- E-Trade just gave a look at how the firm is positioning itself amid unprecedented consolidation in the discount brokerage industry.
- The firm was seen by many analysts as being left out in the cold when rival firms Charles Schwab announced late last year it was buying smaller rival TD Ameritrade.
- “Even with the best-executed combinations, all customers will not be satisfied with their experience being chosen for them, and we aim to win every dissatisfied relationship that comes out of the Ameritrade- Schwab transaction,” chief executive Mike Pizzi said on a Thursday call to discuss earnings.
- The firm said it would hire more financial consultants, up from about 410 now to more than 450 by year-end 2020 and more than 500 by 2021.
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E-Trade just hiked its 2020 outlook for expenses, and that’s all part of its battle to scoop up more customers out of the mega Charles Schwab-TD Ameritrade deal set to close this year.
Plotting out higher costs and more hires at a time when the industry just axed commissions and is battling on other revenue fronts is a big gamble on the power of persuasion — execs said the firm is being aggressive on the sales and marketing side to swoop in.
The discount brokerage was seen by many analysts as being left out in the cold when the two larger rivals said late last year that they were planning on joining forces in a deal expected to close in 2020. E-Trade execs late on Thursday laid out their plan to pick up “disaffected” traders, investors, and advisers while the two bigger firms work through the huge undertaking of combining their tech and culture.
“Huge transactions like these lead to significant assets in motion. And we will serve as the alternative for those who fear they could get lost in the shuffle,” chief executive Mike Pizzi told analysts when discussing E-Trade’s fourth-quarter earnings.
Pizzi said that at first — after the industry-wide cut to zero commissions for stock and ETF trades that came ahead of the Schwab-TD Ameritrade deal — E-Trade was planning to cut advertising and marketing spend significantly into 2020. But now the firm has changed that tune, and see holding those expenses closer to 2019 levels, a theme the chief executive had hinted at during an industry conference in December.
The firm also said it would hire more financial consultants, up from about 410 now to more than 450 by year-end 2020 and more than 500 by 2021. That comes as Schwab and TD Ameritrade execs have already said job cuts and branch closures are all part of their merger plan.
Pizzi, who joined the firm in 2003 and was appointed to his post last August after serving as chief operating officer, said on Thursday that E-Trade boosted its 2020 expense guidance to at or below $1.6 billion from around $1.5 billion.
The firm’s executive leadership shuffle came just weeks after competitor TD Ameritrade announced its former chief executive, Tim Hockey, would be stepping down.
Management was at times bellicose on the earnings call, positioning itself on the offensive line and speaking at length about the firm’s position as its rivals’ combination is set to close later this year.
“Even with the best executed combinations, all customers will not be satisfied with their experience being chosen for them, and we aim to win every dissatisfied relationship that comes out of the Ameritrade-Schwab transaction,” Pizzi said in prepared remarks to kick off the call.
The broader industry’s move to axe online trading commissions comes as incumbent players across financial services have bowed to intense cost pressures.
Digital-first entrants charging customers nothing, or next to nothing, for transactions like stock-trading and even more complex features like wealth management and planning have set a standard for younger generations of customers.
E-Trade for its part is upping efforts across several business lines, including getting “more aggressive” in marketing and sales as competition has ratcheted up, Pizzi said. The firm’s adviser services arm is working toward connecting back- and middle-office offerings with its registered investment adviser (RIA) clients that use the firm to custody their assets, he said.
The firm sees RIAs as particularly good targets, and Pizzi flagged media coverage of unhappy RIAs who are dreading the big merger.
“I think there’s a lot more consternation in the market if you will. You can just see it,” he said. “If you take a look at any of the RIA publications that are out there, a lot of the smaller and medium-size RIAs are concerned.”
Craig Siegenthaler, an analyst at Credit Suisse who rates the stock positively, wrote in a note to clients on Thursday that: “ETFC is seeing an opportunity to expand its client base due to a mega-merger in the e-broker space, so the firm is spending more in sales and marketing and targeting clients at the merging brokers.”
Siegenthaler also raised his stock price target and earnings-per-share estimates for 2020 and 2021. E-Trade shares fell by nearly 2% in Friday trading.
In a November interview hours after Charles Schwab and TD Ameritrade officially announced its massive merger, E-Trade Advisor Services head Matt Wilson told Business Insider that it was confident in its competitive position, and that “bigger doesn’t always translate to better.”
New spending plans and hires come even as E-Trade has taken some measures to cut costs. During the third-quarter earnings call in October, Pizzi said the company was closing its New York City headquarters and shifting operations to its nearby Jersey City offices.
“The past 12 months were historic for our industry, and will no doubt be remembered as one of the most significant periods of sector-wide disruption,” Pizzi said on Thursday.