TD Ameritrade's (AMTD) CEO Fred Tomczyk on Q1 2016 Results - Earnings Call Transcript

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TD Ameritrade Holding Corporation (NASDAQ:AMTD)

Q1 2016 Earnings Conference Call

January 20, 2015 08:30 ET

Executives

Bill Murray - Managing Director, Investor Relations

Fred Tomczyk - Chief Executive Officer

Steve Boyle - Chief Financial Officer

Analysts

Rich Repetto - Sandler O’Neill

Mike Carrier - Bank of America/Merrill Lynch

Dan Fannon - Jefferies

Conor Fitzgerald - Goldman Sachs

Chris Harris - Wells Fargo

Alex Kramm - UBS

Bill Katz - Citigroup

Devin Ryan - JMP Securities

Joel Jeffrey - KBW

Chris Shutler - William Blair

Brian Bedell - Deutsche Bank

Chris Allen - Evercore

Operator

Good day, everyone and welcome to the TD Ameritrade Holding Corporation’s December Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is Chief Executive Officer, Fred Tomczyk and Chief Financial Officer, Steve Boyle. At this time, I would like to turn the call over to Bill Murray, Managing Director of Investor Relations. Please go ahead, sir.

Bill Murray

Thank you, operator and good morning everyone and welcome to our December quarter earnings call. Please refer to our press release and December quarter earnings presentation, which can be found on amtd.com. The earnings presentation includes our Safe Harbor statement and reconciliation of certain non-GAAP financial measures to the most comparable GAAP financial measures. Description of risk factors are included in our most recent financial reports, Forms 10-Q and 10-K. As usual, this call is intended for investors and analysts and may not be reproduced in the media in whole or in part without prior consent of TD Ameritrade. As is our normal custom, please limit your questions to two, so that we can cover as many of your questions as possible.

With that, let me turn the call over to Fred.

Fred Tomczyk

Thank you, Bill and good morning and welcome everyone. While we had a strong start to fiscal 2016 as we continue to gather assets at a double-digit pace and at the same time maintain good expense control. Having said that, the markets are off to a rather wild start in January, so I am sure that 2016 will be another interesting year. Despite the market environment, the one constant has been and will continue to be our continued focus on what we can control and the execution of our growth strategy.

Let’s take a look at those results starting with the first quarter highlights on Slide 3. Average client trades per day were 438,000 in the December quarter, an activity rate of 6.6%. Net new client assets were $17.5 billion a 10% annualized growth rate and our second best quarter ever. Client assets ended the quarter at $695 billion, up 3% from last year. Fee-based investment balances were $157 billion, up 3% year-over-year. We have grown interest-sensitive assets to a record $110 billion, up 9% from last year and we earned net revenues of $812 million, down slightly from last year. This resulted in our delivering $0.39 of diluted earnings per share for the quarter, which is flat year-over-year. Keep in mind last year’s December quarter was a robust quarter for trading, where trades per day were 19,000 higher in that quarter by comparison.

Now, let’s look at how we execute in each area of our growth strategy starting with asset gathering on Slide 4. Fiscal 2016 is off to a strong start gathering over $17 billion in net new client assets and at double-digit annualized growth rate. This performance is second only to last year’s December quarter, which was our best quarter ever. Our retail channel had a strong quarter and continues to build momentum. We saw a decline in client engagement due to an increasingly tentative investor and yet our teams were still able to deliver growth year-over-year. Branch lead referrals were a strong contributor to these results. While total referrals were down slightly, the average size referral was up, leading to an increase in total assets gathered. We also saw good activity in net new retirement assets.

Looking ahead, we are launching new advertising targeting long-term investors and promoting Amerivest. You will also see increased rollover and retirement messaging to take advantage of opportunities provided by the tax season. The institutional channel had its second best quarter ever in terms of net new client assets, but was down year-over-year due to slower growth from existing RIAs. Breakaway broker flows continued to be strong. We remain focused on delivering superior technology and practice management services to RIAs to help them grow their practices. And we plan to welcome more than 3,000 attendees to our national conference next month and this is a great opportunity here from our advisor clients and for them to learn and to network.

