times you have the
Speaker 1: intersection of investing inefficiency and improving your client experience are
Speaker 1: kind of one and the same. So those investments are
Speaker 1: are really paying off. It's a it's a great way
Speaker 1: to to look at it because that's the kind of
Speaker 1: stuff that nobody likes to do, that data entry work.
Speaker 1: It's kind of silly in the technology world that we
Speaker 1: have today the capabilities, we shouldn't have to do that.
Speaker 1: So so that's a short immediate term. The second thing
Speaker 1: is as folks are getting pulled into these adjacencies that
Speaker 1: maybe they didn't give guidance on in the past, things
Speaker 1: like long term care and elder care and college planning
Speaker 1: and things like that, you know, even around you know,
Speaker 1: just managing your your healthcare. What what plans should I
Speaker 1: sign up for? These are expertise that advisors didn't necessarily
Speaker 1: have in the past. So looking for ways to deliver
Speaker 1: those services at scale with high quality, that's the thing
Speaker 1: that we're really exploring now. So we'd love to hear,
Speaker 1: you know from the audience, you know, over the last
Speaker 1: couple of days, what are the things that your clients
Speaker 1: are pulling you in too, as they ask you to
Speaker 1: help you navigate everything within their financial lives and how
Speaker 1: can we help you, you know, solve some of those problems.
Speaker 1: So when Vanguard's new CEO started recently, Tim Buckley, I
Speaker 1: got to do a ten question Q and A and
Speaker 1: one of the questions was what keeps you up most
Speaker 1: at night? His answer kind of startled me. It was
Speaker 1: cybersecurity and hacken So first is what keeps you up
Speaker 1: at night? And how concerns should we all be about
Speaker 1: digital security? Yeah, I would say if you asked any CEO,
Speaker 1: very n of them today would say that exact same
Speaker 1: answer and be included. And you have to ask yourself why.
Speaker 1: It's because it's one of those nightmare scenarios that even
Speaker 1: though we all we spend literally hundreds of millions of
Speaker 1: dollars on this, it's an arms race and the other
Speaker 1: side is very much incentive to try and keep you
Speaker 1: on your toes because if they find a little crack
Speaker 1: in the door, they can they can not only rob
Speaker 1: you and your clients, but you have an idiosyncratic reputational event. Right,
Speaker 1: So it's one thing to be uh, I don't know,
Speaker 1: we have a market meltdown, and then anybody that's in
Speaker 1: the wealth manager space space basically rides that wave UM
Speaker 1: onto the onto the rocks. If you have a cybersecurity event,
Speaker 1: it's usually you have been attacked and your clients have
Speaker 1: been exposed. And that's just a nightmare, an absolute nightmare scenario.
Speaker 1: Now I can tell you the counter argument to that. UM.
Speaker 1: It might seem a little bit a little strange, but
Speaker 1: as time goes on and there are a number of
Speaker 1: these data breaches, UM, I think consumers are becoming immune
Speaker 1: to the next headline that sort of says, hey, a
Speaker 1: hundred thousand cards here or you know, a million records here,
Speaker 1: and you know, my the I R S database was
Speaker 1: breached and the target data and people sort of go, wow,
Speaker 1: you had another one. But it's like all things, even
Speaker 1: though these these incredibly bad events happened to the company,
Speaker 1: I think consumers are actually becoming numb to that effect.
Speaker 1: And partly it's because you don't often see that the
Speaker 1: next follow up article to that, you know, target has
Speaker 1: a billion you know whatever it is credit cards being
Speaker 1: breached and a hundred and fifty thousand clients had their
Speaker 1: you know, financial records erased or money stolen. So the
Speaker 1: headline risk is huge to c e O s and
Speaker 1: so we never want to be in that. And yet
Speaker 1: what's fascinating is you don't actually see as many of
Speaker 1: the downstream implications of those breaches coming to fruition and
Speaker 1: as I've always sort of curious as to what's happening
Speaker 1: to all that data and why is it not being
Speaker 1: exploited much greater degree. Are we seeing advisors and clients
Speaker 1: becoming a little more sophisticated about security. I think we
Speaker 1: absolutely are. I think it keeps a lot of advisors
Speaker 1: up at night as well. And one of the things
Speaker 1: that we've seen is we've seen the perpetrators move from
Speaker 1: going after a t d A to going after advisor firm.
