Ameritrade Q2 Earnings Call Transcript

123jump.com Staff
03 May, 2010
New York City

Revenues up 21% to $635.4 million & net income rose 23.2% to $162.6 million or 27 cents a share. Net new assets of $10.2 billion for the March quarter were up 59% from $6.4 billion in the same quarter last year. Interest expense for the quarter was $3 million higher than the same quarter last year.

TD Ameritrade Holding Corp. ((AMTD))
Q2 2010 Earnings Call Transcript
April 20, 2010 8:30 p.m. ET

Executives

Bill Murray – Managing Director, Investor Relations
Fredric J. Tomczyk – President and Chief Executive Officer
William J. Gerber – Executive Vice President and Chief Financial Officer

[Analysts

Patrick O''Shaughnessy – Raymond James
Celeste Brown – Morgan Stanley
Richard Repetto – Sandler O''Neill & Partners
Michael Vinciquerra – BMO Capital Markets
Michael Carrier – Deutsche Bank
Joel Jeffrey – Keefe, Bruyette & Woods
Matthew Snowling – Friedman, Billings, Ramsey Group, Inc.
Faye Elliott-Gurney – Banc of America/Merrill Lynch

Presentation

Operator

Good day, everyone and welcome to the TD Ameritrade Holding Corporation''s March Quarter 2010 Earnings Results Conference Call. This call is being recorded. With us today from the company is President and Chief Executive Officer, Fred Tomczyk and Chief Financial Officer, Bill Gerber. 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

Thanks, operator. Good morning everyone. Welcome to the TD Ameritrade March quarter earnings call. If you haven''t had a chance to review them yet, our press release and today''s presentation can be found on amtd.com.

Before we begin, I would like to refer you to our Safe Harbor statement which is on slide two of the presentation, as we will be referring to forward-looking statements in today''s presentation. We would also like you to review our description of risk factors contained in our most recent annual and quarterly reports Forms, 10-Q and 10-K.

As usual, the 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. Once again, we have a large number of coverage analysts, so if you can keep your questions to two. We will try to get through most of you in the allotted time.

With that, we have Fred Tomczyk, Bill Gerber to review our March quarter results and major accomplishments. Fred?

Fredric J. Tomczyk

Thanks, Bill and good morning everyone and thanks for joining us today. As we communicated a few weeks ago, when we released our February metrics, the March quarter looks a lot like the December quarter. When this financial crisis started, we said we were going to manage for the other side of the cycle and take advantage of the dislocation we saw in the market.

We continued to execute on that strategy. The combination of continued near zero interest rates and not a low -- lower intraday volatility has created a difficult environment for short-term earnings. Having said that, the implementation of our new business model and the strategic investments we''ve made over the last 18 months have served us well in the face of that environment and have played a central role in driving the kind of organic growth we have been able to deliver.

We''re very proud of our net new assets over the first half of fiscal 2010 and we had a record $10 billion in net new assets in the quarter. And we are on pace for a record year in terms of assets gathered. With that said, let''s take a look at our quarterly financial review on slide three.

We ended the quarter with $0.27 in earnings per share or $0.23, if you exclude the benefit of certain tax items, which Bill will provide more details on later. On paper, these operating results are the same as last quarter, as well as what we delivered in the March quarter of last year. But if you take a closer look at each of these quarters, particularly March 2009 versus March 2010, you can see how the strategic decisions we''ve made have helped us maintain earnings even as operating conditions have become more difficult.

In the March quarter of last year, we''ve had near zero interest rates, but intraday volatility was very high. Our strong transaction base revenues helped offset the net interest rate margin compression we were seeing and it''s related impact on our asset base revenues.

Looking at the March 2010 quarter, it was the successful execution of our asset gathering strategy, in addition to the implementation of our new cash management strategy that has allowed us to grow our asset based revenues and maintain earnings in this environment, while positioning us well for a rising interest rate environment.

In essence, the execution of these strategies has protected our earnings in the face of a significant decline in intraday volatility and as a result, trading revenues. Having said that, we are very happy with the continued traction we are seeing in our asset gathering strategy.

While we can''t control interest rates or intraday volatility, we can influence with the right strategy, the right business model and the right strategic investments our organic growth and the successful execution of those strategies has proved out again this quarter. From a trading perspective, our trades per day came in at 379,000 and were essentially the same as last quarter, due to the continued low intraday volatility.

April to date, we are at 411,000 trades per day, as market activity has picked up in the last couple of weeks. In addition to acquiring 187,000 new accounts, we brought in a record $10 billion in net new assets this quarter. That''s an annualized growth rate of 13%.