Now, let’s move on to trading on Slide 5. Trading in the first quarter of 2016 trended towards the lower end of our range. But as we said in October, this was to be expected given the tentative behavior we were seeing from retail investors. We ended the quarter with 438,000 trades per day, a 6.6% activity rate. Client trading activity was quite consistent throughout the period. Derivative trades were up 3% and comprising 44% of daily trade margin. Meanwhile, so far in January, volatility is well up, which as we said last quarter would be reasonable to expect as the Fed began unwinding stimulus and raising rates. However, increased attention has also been drawn to China, the price of oil and other geopolitical and global growth concerns. This has had an impact in the markets worldwide. And January month-to-date, trades are averaging 579,000 trades per day. While trading is up and the number of clients trading are as up as well, we are still seeing a wait-and-see attitude from the broader client base. Those who are trading are doing so quite actively, but the average investor is waiting to see which way this market will turn next.

We are coming into what is typically our busiest time of the year and our strongest trading quarter. With so much uncertainty, we would expect economic and geopolitical news to continue to driving investor sentiment throughout the near term. We are responding by doing what we have long done updating our platforms with cutting-edge features and introducing new and enhanced ways for our clients to reach us and talk with fellow traders. Mobile remains an important focal point. Usage continues to grow with a record 18% of our client trades and approximately 1 out of every 3 account logins now coming from mobile devices. It’s a technology that is here to stay. So, we will continue to invest in adding differentiating functionality to our platform.

Now, let’s turn to investment product fees on Slide 6. Investment product fees grew to a record $92 million in the second quarter or in the December quarter or 11% of net revenues. Average investment product balances were up 5% to $159 billion. However, average balances for Amerivest and AdvisorDirect were each up 11% year-over-year. This growth in a flat market is not only an indicator of success amongst our sales teams, but of the overall desire that today’s investor has for advice and guidance.

Now, let’s turn to Slide 7. While we are pleased to start fiscal 2016 with the strong quarter and we continue to execute well on our growth strategy. Asset gathering remains strong with near record results and again a double-digit annualized growth rate. And we remain well positioned in trading with industry leading market share and a proven strategy for delivering state-of-the-art technology and service that today’s traders are looking for. We are also quite pleased that for the first time in nearly a decade, the Fed has raised interest rates. We have operated quite well through a prolonged difficult economic environment. And while challenges and uncertainties remain, this action is a positive from an earnings perspective. Since 2008, we have worked to evolve our business model and position TD Ameritrade for a different rate environment. Building on long-term earnings power over many years has now given us the opportunity to realize the benefits of those actions. We expect this first 25 basis points move to result no less to 2016 revenues of $50 million to $80 million. Steve will provide more color on this in a moment. But these are early days. So for us, it’s business as usual. You should not expect any significant changes in the near-term.

We will continue to invest in technology and the guidance and advice experience for clients. We will continue growing our third revenue stream as that remains a priority. The needs of today’s investor are evolving and a growing number of investors are looking to investment firms to give them a more comprehensive personalized investing experience. These are investors who want advice and long-term investing solutions but want to remain involved in the management of their investments. So, we are designing solutions that meet the evolving continuum of investor needs. We are strengthening our fee based portfolio advice offerings including a complete redesign of the post-sale Amerivest experience updating the experience with new designs and new features and formats. We are also enhancing our service models to provide more one-on-one services and support to our high net worth clients. We are fine tuning our sales model to better align clients with services that meet their needs. We are introducing more comprehensive goal planning solutions and we are introducing new advisor and client technology. These investments and our long-term growth are aligned with what today’s investors’ needs and how we see those needs evolving in the future.

Now in conclusion, with one quarter under our belts, we feel good about our progress and our outlook for the rest of the year. 2016 remains the year of investment as we fine tune our client offerings and further improve our internal processes to bring better value to our clients, our shareholders and our associates. At the same time, we continue to execute well against our growth strategy. 2016 will also be a year of transition as we welcome Tim Hockey, who is here with us today, to our management team and prepare him to take over as CEO when I retire at the end of the year. We can’t predict what specifically the year will bring, but we would expect geopolitical and global economic uncertainty to continue and the upcoming presidential election will undoubtedly have its own influence on investor sentiment and the markets. But as long has been the case, we will continue to focus on what we can control and simply execute our strategy.

And with that, I will turn the call over to Steve.