Speaker 1: And now the weakest, you know, link in the chain
Speaker 1: is the end client itself. And we see on a
Speaker 1: daily basis, you know, clients that have their emails hacked
Speaker 1: and they send an email to the advisor the bad
Speaker 1: guy and saying, hey, you know, I'm in you know
Speaker 1: Spain for my sisters, you know, wedding, and I need
Speaker 1: you know, a hundred thousand dollars wired immediately to this
Speaker 1: bank account. And it's amazing how many people will just
Speaker 1: send those instructions in and you know, next thing, you know,
Speaker 1: the money has gone. So you've got to be really
Speaker 1: you know, vigilant and making sure that you are verbally
Speaker 1: confirming with the client that this is in fact you
Speaker 1: because email hacks are happening dozens of times a day
Speaker 1: that we see. Luckily, we're able to prevent most of
Speaker 1: them because Advisor's awareness has has has has gotten much better.
Speaker 1: But it's a it's a serious issue. Yeah. The the
Speaker 1: social engineering way of hacking in is way more productive
Speaker 1: in the sense that they find out the name of
Speaker 1: the principle of the firm or the CEO and find
Speaker 1: a way to spoof your email get that information. People
Speaker 1: just say, well, obviously it's not a hack. Per se
Speaker 1: might just got an email from the CEO saying why
Speaker 1: are this money or whatever it is. The alternative is
Speaker 1: broad scale. You've got to you've got a breach that
Speaker 1: people get directly in so you know, as firms, we
Speaker 1: we are now doing much more. We first of all,
Speaker 1: we're starting with an assumption that says the bad guy
Speaker 1: is in the walls m and what do you do
Speaker 1: knowing that you've already been breached? Now that's a supposition
Speaker 1: because we can't find them, but it changes your mindset
Speaker 1: is a firm from a security point of view if
Speaker 1: you assume they're already inside the moat. That's the first thing.
Speaker 1: Second thing is we started actually doing um bug bounties,
Speaker 1: which is literally unlike having a red hat team or
Speaker 1: a white hat team black hat, depending on how you
Speaker 1: define them, of internal players to try and find your bugs.
Speaker 1: You just pay money to people who tell you they
Speaker 1: found one, and we're actually finding that We've I think
Speaker 1: we've taken the cost of detecting a bug down by
Speaker 1: about two thirds, and we're just essentially incenting bad guys
Speaker 1: to come in and poke at us and then come
Speaker 1: and tell us and we'll pay them. Way more effective
Speaker 1: than just waiting for a very small subset of people
Speaker 1: with technical skills to actually breach you and find their way.
Speaker 1: All the way in sounds like it's it's working. Let's
Speaker 1: let's shift gears a little bit and talk about cash,
Speaker 1: because people have been discussing raising cash, carrying cash, cash
Speaker 1: is king. It used to be that cash had a
Speaker 1: fairly decent yield on it. Some of your competitors have
Speaker 1: changed the rules that their cash sweeps no longer yield
Speaker 1: much more than a few BIPs. If you want to
Speaker 1: see a return, you have to actually go out and
Speaker 1: buy some short term bonds, typically through E t F.
Speaker 1: Tell us about what's going on with cash sweeps, what
Speaker 1: are you guys gonna do, and what do you think
Speaker 1: about what some of your competitors are doing. So let mean,
Speaker 1: let me start with just the macro trends. It goes
Speaker 1: back to the point about how does arm get paid.