We''re at an all time high with total client assets at $342 billion. We find this number significant, given that a year ago our client assets totaled $225 billion, that''s an increase of 52% year-over-year, due to the improved market and our record assets gathered.

Our interest rate sensitive assets came in at a record $63 billion, driven by our strong organic growth. We feel very good about the record performance level we''ve achieved this quarter on the things we can control and we will remain focused on continuing to deliver our strategy to manage for the other side of the cycle and position ourselves for strong long-term earnings growth and increasing returns to our shareholders.

As you can see on slide four, net new assets of $10.2 billion for the March quarter were up 59% from $6.4 billion in the same quarter last year. They''re also up significantly from the $6.9 billion we gathered in the March 2008 quarter.

Over the last 12 months, we have generated $31 billion in net new assets, that''s an annualized growth rate of 14%, well above the top end of our guidance range of 7% to 11%. Both our retail and institutional distribution channels continue to gather assets at very healthy rates.

We also continue to see strong new account growth, so we continue to present a compelling value proposition to the market and to prospective clients. Through six months, we had generated $19 billion in net new assets, a 13% annualized growth rate and up 32% from the same period a year ago. We couldn''t be more pleased with our performance in this area.

Slide five reflects our number of average trades per day, 379,000 for the December quarter, which is equal to what we averaged last quarter, then up from 325,000 in the March 2009 quarter which was prior to the addition of thinkorswim. On a pro forma basis, our funded account activity rate declined from 7.6% in the March 2009 quarter, to 7.1% in the March 2010 quarter.

Both volatility and funded account growth are key drivers of trading volumes. While we cannot control volatility, we can influence account growth and will continue to focus on our growth and funded accounts, even if volatility continues at these levels.

Our funded accounts have $5.4 million, are up $52,000 from last quarter and up 12% from what they were two years ago. The integration of thinkorswim is another critical component of maintaining long-term earnings growth in our trading business.

We were pleased that thinkorswim was recognized by Barron''s as the number one broker for 2010. This is a strong validation of the strength of our platform for active traders. We continue to be pleased by the performance of thinkorswim''s base business. Account attraction and retention continue to perform at exceptional levels and the pace of innovation has continued throughout the integration.

From new enhancements to the thinkorswim platform to new innovative tools that differentiate us from our peers, we continue to produce a premier experience for traders. Options at 22% of our daily trading volume continue to be a critical component of our trading volumes.

We see options as the more resilient product in this environment and more and more of our clients are finding a place for them in their portfolios. Bill will provide more color about our expectations for trading over the next six months in a few moments but before we get to that, I''d like to spend some time talking about what the environment means for 2010 guidance, as we enter the second half of the year.

As you can see on slide six, in the six months ending March 2009, we saw the market move by at least 2%, from high to low on 85% to 92% of the days. By contrast, in the six months ending March 2010, the market experienced similar moves on only 10% to 13% of the days, that is a very high contraction in intraday volatility and has a direct impact on trading activity and as a result, trading revenue.

The combination of lower intraday volatility and near zero interest rates presents a unique operating challenge for us. In the past, we may have had low volatility, combined with higher rates or lower rates combined with higher volatility, in either case, one variable helped mitigate the impact of the other.

Now, however, for the first time that I''ve seen, both are trending to the low end of the scale. This perfect storm creates one of the more difficult operating environments we''ve encountered since the bust of the tech bubble. The combination of these headwinds has put pressure on our short-term earnings, which we expect to continue for the balance of our fiscal year.

At the same time, our strategy of managing for the other side of the cycle, continues to produce solid organic growth results, which combined with our strong balance sheet and free cash generation capabilities, positions us very well in terms of building long-term earnings power but given the increasing challenging operating environment, which we continue to believe is a short-term issue, we believe it is prudent to adjust our fiscal 2010 earnings per share guidance to a range of $0.90 to $1.10.

Now, before turning things over to Bill, let me close with my thoughts on where we''re at, halfway through the year on slide seven. Although we are lowering our short-term guidance, we remain very optimistic about our ability to grow earnings and deliver solid returns to our shareholders over the longer term.

Asset and account in-flows continue to be very healthy and we remain very focused on executing our asset gathering strategy. We also remain focused on delivering on the thinkorswim integration, with a particular focus on creating the premier trading platform for traders. This, along with our focus on funded account growth, will help us achieve growth in trading volumes over the longer term.