Steve Boyle

Thank you, Fred and good morning everyone. We are pleased with our results for the quarter. We continue to deliver on items within our control and are off to a good start for fiscal 2016. As Fred said, our results are credited to strong asset gathering and good expense control. Expenses were at their lowest levels since the June 2014 quarter due to efficiency gains at a few favorable timing items. So with that, let’s begin with the financial overview on Slide 8. We will start with the year-over-year comparisons. Overall, revenue was down $7 million or 1% year-over-year to $812 million. On line one, transaction based revenue was $328 million, down $31 million or 9% due to both lower trades per day and lower commission rates. Trades per day were down 19,000 or 4% due to the strong prior year and despite reasonable volatility. Commission rates were down $0.55 per trade from last year, reflecting declines from fiscal 2015.

On line two, asset based revenue was up $22 million or 5% primarily due to balanced growth. On line five, operating expenses excluding advertising totaled $407 million for the quarter, down $4 million. This quarter included $7 million of favorable timing items. We will continue to manage expenses closely, but the next quarter there will be seasonal increases. That being said, we would expect quarterly operating expenses excluding advertising to be similar to Q2 2015 at $425 million to $435 million. We also realized some favorable state tax items this quarter as in the prior year quarter. All of this resulted in earning per share of $0.39 which was consistent with last year. Key ratios remained strong. On line 14, return on equity was 17% for the quarter. And on line 17 and 18, our EBITDA was $387 million or 48% of revenue.

Now we will move on to the sequential quarter comparison. On line four, revenue was down $19 million or 2%. Transaction based revenue was down 10% following a particularly strong quarter. The commission rate per trade was steady. Asset based revenue increased 4% due to rates and strong IDA balanced growth. On line seven, total operating expenses were down slightly as seasonal increases in advertising were offset by other timing items. On line 13 earnings per share was down $0.01.

Now let’s take a more detailed look at our spread based revenue starting with Slide 9. Spread based revenue was $381 million, up 4% year-over-year. The IDA was the primary driver of the growth, which I will discuss on the next slide. Net stock lending remains relatively strong at $41 million for the quarter, but is down $10 million from the elevated levels we saw in the same quarter last year. For the third consecutive quarter, we experienced the sequential increase in spread based revenue, primarily due to balanced growth. The sequential growth was driven by IDA balances and to a lesser extent net stock lending. Average margin balances declined from $12.6 billion to $12.3 billion. The Federal Reserve’s interest rate move in December will boost spread based revenue. We increased margin lending pricing effective January 1 on all accounts and earn rates of interest earning assets will increase while client pay rates will stay the same.

With that said, let’s take a look at the IDA on Slide 10. Year-over-year, average IDA balances were up $5 billion to $80 billion and net yields increased slightly as well, driving revenue up 10%. Sequentially, balances continued to grow and net yields increased. The Fed move in December will primarily benefit the floating rate balances. While the gross rate will increase, the management fee to TD Bank will increase 12.5 basis points on the flow or 3 basis points on the overall portfolio.

Now let’s turn to the next slide to discuss interest rate sensitive assets. Interest rate sensitive asset balances were at a record of $110 billion, up $9 billion or 9% from last year. The increase is primarily due to growth in the IDA. Cash as a percentage of total client assets ended the period at 15.1%, consistent with last quarter. Our overall consolidated duration increased slightly to 2.2 years as of December 31. As our sensitivity disclosure in the appendix notes a 25 basis point parallel shift should provide an incremental $0.08 to $0.12 in earnings per share lift over the following 12 months. As such, December’s move should provide three-fourths of that impact for the remainder of this fiscal year or a $50 million to $80 million revenue lift to our 2016 earnings, which translates to $0.06 to $0.09 of incremental earnings per share.

Now let’s turn to the final slide. Organic growth remains a top priority and this quarter’s results are encouraging. While trading was at the low end of the expected range in the quarter, the second quarter is off to a strong start. The Fed’s rate move will provide a modest incremental lift to our earnings per share. We are pleased with expenses for the quarter. As Fred said earlier, we would expect to realize some incremental – to realize some incremental project spend as we move through the year especially related to technology and guidance offerings, but those two will be done in a thoughtful prudent manner and within our prior guidance. We returned $129 million to shareholders this quarter through cash dividends and share repurchases or 57% of net income excluding amortization of intangibles. This is slightly below our annual target of 60% to 80%, but we are comfortable that we will ultimately be in that range for the full fiscal year. We have had a strong quarter. Organic growth and ongoing leadership in trading remain the hallmarks of our success to-date. Momentum is on our side and we are confident that we will deliver on our goals, but we have a lot of work ahead of us.

