SAN FRANCISCO — With its planned $225 million cash purchase of Fiserv Inc.’s custody business, announced May 24, TD Ameritrade is trying to do more than solidify its hold on the No. 3 position among RIA asset custodians.
By striking a deal to add $17 billion of assets from 500 registered investment advisers, the Omaha, Neb.-based broker-dealer launched what may prove to be a major pre-emptive strike against anyone wanting to assume its role of feisty upstart in the asset custody business.
“This may be a great defensive move,” said Charles “Chip” Roame, managing principal of Tiburon (Calif.) Strategic Advisors LLC. “What if E*Trade [Financial Corp. of New York] had bought [Fiserv Investment Support Services]?”
“TD is the Avis, we-try-harder brand of asset custodians. TD locked out the guy who [could take over that feisty upstart role],” Mr. Roame added.
“It distances us from anyone trying to catch up,” said J. Thomas Bradley Jr., president of TD Ameritrade Institutional of Jersey City, N.J. The parent firm could pay up to $100 million more for the acquisition if Fiserv’s custodian business achieves revenue retention targets.
But TD Ameritrade also is looking forward, he added.
“By the time this closes, we’ll be over $100 billion of assets, up from $9 billion in the beginning of 2000,” Mr. Bradley said. “If anyone had any doubts [about who holds the No. 3 position, behind
Fidelity Investments of Boston and Schwab Institutional of San Francisco], it wipes them out and solidifies our position.”
Matt Geller, a spokesman for Jersey City-based Pershing Advisor Solutions LLC, declined to comment on behalf of the company. Pershing had about $64 billion of RIA assets under custody as of January.
Fiserv Inc. of Brookfield, Wis., shopped its Denver-based adviser custody unit around, and TD Ameritrade offered the best deal, according to Skip Schweiss, executive vice president of Fiserv ISS. Declining to name them, he said that there are other interested parties.
TD Ameritrade Holding Corp. was better positioned to acquire Denver-based Fiserv Trust Co. and its institutional retirement plan and adviser services operations, Mr. Bradley said. It was able to promise Fiserv advisers better technology and has proven it can integrate acquisitions effectively, he added.
This opportunity for TD Ameritrade arose after Jeff Yabuki became chief executive of Fiserv Inc., an information services company with a $9.4 billion market capitalization, in December 2005. Mr. Yabuki deemed Fiserv’s custody operations expendable because they weren’t core businesses, Mr. Schweiss said.
Clients also are pleased by the TD Ameritrade deal, he added.
“Since the deal was announced, I’ve spent most of my time talking to clients, and they said that if it had to happen, they’re glad it’s TD,” Mr. Schweiss said.
But some advisers, such as Ricky Grunden, chief executive of Grunden Financial Advisory Inc., a Denton, Texas, firm that manages $72 million, expressed concerns about the merger.
“One of the reasons I’ve maintained my relationship with Fiserv is omnibus trading,” he said. “If that pricing plan goes away for guys like me, that [change] would swing the doors wide open for Schwab.”
Fiserv clients will be able to choose pricing from either company’s plan for the foreseeable future, Mr. Bradley said.
Indeed, Fiserv’s custody business was suffering from technological shortcomings in an evolving market, Mr. Schweiss said.
“Years ago, it was about mutual funds,” he said. “Now it’s about [exchange traded funds] and stocks that are not as easy to process on our trust platform.”
Moving to a brokerage platform will make other services — including margin accounts — barred by bank regulators available to advisers, Mr. Schweiss added.
But Fiserv ISS’ adviser customers may need to wait for as long as a year to use the TD Ameritrade platform, because of the regulatory approvals needed to close the deal.
This is awkward, because none of Fiserv ISS’ employees — including Mr. Schweiss — are being promised positions at the new company.
“In time, my job and several others may go away,” he added.
To retain advisers and their assets until the transaction closes, TD Ameritrade established a $100 million incentive pool for Fiserv employees, who are welcome to apply for positions with TD Ameritrade.
However, they must be prepared to move to company offices in Jersey City, San Diego or the Dallas-Fort Worth area, Mr. Bradley said.