Speaker 1: And in a world where let's go all the way back,
Speaker 1: in a world where you're getting paid three or four
Speaker 1: or fifty dollars a trade um and interest rates are
Speaker 1: on an absolute level higher, then you've got a more
Speaker 1: varied revenue stream. And when you have a rate in
Speaker 1: a period of rising interest rates, your beta betas tend
Speaker 1: to be higher. What we've seen now with other revenue forms,
Speaker 1: as we said a few minutes ago ago being compressed
Speaker 1: and an ultra long period of low interest rates than
Speaker 1: what we've found this most recent cycle, as interest rates
Speaker 1: start to rise, is the betas have been quite low,
Speaker 1: and now they've been higher. In forms of cash where
Speaker 1: there is a higher degree of customer sensitivity to the
Speaker 1: putting that cash to to work, and in our particular space,
Speaker 1: because it tends to be transactional cask waiting for the
Speaker 1: next opportunity to make a trade. If you're in retail,
Speaker 1: then that is very sticky cash and it is is
Speaker 1: it's largely the way that the m has become more
Speaker 1: and more compensated for the services provided. And so if
Speaker 1: you imagine a world where if commissions were to be
Speaker 1: zero in the brokerage space, cash would be even more
Speaker 1: important as a way of getting paid and you'll find
Speaker 1: even less um beta in terms of the value of
Speaker 1: that cash, which push actually the industry at great strategic
Speaker 1: risk because uh, interest rates fluctuate and you can have
Speaker 1: you know, three basis point um short term rates or
Speaker 1: five hundred or as we know zero for a period
Speaker 1: of time. So that's the that's the trend that's been
Speaker 1: happening in a macro basis. Now, what we do from
Speaker 1: a cash perspective, we actually look at the differentiation between
Speaker 1: transactional cash and invest in cash, recognizing that some advisors
Speaker 1: want to keep a portion of the client's portfolio. So
Speaker 1: the sweep is the b d A, the bank deposit account,
Speaker 1: But you can actually go out and buy a purchased
Speaker 1: money fund, which yields considerably higher, but you have to
Speaker 1: go out and actually, you know, take action to put
Speaker 1: that allocation in place. So let's talk a little about
Speaker 1: E s G. We've been hearing that this is the
Speaker 1: new wave now for I don't know ten years. It
Speaker 1: seems there's a lot of chatter about it, but there
Speaker 1: hasn't been a whole lot of uptake from the either
Speaker 1: the end investor or the advisor. What are your thoughts
Speaker 1: on environmental, social and governance? Why has it been lagging?
Speaker 1: When we look at Europe, they're far more aggressively invested
Speaker 1: in that space then than the US is. Well, let
Speaker 1: me start from from a public company point of view.
Speaker 1: We are feeling it from our investor base, and so
Speaker 1: they just to focus on what are you doing and
Speaker 1: wanting to understand what td Meri trades position in this
Speaker 1: space is actually causing us to spend more time putting
Speaker 1: energy into it. So it shows you that the underlying
Speaker 1: trend is absolutely there, and you could say that there
Speaker 1: has been albeit slower than elsewhere in the world. Old
Speaker 1: there has absolutely been a trend more to E s
Speaker 1: G investing. Remember ten fifteen years ago When this was
Speaker 1: it was very nascent. The constant argument was you can
Speaker 1: make those choices, but you will be sub sub performing
Speaker 1: on your investments as a result of having traded your
Speaker 1: your your moral case off against your just maximizing your returns.
Speaker 1: Um That's less true now and the trend, certainly with
Speaker 1: the younger investor has been very much to put their
Speaker 1: money where their their morals. And so it's I think
Speaker 1: it's growing, it will continue to grow, and I'm as
Speaker 1: I say, I'm feeling it as a public company CEO,
Speaker 1: and we're seeing it in our business as well. It's growing,
Speaker 1: and we are starting to see advisors, you know, especially
Speaker 1: once it serve a younger demographic, trying incorporate that into
Speaker 1: their value proposition without a doubt. I mean, if you
Speaker 1: look at you know, some of the things that are
Speaker 1: really important to younger associates, even you know, when you
Speaker 1: go apply for a job somewhere, they want to know
Speaker 1: what your company stands for, what your mission, your values,
Speaker 1: your purpose, I would say more so than previous generations.