And now I will turn the call back to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from Rich Repetto with Sandler O’Neill.

Rich Repetto

Yes. Good morning Fred and good morning Steve.

Fred Tomczyk

Good morning.

Rich Repetto

So I guess the first question is on the capital return and more specifically share repurchases and it was $1 million this quarter, $7 million last quarter, so was it purely an issue of the stock price and would you be more aggressive in the first quarter given where the stock price is here now in the calendar first quarter?

Fred Tomczyk

First off, as you know Rich, we always put on our share repurchase algorithm in place, hopefully at the start of each quarter. This quarter, we were not able to do that, because after we did the earnings, we had inside information with the transition from myself to Tim. And so we were actually locked out of the market for a fair bit of the quarter before we got the share repurchase algorithm in. So I think it’s just lighter this quarter for that reason. And we would definitely say – I think it’s fair to say, as you look forward given what’s happened to the stock price, we will be more aggressive here just given what’s happened with the stock so far in January.

Rich Repetto

Okay. And I guess my one follow-up would be on the expense, you outperformed versus model in the expenses. And I know you have some incremental investment, but I guess one of the expense lines, the clearing and execution per trade it was the lowest I think we have seen in quite a while. I guess overall can we get a little bit deeper on – was there anything going on in that line? And I guess you said where it’s going to trend for the year, but anything else as we are in this volatile environment?

Fred Tomczyk

Yes. So Rich, we typically get an OCC rebate this quarter. I mean, it was a little bit larger this year than it’s been historically. That was the primary reason for that. And then in terms of overall expense, I think we gave pretty clear guidance on next quarter 4.25 to 4.35. I think we expect to be well within our guidance range and we are pleased that we have been able to realize some incremental efficiency this quarter.

Rich Repetto

Okay. Thanks, guys.

Operator

Thank you. And the next question comes from Mike Carrier with Bank of America Merrill Lynch.

Mike Carrier

Thanks, guys. Steve, I think just on the spread-based outlook, it looks like the IEA might have come in a little bit, I don’t know more muted this quarter and I think you mentioned some of the drivers and the ones margin balances might have been one of it. When you think about the outlook in terms of the Fed moving and re-pricing some of those products and maybe what you are seeing in SEC lending just given this more volatile environment, I guess any sense and maybe the direction of that part of the business? I know it’s more volatile, but it seems like there is some puts and takes in the outlook that maybe there is some guidance.

Steve Boyle

Yes. I think there is sort of parts and pieces to the interest rate sensitivity I would think about. So overall, obviously, loan rates are moving quite a bit. We are still within our guidance range there. I think we gave pretty explicit guidance on what 25 basis points does for us. I think our clients have reacted the way that we would have expected them to react. So, I think that’s pretty much right in line with what we were expecting. I think as you mentioned that the market environment has had some changes on our balance sheet that are going to reflect themselves in NII. And I would say as you said there are puts and takes there. So, we are seeing very strong IDA growth. Margin balances have held in pretty well in January, but we would expect in this kind of environment that we would see some declines in margin balances. Stock lending is always difficult to predict. Cash levels, free credits are up significantly, so cash is up. And so that’s going to have a positive impact on NII, but a dampening impact on the net interest margin percentage. So, overall, I think we feel pretty good, but there is obviously a lot of moving parts. The market seems to change everyday.

Fred Tomczyk

Yes. And I think you got to look at it over the balance of the year. And with the 25 basis points move, we did increase our lending rates and we did – we basically didn’t pass anything along on the cash credit rate. So, it should improve as we go through the year.

Mike Carrier

Okay, thanks. And then just quick follow-up, on the investment product revenues or those fees, I think there was a benefit from the Amerivest I guess normalizing other rebates. Obviously, markets are down year-to-date. So, just wanted to make sure we understand how that can impact it and then what you are seeing in this environment in terms of growth maybe in the fee-based products, because the net new asset growth continues to be pretty strong, just where some of that money is going?

