A Tale of Two TD’s

07/24/2014
Hannah Bolte

So you’re walking down the street in Manhattan, at about 64th Street and 3rd Avenue, and you notice something. On one side of the block is a TD Bank “store”. On the other, a TD Ameritrade branch.

Same shield, same color scheme, same typeface. So what exactly is the difference between the two?

Everyone loves a list, so here’s the top five things you should know about the TD Bank relationship.

  1. TD Ameritrade and TD Bank are actually two separate companies. In 2006, then-Ameritrade acquired TD Waterhouse, then owned by TD Bank. In turn, Ameritrade became TD Ameritrade and TD Bank received the right to own up to 45 percent of TD Ameritrade stock, but both continue to operate independently.
  2. Today, TD Bank has 40 percent ownership in TD Ameritrade. TD Bank is TD Ameritrade’s largest shareholder. In fact, five of the 12 TD Ameritrade board members are nominated by TD Bank.
  3. TD Bank refers clients to TD Ameritrade. As part of an agreement that’s been in place since 2010, TD Bank refers mass affluent clients to TD Ameritrade. That’s led to about $1 billion in gross new assets for TD Ameritrade each year since 2011. TD Ameritrade supports this referral program by having 28 investment consultants working from mini TD Ameritrade branches located within TD Bank stores to handle referrals from that store and a handful of others in the vicinity.
  4. TD Ameritrade sends referrals back to TD Bank. For the past three years, TD Ameritrade has sent clients to TD Bank for mortgage and home equity loans.
  5. Leveraging collective capabilities. Take Insured Deposit Accounts (IDAs), for example. When TD Ameritrade clients keep cash in their brokerage accounts, they have options for products to hold cash in. The most commonly used product is an IDA which is actually an FDIC-insured deposit with TD Bank. Clients appreciate the security of FDIC coverage which is only available through a bank deposit. TD Ameritrade benefits as result of the IDA program: client cash placed with TD Bank can be reinvested at higher rates, contributing to TD Ameritrade’s earnings. In addition, TD Ameritrade gets the benefit of being free from the capital requirements of owning its own bank – which would be billions of dollars. Rather than having to park that money in the bank, TD Ameritrade has the flexibility to use that cash to benefit shareholders. Late last year, that helped TD Ameritrade fund a $.50 special dividend and raise the company’s quarterly dividend by 33 percent. Finally, TD Bank benefits from the availability of a steady source of retail deposits and the earnings they can generate from those balances.

It is these types of “wins” that make a successful long-term partnership.

Illustration by Neal Obermeyer.

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