Speaker 1: And I think that you know leaks over into their
Speaker 1: investing philosophies and and so on and so forth. So
Speaker 1: I think you know, the trend will continue to evolve
Speaker 1: in gain more momentum as some of those younger folks
Speaker 1: gain more assets on a go for a basis, they
Speaker 1: will challenge leadership as they should on what value you
Speaker 1: bring to your clients? Are you on the right side
Speaker 1: of causes and issues? Are you on do you take
Speaker 1: a stand the The express desire for leadership to take
Speaker 1: stands on issues by your own associates, let alone your clients,
Speaker 1: but much more by your own associates is is stronger
Speaker 1: and stronger, and I don't think it's abating. And I'll
Speaker 1: tell you I mean just from an advisor perspective or
Speaker 1: serving advisors, it's been an incredibly motivating factor for our associates,
Speaker 1: you know, to know that they pop up at a
Speaker 1: better in the morning to help the best people in
Speaker 1: financial services do the right thing for their clients. It
Speaker 1: really makes a big difference. And if you want to
Speaker 1: get associates to feel good out what they do, you know,
Speaker 1: just talk about what you do for your clients and
Speaker 1: obviously your your associates get it. But it's incredibly motivating
Speaker 1: just to be able to serve you guys, when you're
Speaker 1: sitting on the right side of the table and sitting
Speaker 1: on the right side of history. It's it's really motivating.
Speaker 1: So I was originally a bit of a skeptic when
Speaker 1: it came to the issue of direct indexing. I've been
Speaker 1: hearing about this for a couple of years. My friend
Speaker 1: Dave Natig at et F dot com has been talking
Speaker 1: about this for a while, and then over the past
Speaker 1: year or two, I've noticed we have a client who's
Speaker 1: the general counsel of a big oil company. His whole
Speaker 1: life is exposed to oil and energy. Wouldn't it be
Speaker 1: great if we can just dial down the energy in
Speaker 1: his portfolio. We have another client who works in finance
Speaker 1: who's a value manager. His whole life is small cap
Speaker 1: value really exposed to that. What are your thoughts about
Speaker 1: direct indexing and is this something that could basically challenge
Speaker 1: et fs. I think you'll see two things. I think
Speaker 1: you're going to see E t F that are specifically
Speaker 1: focused on They already are out there eliminating some of
Speaker 1: the sin stocks and exactly you know, with there will
Speaker 1: be some that are just more broad based, and then
Speaker 1: you're gonna have very specific things that people can pick to,
Speaker 1: you know, eradicate from their portfolios. But then I think
Speaker 1: what we're also looking at, and I think the whole
Speaker 1: industry is exploring this, how do you do this through
Speaker 1: technology in a cost effective way so you can have
Speaker 1: clients do that on a custom basis. And we see
Speaker 1: a lot of our clients are starting to do that,
Speaker 1: you know, manually and figuring that out and it's becoming
Speaker 1: part of their value prop and it's some of the
Speaker 1: things that we're having a lot of discussion around within
Speaker 1: our organization on how can we help with that and
Speaker 1: any thoughts about that direction? Is that something you know,
Speaker 1: if if you have an individual with a thousand stocks
Speaker 1: instead of ad T F S, I have to imagine
Speaker 1: there's a whole lot more complexity and a whole lot
Speaker 1: more cost that goes into that. True, but again back
Speaker 1: to Tom's point, first of all, understanding what is the
Speaker 1: unmet need that the client has, what problem are they
Speaker 1: trying to solve for, and then leverage technology to make
Speaker 1: it cost sufficient to provide It's that simple whatever the
Speaker 1: need of the particular day is, Yes, it can be costly,
Speaker 1: but if you can actually deliver a better solution and
Speaker 1: you apply the assets and the capabilities you already have
Speaker 1: to do that in a way that needs a need.