So we are well on our way to building strong, long-term earnings power. We have positioned our firm for strong earnings growth in a rising interest rate environment and we''re well positioned to continue to deliver on that strategy.

And our strong balance sheet and cash position provide us with the added leverage to make key strategic decisions that can further influence our position and deliver value to our shareholders. We will continue to be thoughtful and deliberate in examining the various opportunities to deploy our cash in a way that further benefits our shareholders.

Now, we recognize that you can''t achieve the kind of growth and become the better investment firm for today''s investor without the hard work and dedication of our associates. And I would personally like to thank all of our TD Ameritrade associates for their hard work and dedication to this point in our journey.

Throughout this journey, we have done many of the right things to manage through a challenging environment in the interest of long-term growth. We remain focused on executing that strategy. As I have said before, I can''t predict what will happen to interest rates tomorrow or even six months from now, but if you look at our organic growth and the strategies we put in place to mitigate the impact of today''s headwinds, while positioning ourself to deliver strong long-term earnings growth and solid returns to our shareholders, I''m very pleased with where they''re at and how we''re positioned for the future. But all of us at TD Ameritrade recognize that we are only part of the way through our journey to be the better investment firm for today''s investor. And now, I''ll turn the call over to Bill Gerber.

William J. Gerber

Thanks, Fred. As we have said numerous times, we continue to manage the company for the long term. The investments we are making and the record organic growth we are experiencing continues to position us well for the future.

As we said when with released our February metrics, the March quarter is very similar to the December quarter and until the external environment changes, I wouldn''t expect much change going forward. Interest rates are remaining near zero and trading levels were identical from March to December.

So with that in mind, let''s begin our financial results for the March quarter on slide eight. Similar to last quarter, we are providing year-over-year comparisons and sequential quarter comparisons. We''ll start with the year-over-year comparisons.

Remember that the big difference in year-over-year numbers is the addition of thinkorswim, which is in our March 2010 results, but not in our March 2009 results. Transaction based revenues for the quarter seen on line one exceeded last year''s results, primarily as a result of a 17% increase in trading activity year-over-year, due to thinkorswim.

Our commission rate was slightly down to $13.04 per trade from $13.40 last year, primarily due to mix. On line two, we are very pleased to note that the asset based revenue now shows an increase from the same period last year, as March 2009 was the low point in our asset based revenues.

Said another way, the results of our cash management strategy, as well as organic growth has finally overcome the interest rate compression we have experienced over the last year or so and the money market fund fee waivers we have previously discussed. This is a very important point that I will discuss in greater detail in a moment.

Other revenues on line three are up, as a result of the education business we acquired from thinkorswim. All in, revenues were up $110 million year-over-year. On the expense side, operating expenses excluding advertising are up $96 million, due to thinkorswim and sales incentives related to our record net new asset growth. Advertising is up $19 million, primarily due to thinkorswim.

Our interest expense for the quarter was $3 million higher than the same quarter last year, as expected, due to the changes in our capital structure we discussed last quarter. As Fred briefly mentioned, we did experience a favorable effective tax rate this quarter, due to the settlement of certain tax positions with various taxing authorities. This resulted in an approximate $0.04 positive impact to EPS this quarter. This brings us to net income of $163 million or $0.27 per share in the quarter.

So, now let''s look at our results on a sequential basis. We believe these comparisons are better for your review, as they have thinkorswim in both periods. Please keep in mind that the March quarter has two less trading and interest days than the December quarter, which is important.

Transaction revenue declined $8 million, due to two fewer trading days as trades per day and rate were virtually unchanged. Asset based revenues are up as a result of the continued balance growth and the completion of the cash management strategy during the quarter. Other revenues are essentially flat.

Moving to expenses, our operating expenses before advertising on line five are up $17 million due to the increased sales incentives related to the record growth in net new assets as previously mentioned, as well as payroll taxes which are always seasonally higher in the first calendar quarter of the year.

On line six, you can see that we spent $7 million more in advertising for the quarter, which continues to translate into healthy asset and account growth that we are delivering. As said previously, the story for the March quarter is the remarkable similarity to the December quarter, as evidenced by pretax income on line 13 being essentially flat.

So let''s look at our asset based revenues in a bit more detail on slide nine. We are comparing the March 2010 quarter results with those from December 2008, which is the last quarter when Fed funds was above zero.

We believe this is a reasonable comparison to assess what could happen to our asset based revenues, when the Fed begins to increase the Fed funds rate again. Obviously, what will exactly happen will be different than this, but directionally you will be able to see the power in our revenue potential based on a more normal Fed funds rate.