Steve Boyle

Yes. So, I think the best way to think about Amerivest is you should think about sort of the client activity and then the accounting. So, in terms of what actually happened last quarter, we had a strong performance quarter for our Amerivest portfolio. So, the vast majority of them were up. So, we have effectively hit the reset button on the rebate, which only happens if there is two consecutive quarters of negative performance. So, that resulted in us being able to recognize a couple of million of revenue that we had previously deferred. If we are down this quarter, we would reserve another – about $5.5 million, but we wouldn’t have to pay that out unless we had two consecutive quarters of down performance. So over time, that’s been unlikely, but obviously, we will see how this market plays out. In terms of investment product fees, we think we mentioned that Amerivest and AdvisorDirect were both up 11% year-over-year. I think that’s indicative of a reasonable growth rate for those portfolios. We will see how they behave in this market growth.

Fred Tomczyk

Yes, but the market is down, I don’t know, 7% or 8% right now so far in January, so the fees will come down.

Steve Boyle

Yes and we have a sensitivity on that on Page 15 of the deck.

Mike Carrier

Okay, thanks a lot.

Operator

Thank you. And the next question comes from Dan Fannon with Jefferies.

Dan Fannon

Thanks. In terms of the M&A, can you talk about the mix of institutional versus retail and maybe from a backlog perspective kind of compare it today with the institutional component to a year ago and how that’s different?

Fred Tomczyk

Well, the M&A in the quarter, as I said, the retail asset gathering is slightly up year-over-year and the institutional side is down. The institutional side is down largely to existing advisors. They are continuing to grow, but they are not growing as fast as they did last year at the same time. And the growth rates continue to be very good for both channels and the mixes continues to be relatively consistent, roughly 70% institutional and 30% retail. With respect to sort of pipelines, the pipelines are still very full and very robust with respect to breakaway brokers and sales opportunities. We have got a National Conference coming up, which is usually a big event for us where we do gather a lot of assets in the quarter following that conference, but the sales cycle just takes a bit of time here. But it’s not surprising to me I think the market was flat last year. So, it’s just a more challenging market for people to gather assets, but we continue to do quite well in that market.

Dan Fannon

Great. And then just a follow-up, Steven, I think you highlighted $7 million of, I don’t know, one-time or helpful benefits in the quarter on the expense side and was the bulk of that in the clearing and execution line?

Steve Boyle

Yes. I would say about half, a little bit more than half, yes.

Dan Fannon

Great. Thank you.

Operator

Thank you. And the next question comes from Conor Fitzgerald with Goldman Sachs.

Conor Fitzgerald

Thanks. Just circling back on your comments for the pipeline being robust for advisor growth, do you have any sense for whether that’s kind of DOL related at all in terms of things you are hearing from advisors that your platform might be relatively more attractive if we go to a fiduciary world?

Fred Tomczyk

To be quite honest, I don’t have a handle on that, Conor. Not sure here that I think there are articles right now going on that basically a lot of the wire houses that had the buyouts that they did many years ago are now running their course. So, I think that’s one of the reasons there is just lots of opportunities in the market right now. So, there is a lot of people that no longer have these forgivable loans, but they are all fully paid off. But I haven’t heard anybody talk the DOL as a unique opportunity in the RIA space at this point.

Conor Fitzgerald

That’s helpful. Thanks. And then just a couple of banks have highlighted this quarter about the impact of higher FDIC fees in the back half of the year. I guess that would impact you through your IDA yields, correct? And does your 2016 guidance kind of contemplate an increase in FDIC fees?

Steve Boyle

Yes. So, that hasn’t been finalized yet. So, it’s not in our guidance and that would flow through the IDA as you mentioned.

Fred Tomczyk

But we wouldn’t expect anything to hit until the fourth quarter at this point.

Conor Fitzgerald

And is it about 4 or 5 basis point impact is that the way to be thinking about it?

Steve Boyle

They haven’t finalized the rule whether it’s going to come in over one year, over two years, so it’s really speculative at this point.

Conor Fitzgerald

Thanks for taking my questions.

Operator

Thank you. And the next question comes from Chris Harris with Wells Fargo.

Chris Harris

Thanks. Good morning, guys. The incremental spending you are doing on advice, just wondering if you guys can bracket that for us curious on knowing exactly how much of your expense base is attributable to those incremental investments. And then related to that, how committed are you to those investments if the environment gets much worse?