Speaker 1: There's a margin there to be had. So what is
Speaker 1: the most This has clearly been a period of giant
Speaker 1: change over the past ten years, certainly since the financial crisis.
Speaker 1: We in this room see it from a certain angle.
Speaker 1: I have to imagine your perspective is slightly different. What
Speaker 1: has been the biggest surprise of the best decade? What
Speaker 1: really kind of made you step back and say, wasn't
Speaker 1: expecting that? Hm? Well, when the financial crisis happened, I
Speaker 1: remember it very acutely, as I'm sure everybody else in
Speaker 1: this room does. My My respective was I was a
Speaker 1: Canadian banker at the time UH and Canadian banks largely
Speaker 1: avoided the accident UH and so we had a sort
Speaker 1: of a view on what caused the accident largely elsewhere
Speaker 1: in the world. You know, what he called the mortgage crisis,
Speaker 1: whatever you you thought was the case CDs as another UM.
Speaker 1: Since then, there was a lot of things that happened
Speaker 1: that we're completely knowable in advance. The size of the
Speaker 1: the event itself being the second greatest UH financial event
Speaker 1: in our history certainly or UM. And you know, if
Speaker 1: you look back through history, all of the regulatory agencies
Speaker 1: that are in the Western civilization were created as a
Speaker 1: result of those accidents, and the greater the accident, the
Speaker 1: more the regulatory repercussions. And so you could see that
Speaker 1: happening from day one that there will be implications. What
Speaker 1: we probably didn't see happening was just the sheer flatness
Speaker 1: of the rebound. I mean, here we are ten years later.
Speaker 1: Most if you see all of the data for all
Speaker 1: of the other recessions, they're they're deep, but they're they're
Speaker 1: basically a v This one's looked like this, and so
Speaker 1: here we are literally this month and makes it the
Speaker 1: longest recovery, and there's lots of debates and discussions about okay, well,
Speaker 1: can can you go for ten years plus a month
Speaker 1: without having a bullmarket tip over because all the other
Speaker 1: ones have. My own view is that because of the
Speaker 1: sheer flatness of this recovery, um there there is a
Speaker 1: chance that it could we could eat through the next
Speaker 1: little while. That's not my base case, I should say,
Speaker 1: my base cases that we're actually going to be going
Speaker 1: into a bit of recession, but there's a chance that
Speaker 1: we could actually slide through this with this inexorable climb
Speaker 1: back to the levels we are at um. So that's
Speaker 1: the surprise to me is just how long it takes
Speaker 1: for this country and for the world to get back
Speaker 1: on its feet to where it was after you have
Speaker 1: that size of an impact. And yet you know, that's
Speaker 1: been our history. We we have. There's a great thing
Speaker 1: about capitalism. It has this amazing sort of wealth creation,
Speaker 1: and then there are big crashes that happened every once
Speaker 1: in a while and then you and you have to
Speaker 1: pick your feet back up and off you go. You know,
Speaker 1: I would say a little closer to home is you know,
Speaker 1: the financial crisis was kind of an accelerant for the
Speaker 1: r a flame if you think about it. Those big
Speaker 1: wirehouse brands were significantly damaged as a result of that.
Speaker 1: You know, consumers started to become far more aware of,
Speaker 1: you know, the relationships that they had and how advisors
Speaker 1: were getting paid. Advisors that were in those captive environments
Speaker 1: said hey, I can do this better on my own
Speaker 1: and my clients more loyal to me than they are
Speaker 1: to the brand on the roof. So I think this
Speaker 1: The momentum that came out of the financial crisis for
Speaker 1: our space, you know, was really dramatic and it's it's
Speaker 1: you know, it's been fantastic. So so let's talk about
Speaker 1: the space and the shift from the broker dealer model
Speaker 1: to the r i A model. There's been um new regulation.
Speaker 1: It's not quite finished, but the word is that regulation
Speaker 1: best interest is coming forward. It turns out it's neither
Speaker 1: a regulation nor best interest, but it's a challenge to
Speaker 1: the fiduciary rule that's on our side. Talk a little
Speaker 1: bit about the fiducial rule and what does it mean
Speaker 1: when the brokered side is trying desperately to sound like
Speaker 1: they're under a fiduciary obligation. So tomorrow, uh, the SEC
Speaker 1: is going to vote on this and skips in Washington
Speaker 1: and he'll be there at the at the event, and uh,
Speaker 1: it's it's it's pretty pretty incredible. But you know, we
Speaker 1: believe right that there's still you know, delineation between the
Speaker 1: forty Act and you know reg b I or however
Speaker 1: brokers are are governed in the future. And we do
Speaker 1: think that there should be a heightened standard for for
Speaker 1: the way poker's behave, But we're very thoughtful around making
Speaker 1: sure that the waters don't get muddied, because that could
Speaker 1: be a bad thing, right, you don't want a situation
Speaker 1: where a broker who's really acting as a salesperson is
Speaker 1: positioning themselves as an advisor and saying, yeah, I have
Speaker 1: to put your best interests, you know first, and maybe
Speaker 1: they they're not. So we're concerned about consumer you know,
Speaker 1: confusion and what that may bring to the table. But
Speaker 1: of course we want to make sure that there's elevated
Speaker 1: standards out there as well. And you know, one of
Speaker 1: the challenges we saw even with the d o L.
Speaker 1: It's great in spirit, but implementation was, you know, really
Speaker 1: going to be a challenge. I mean, we're actually in
Speaker 1: this room a few years ago where we had somebody
Speaker 1: give a presentation for an hour and a half and
Speaker 1: one of the leading attorneys on what the d OL
Speaker 1: rules gonna look like, and people walked out of here
Speaker 1: more confused, you know than they were when they walked in.
Speaker 1: So I think keeping it simple is is something that
Speaker 1: that will be very important. I know, there's the four
Speaker 1: page disclosure document that's going to be required, so we'll
Speaker 1: see what tweaks ultimately, you know, get made. They're talking
Speaker 1: about potentially making tweaks to incidental advice. What does that
Speaker 1: really mean? Seems a little bit like the Merrill Lynch
Speaker 1: rule that we saw, you know, some years ago. But
Speaker 1: ultimately I do think it's a good thing to raise
Speaker 1: the standard on brokers, but we want to make sure
Speaker 1: we keep that clear delineation between the fiduciary standard and
Speaker 1: the forty Act and whatever it is that's going to
Speaker 1: ultimately govern macro level. I'd say it's going to be
Speaker 1: a better thing generally for consumers, not as good a
Speaker 1: thing for the r A space. And what I mean
Speaker 1: by that is the confusion that consumers will have about
Speaker 1: the advice and what is advice. Again, we think of
Speaker 1: it because we're all inside baseball here, we all know
Speaker 1: the regulations. We know the consumers don't care or they
Speaker 1: just assume, they assume that the advisor starts with their
Speaker 1: best interest. You say the word fiduciary and they don't
Speaker 1: really get what that is. It just it muddies the water.
Speaker 1: So the distinction for the r A from the broker
Speaker 1: dealer model is going to be, if it passes, it's
Speaker 1: going to be, in my view, a little bit muddy,
Speaker 1: which again you could say the consumer would better be
Speaker 1: better off if it drags the brokerage on the community
Speaker 1: if you will closer to doing better for the client
Speaker 1: and more in their best interests, but it won't be
Speaker 1: necessarily as distinctive and offering for the I R A industry.