Fred Tomczyk

Well, I will take the second question first. I mean when we make investments, our investments were with a view to 3 year to 5 years out. So the environment will not matter to finishing up those projects and investments. We will continue and follow through and finish them. And in particular, in difficult markets I think getting those done are important. I am not going to get specific on how much we are investing in that. I don’t think that’s a level of granularity we have normally not gone. I wouldn’t call it a huge number, but it is one of our top priorities in the organization.

Chris Harris

Okay, very good. And then just a quick follow-up on rates, just a little bit curious here just looking at the data that the rise we saw in short-term interest rates in the quarter didn’t really look to have a positive impact on your asset yields and I know obviously the Fed didn’t move rates until late in the quarter, but other short-term rates were up and that did have a positive contribution for Schwab, any thoughts on maybe why you guys didn’t get a little bit more of an uplift there?

Steve Boyle

Yes. So this is Steve. So, we have a pretty conservative cash portfolio, so bank deposits, treasuries, money markets and so we wouldn’t expect those to move up dramatically. And then the IDA fee will move up with the Fed Funds, so those really are the key drivers.

Fred Tomczyk

And our price changes on loans did not take effect till January 1.

Chris Harris

Okay. Thank you.

Operator

Thank you. And the next question comes from Alex Kramm with UBS.

Alex Kramm

Yes. Hey, good morning. I guess just staying on the same topic, Steve you did give a lot of color on the rate impact, but maybe can be a little bit more specific in terms of where some of these buckets are exactly running right now, I mean margin loans, is that coming up by 25 bps basically quarter-over-quarter. And then also with some of the things you talked about with TD and on the IDA side where is that running right now, pretty much exactly right now if you can disclose?

Steve Boyle

Well, so I think we said that the margin loans, we put in a 25 basis point increase across the board, so I think you should expect that to be fully phased in next quarter. And then on the float balances on the IDA, which is about $22 billion, we would expect that that’s on the 25 basis point increase that, that half of that 12.5 basis points goes towards the management fee, so we would see a 12.5 basis point increase on a fully phased-in basis.

Alex Kramm

Alright, great, that’s helpful. Thanks for clarifying. And then just I guess secondly, on the investments fee balances, you highlighted those as an area of strength. If I look at I think the first slide, you actually said investment fee balance is up 3% and that’s exactly in line with total client assets. And I hear you on Amerivest and AdvisorDirect growing a lot faster, so what are the detractors, is it just straight old good old mutual fund sales or where are the areas of weakness that you had why total investment products are not outperforming total client assets?

Fred Tomczyk

We would just be historical on mutual funds, yes.

Alex Kramm

Alright, that’s it for me. Thanks.

Operator

Thank you. And the next question comes from Bill Katz with Citigroup.

Bill Katz

Okay. Thank you. Good morning and I appreciate taking my questions. Just to stay on the rate leverage discussion for a moment, I think you mentioned as part of your qualifier a parallel shift of rates, however year-to-date, I think we have seen a pretty stock flattening in the mid to belly part of the curve which I think is where you are probably most leveraged, how does that influence the $0.06 to $0.09 of earnings, if at all?

Fred Tomczyk

Well, I think the way to think about it Bill is a, we are well already one quarter into the year, so you have got to bring some stuff down, I think second thing is in the first 12 months of an interest rate increase, let’s assume a parallel shift, 90% of that benefit is due to short-term rates not long-term rates. And so but the long-term rates does matter, it will matter more in ‘17 and ‘18 and ‘19. So I think that has much more to do about future years’ earnings, but will have a smaller impact on 2016.

Bill Katz

Okay, that’s helpful. And then just on trading, thanks for the commentary for January, it sounds like maybe more of your active traders are a bit more engaged and as you mentioned that’s more of your general clients, what does that mean for – a two part question I guess, for sort of revenue capture per trade. And then as you put your pricing in on the margin balances would you expect a full 25 basis point increase on your margin yields?

Fred Tomczyk

I think we have answered that question. Yes, we would on the margin loans.

Bill Katz

Apologize, I missed that.

Fred Tomczyk

Yes. But the IDA, I think you just – just to be clear, while we get the 12.5 basis point lift, it is on the floating balances. The reality is the lift to the overall yield on overall portfolio was – it will be a little bit lower because of the tractor. So repeat the – what was the – repeat the question again Bill, sorry.