Speaker 1: Am I too cynical when I say RAG best interest
Speaker 1: is designed to muddy the water's on purpose? It's not
Speaker 1: best interest, it's cluely not fiduciary. It sounds like that
Speaker 1: name was designed to be confusing. I don't know that
Speaker 1: that's the case. I think there was. It was a
Speaker 1: was very much a reaction to look at the Department
Speaker 1: of Labor. Rule was well intentioned, but it was flawed
Speaker 1: and execution it created more confusion because you were dividing
Speaker 1: it down the aristo line as opposed to across UM
Speaker 1: across all types of investments. And so this is an
Speaker 1: attempt to try and find UM, frankly, a compromise solution.
Speaker 1: And we know what you know you get when you
Speaker 1: get a compromise solution. That's uh, what do they say
Speaker 1: of UM? A camel is a horse designed like there
Speaker 1: you go, that's that's that's the best example of exactly
Speaker 1: what you'll end up getting. But I think also if
Speaker 1: you look at what's happening in the states, right, I
Speaker 1: mean you're seeing states now start to you know, propose
Speaker 1: fiduciary rules, which shows you there's an appetite, you know,
Speaker 1: there's a demand, something's got to happen. And in the States,
Speaker 1: that's actually a little bit scary because imagine if you're
Speaker 1: all of a sudden dealing with fifty two you know,
Speaker 1: different standards, you know, especially for advisors that operated multiple states.
Speaker 1: Firms like td A you know obviously, that operate in
Speaker 1: every state, and even services that we provide to our
Speaker 1: you know, clients that want to be in control and
Speaker 1: do it themselves, things like research that we provide, our
Speaker 1: education materials could potentially fall under a fiduciary standard, which
Speaker 1: doesn't make a lot of sense, and then you start
Speaker 1: limiting consumer choice. So uh so we have to be
Speaker 1: careful of how this move is going forward. So now
Speaker 1: let's in the last five minutes or so we have
Speaker 1: let's look forward. What does this industry look like five, ten,
Speaker 1: twenty years in the future. So I think you're going
Speaker 1: to continue to see the r A s grow and mature.
Speaker 1: I think you'll see far more automation that we see
Speaker 1: too than we see today. I think basically everything from
Speaker 1: a tactical perspective or a day to day operational perspective
Speaker 1: will be done on an automated basis, and the real
Speaker 1: value that's going to get delivered is going to be
Speaker 1: with that person to person relationship. You know, that empathetic
Speaker 1: human relationship is really where I think the value gets
Speaker 1: delivered today, and I think that that's going to be
Speaker 1: exacerbated in the future. I think it's going to change,
Speaker 1: you know, where we make our strategic investments as business leaders.
Speaker 1: I think it's going to change who we hire based
Speaker 1: upon their skill sets. We talked about this a little
Speaker 1: bit earlier. You know, it's no longer going just to
Speaker 1: the business schools and hiring that person who's a quant
Speaker 1: type thinker. It's about going through the humanity schools and
Speaker 1: put pulling in the psychology majors, the sociology majors, the
Speaker 1: people that have a knackt for developing relationship with clients
Speaker 1: to deliver on those services. So I think there's gonna
Speaker 1: be a lot of change in the space. I think
Speaker 1: demographics is something that we need to take a serious
Speaker 1: look at. How do we make sure that our industry
Speaker 1: is more reflective of the trends of the population in
Speaker 1: the United States and where wealth is concentrated is going
Speaker 1: to shift. So there's gonna be a lot of change
Speaker 1: over the next five to ten, fifteen years. But I
Speaker 1: do think you know, this space is going to continue
Speaker 1: to win because it's just a better business model. Put
Speaker 1: the client first, and good things will happen. Tim, what
Speaker 1: are your thoughts looking out a few more ads, Um,
Speaker 1: there will continue to be consolidation in this space because
Speaker 1: the investment required to deliver on what Tom was just
Speaker 1: saying is going to get more and more and more,
Speaker 1: and it's going to be want to you want to
Speaker 1: spread it over more and more clients because that's the
Speaker 1: other big trend, which is it will continue to get
Speaker 1: cheaper for clients. Um. And so if you have the scale,
Speaker 1: you can continue to provide those uh, those additional value
Speaker 1: added services for the clients, and they will demand with
Speaker 1: greater transparency. Uh you all of us collectively working in
Speaker 1: their best interest for for low price. It's just what
Speaker 1: they will demand. That will be the inexorable trend, and
Speaker 1: technology is going to drive that. When you say consolidation,
Speaker 1: you're talking at the Crestonian level, the advisor level, or
Speaker 1: across the board yes, yes, it requires scale, and we're
Speaker 1: going to continue to see fulk development. That's that's what's
Speaker 1: absolutely not they think about starting up any size company
Speaker 1: now that's trying to compete in that milieu of of
Speaker 1: a price point that is maybe a third of what
Speaker 1: it would have been, you know, ten or fifteen years ago.