Bill Katz

Yes. I am sorry to make you ask it twice. On the revenue capture per trade sort of wondering, how does that comparing relative to the lift of volume into the new quarter?

Fred Tomczyk

Well, it’s hard to call it right now, because it does depend on the mix of the products you are trading. In this type of market, you would expect to have your futures go up a bit because of the biggest future contract, trading is really on the S&P. So basically that will drive that up, which will have the tendency to drive commission per trade down. Secondly, with the WICs popping like it is, basically you would expect fewer contracts per option trade. So that will also have the tendency to drive your contract commission and your order flow revenue down a bit. So there will be – I think just given the current nature, we will have some downward pressure in the short-term.

Bill Katz

Okay Thank you. I am sorry for confusing.

Fred Tomczyk

But it’s been pretty stable for the last quarter or two.

Bill Katz

Okay. Thank you.

Operator

Thank you. And the next question comes from Devin Ryan with JMP Securities.

Devin Ryan

Thanks. Good morning, just a couple of follow-ups here. So first on the DOL fiduciary role and I guess as we are likely moving closer to a final rule, just wanted to see if you guys were hearing something new around options trading and whether that will be a lot of retirement accounts. And then if you can just trying to help us frame out that impact for Ameritrade if in fact you can’t trade options?

Fred Tomczyk

Okay. I mean you are bringing back some more memory here. First off, we would expect – I believe you can trade options at an IRA if it is purely a self-directed account, but it’s only when you are giving some form of advisory get caught by device that basically you – you are basically are prohibited from trading options on an IRA. I think we are hopeful based on our discussions with the DOL that basically they will have some relief on options trading in IRA accounts in those circumstances. But in any event, we think we are actually in a fairly safe position because most of our clients are self directed. With respect to the deal, well we are not hearing anything new. I think we are in a dark period right now until they sort of come up the other end of their deliberations. There has been lots of input, lots of comments and lots of letters written to the DOL that got us set through all those and then make their determinations and we will anxiously await to see what they come out with at the end.

Devin Ryan

Okay, that’s helpful. Thank you. And then I know that you guys have said no strategic holes to fill, but with market valuations coming in here, just as you are thinking about opportunities to invest back in your business versus opportunities for inorganic growth. Are there any additive products or services are either coming back on the radar with the market resets here or are you seeing any increase in sellers for specific technologies or products just with the increase in market stress?

Fred Tomczyk

At this point, I think it’s a little early to tell. I mean there is sort of the correction here has all happened in January. We are only into week three. From our perspective, we have invested. We are going to continue to invest at a prudent pace. I think with respect to other players in the market, as we have always said, we will do whatever we think makes strategic and financial sense. But at this point, well I think we continue to think we have got a pretty full product set. We are not going to see we need the capability that we need to acquire right now. So we continue to invest organically. We do see opportunities and things to invest in and we continue to make those investments. As we said earlier, a lot of work is going on right now on revised guidance offerings, because we think we have opportunity to get better at that and to change the conversation and make it more relevant to today’s investor.

Devin Ryan

Great. Thank you.

Operator

Thank you. And the next question comes from Joel Jeffrey with KBW.

Joel Jeffrey

Hi, good morning guys. Just as a follow-up to Devin’s question and I am not sure if you can give this level of disclosure, but can you tell us what percentage of the DARTs are or options trades that are coming from IRAs that are advisor driven accounts?

Fred Tomczyk

I don’t have that number at the top of my head. And I don’t think we provide that disclosure in any event, Joel.

Joel Jeffrey

Okay. And then just lastly I mean you guys have given us a lot of sensitivity analysis in your slide deck. Just wondering, do you have any sense for the sort of EPS impact from a 10% decline in the markets or a 5% decline or anything along those lines?

Fred Tomczyk

At the top of my head, I might make a mistake in calculating. Now, let me think about that, we can come back to you, but you have to take the investment product fees.

Steve Boyle

Investment product fees.

Fred Tomczyk

Yes.

Steve Boyle

On Page 15, we say a $3.8 billion reduction in fee-based assets is worth $0.01, so that’s the right rule of thumb.

Fred Tomczyk

10%, 158, so you should be able to do the math from that, Joel.

Joel Jeffrey

Okay, great. Thanks for taking my questions.

Fred Tomczyk

Okay.