Speaker 1: It's tough, and so I think it will just continue
Speaker 1: to be. You'll you'll be driving more and more value.
Speaker 1: You can create scale quickly through the UH through technology
Speaker 1: and what it can provide you just you can just pieces.
Speaker 1: You know, we often use the case that you've got
Speaker 1: the Ubers of the world and the Airbnbs of the world,
Speaker 1: of these massive global scale scale players and they didn't
Speaker 1: exist five or ten years ago because they needed together, um,
Speaker 1: you know, assets and and through technology. Um. But you know,
Speaker 1: scale from for lower and lower and lower price is
Speaker 1: going to be incredibly important. And I saved this from
Speaker 1: my last question because I get it all the time
Speaker 1: from clients, and I know I do a terrible job
Speaker 1: answering this. Can you explain the historical relationship between t
Speaker 1: D merrit Trade and t D Bank? Ah? Yeah, well,
Speaker 1: actually it's a great point. It is a point of
Speaker 1: confusion for us, right. Um, So back in twenty fifteen
Speaker 1: when uh T D that had TV Waterhouse, of course
Speaker 1: sold its d I business direct investing business to a
Speaker 1: Merrit Trade and took back of the ownership. So now
Speaker 1: TD Bank hasent of the ownership. Um. And you're right
Speaker 1: about the confusion, because we often have clients walking into
Speaker 1: our branches and saying, hey, I want to deposit a
Speaker 1: check for my bank account, and they have clients walking
Speaker 1: into their bank branches on the East Coast and saying, hey,
Speaker 1: I want to talk to my advisor about my uh
Speaker 1: my brokerage account. And so the historic relationship is powerful
Speaker 1: in the sense that what it allows us to do
Speaker 1: TD merrit Trade is to be focused and we have
Speaker 1: what we call a capital lite model, and by taking
Speaker 1: these deposits sweeping them over to a bank, it has
Speaker 1: meant that we haven't needed to become a bank. And
Speaker 1: if you think about that environment we've been over, especially
Speaker 1: since the financial crisis, the regulatory scrutiny and pressures on
Speaker 1: the banks, and some of our competitors have felt that
Speaker 1: sting quite acutely over the last decade or so. UM,
Speaker 1: we've avoided much of that accident we've we've avoided the
Speaker 1: additional regulatory pressures. We can be generating higher return on
Speaker 1: our our equity by having this relationship, not becoming a bank,
Speaker 1: and it just allows my management team to very much
Speaker 1: focus on being a better provider of of our institutional
Speaker 1: services and and being a better retail broker. That's my
Speaker 1: conversation with Tim Hockey and Tom Nally. It really was
Speaker 1: quite interesting and I learned a lot meaning a lot
Speaker 1: of people who have been with t D as a
Speaker 1: custodian for quite a number of years. Not very often
Speaker 1: we get to stop and think about how our assets
Speaker 1: are custodied and really, uh, it's a key part of
Speaker 1: of asset management, especially from the registered investment advisor side.
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