Operator

Thank you. And the next question comes from Chris Shutler with William Blair.

Chris Shutler

Hey, guys. Good morning. On the cash balance, I was just curious I know you are at about 14.8% of assets in the December quarter in the lower half of the target range. So just wondering really what you are seeing in January and then any divergences in how advisors versus retail is acting?

Fred Tomczyk

Well, the first thing is that the ratio will go up, because the denominator has gone down.

Chris Shutler

Alright.

Fred Tomczyk

But cash balances have held in there. They have grown in both retail institution, but more so in institution.

Chris Shutler

Okay. And then the average balance in Amerivest and AdvisorDirect, I think you talked about each of those being up 11% year-over-year despite a flat market, how much of that increase Fred was – how much of that was due to existing clients adding to their balances versus bringing on new clients?

Fred Tomczyk

I couldn’t tell you that, because I don’t have the split, because a lot of times the new money going in to Amerivest was coming from existing clients topping up their plan. So, I don’t have that number. But I think it’s safe to assume that most of that’s going to be due to new flows.

Chris Shutler

Okay, fair enough. Thanks a lot guys.

Operator

Thank you. And the next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell

Hi, good morning folks. Fred, maybe just a question going back to the retention packages that are expiring at the warehouses, what’s your thought say over the next year or so in terms of whether you think that will accelerate the breakaway broker trends? And then if you can sort of think about how the markets, the equity markets are tracing now and is that going to be sort of an offsetting headwind to get any potential acceleration of the breakaway broker trend?

Fred Tomczyk

Good question, Brian. I do think there is no question when the packages come up, more people will look and consider the opportunities are going independent. And remind everybody that the trend to independence has been a long and very significant secular trend we don’t see changing. And so I think that’s an upside to the breakaway broker movement from our perspective. Having said that, in down markets like this, it’s usually a time where people just hold up, talk to their clients and are less apt to make that shift. So, I think there is countervailing forces here and I think in the short-term, it’s likely to go, people will look at it, but probably pause here in the short-term.

Brian Bedell

Do you sense that you may increase your targeting given the retention packages expiring over the next year?

Fred Tomczyk

We are pretty aggressive in the market at all times and now wouldn’t be any different. The only thing that may change is where you are targeting. Sometimes it’s independents, sometimes it’s a wire house sometimes it’s both. It all depends on what’s going on at that particular organization.

Brian Bedell

Okay, great. That’s good color. And then just follow-up is on advertising, I think Fred you mentioned the new advertising campaign on the fee-based accounts. From an expense standpoint, should we be thinking about specific type of year-over-year growth rate in ad expenses as we move through the fiscal year?

Fred Tomczyk

No. I think everything I talked about is within the guidance range that we gave you earlier.

Brian Bedell

Okay, same thing. Okay, great. Thanks very much.

Operator

Thank you. And the next question comes from Chris Allen with Evercore.

Chris Allen

Good morning, guys.

Fred Tomczyk

Good morning.

Chris Allen

I think most of them has been covered. I guess just one question you noted that growth from the existing institutional RIAs had slowed a bit. Just wondering if there is anything specific you could point to there or some of these RIAs reach capacity or is just amount of the environment market more related?

Fred Tomczyk

In our discussions with them, it’s much more the market environment. It really is basically the market was essentially flat last year, so we target to differentiate yourself. And so it’s just a different market. The environment as I said earlier most investors are a little bit tentative right now and taking a wait-and-see attitude. So, while they maybe talking to a lot of people, taking actions just slowed down a bit here.

Chris Allen

Yes, thanks a lot guys.

Operator

Thank you. And there are no more questions at the present time. So, I would like to turn the call back over to management for any closing comments.

Fred Tomczyk

Okay. Well, thank you everyone. And we are pretty pleased we are off to a good start to the year. Certainly, so far in January, we have a very different market that has a negative tone to it. It’s been good for trading volume. But I think as we move through the quarter and the balance of the year, from our point of view, we will continue to see volatility and it will all depend on geopolitical events. The price of oil seems to be a big factor right now, the growth rate in China and certainly, actions of the Fed and the Presidential election are all going to have influences on the market from here. It’s a very difficult market to call. But as we said at the beginning of the call, we would expect its volatility to continue here. With that, we will talk to you next quarter end. Take care.

Operator

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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