On line three, you can see that we have more than doubled the spread based balances over the past 15 months. And you can see that the rate that we earn on those balances has been cut by almost 50% over the same period.

Additionally, on line four, you can see the effect that our of cash management strategy has had on the balances and the money market funds, as well as the drop in the rate we earn on those funds due to the fee waivers we have discussed over the past few quarters.

The important point here is on line seven in the far right box. If we could get back to the average rates we were earning in the December 2008 quarter, when the average Fed funds rate for that quarter was 1.06%, all else being equal, we would have earned $230 million more revenue in the March 2010 quarter. This is an incremental $0.23 per share for the quarter. Again, no comparison like this is exact, but the important point is how much leverage we have in a rising rate environment.

Now, let''s turn to the spread based revenue and it''s drivers on slide 10. The top graph shows the consistent quarterly growth in revenue from the same period a year ago. Revenue is up $15 million or 6% from the December quarter and up $67 million or 33% from the March quarter last year, the low water mark of spread-based revenue.

On the bottom graph we are looking at both the rates and balances. As a reminder, net interest margin is the calculation of the aggregate rate earned on all spread-based balances. As we''ve been saying for some time, until we get to an interest rate environment, where the rate on the new investments exceeds the rate on maturing investments, the NIM rate will continue to contract.

However, if you can grow balances, you can overcome the impact of the NIM contraction on spread-based revenue. The NIM only declined 1 basis point from the December quarter, from 2.07% to 2.06%. But this decline was more than offset by balance growth. The primary driver being the completion of the cash management strategy we have previously discussed. Thus, revenue is higher in March than in December.

Our portfolio continues to be set up very nicely for a rising rate environment. As I''ve said in the past, if the yield curve stays where it is, we would expect the rate contraction to bottom out in the December 2010 quarter. For a closer look at our IDA, let''s turn to slide 11. The top graph shows the top earn rate on the IDA portfolio over the last two years, along with the average Fed funds rate.

As you can see, the slope of the IDA yield is more gradual than the slope in the Fed funds rate, which is by design. The benefit of the portfolio extension is to slow the impact of interest rate moves, both up and down. The net earn rate has dropped 57% or 225 basis points in two years, from 3.98% to 1.73%. The bottom graph shows IDA balances along with IDA revenue. The portfolio of balances are two and one half times the size they were two years ago.

So the net revenue from the IDA of $170 million this quarter has grown from $156 million two years ago, primarily due to balance growth, offset by dramatic rate reductions. Now, we are well positioned to reap the benefits of higher rates. Our portfolio continues to have a just over two year duration. We expect the IDA net yield will also bottom out in terms of rate contraction in early calendar 2011.

Now, let''s turn to slide 12 to discuss our interest sensitive assets. Our interest rate sensitive assets are now over $63 billion, up 15% from last year, primarily due to organic growth. Eventually, all these balances would receive the benefits of higher rates. Simplistically, this translates to over $600 million in additional revenue on an increase of 100 basis points in interest rates before any share with the clients.

The amount of each rate increase that we share with clients will be carefully evaluated and dependent on each client''s particular profile and competitive positioning. But we are doing the things we can control in this environment, grow interest sensitive balances aggressively and maintain our IDA extension policy discipline in terms of the duration of the portfolio. We are doing both of these items now, which is why we are optimistic regarding our position when rates rise.

Now let''s turn to liquid assets on slide 13. Liquid assets remain at a very healthy level. We have said in the past, we prefer to keep these assets in the $500 million to $1 billion range and we are pleased with where they stand today.

The primary source in the quarter was net income of $163 million and the primary use was $36 million in finalizing our commitment to buy back our client''s auction rate security position. Auction rate security positions are included in liquid assets. We have now bought back a net total of $305 million of auction rate securities. Additionally, we are pleased with the redemption activity by the issuer of the securities. All redemptions have been at par.

We expect this trend to continue in 2010. The primary issuer of the auction rate securities announced that they will be redeeming more balances during April, which will lower our balance to about $260 million. We believe that further redemptions will be occurring. Our ending liquid assets of approximately $1.2 billion is at a very healthy level and provides us with many options.

Now let''s move on to guidance on slide 14. As Fred mentioned, given the environment, we felt it was necessary to update our fiscal 2010 guidance. The key drivers for the remainder of this year versus the March year-to-date actuals are on this slide. Please see the guidance slide in the appendix for a more detailed breakdown of the new ranges and AMTD.com.

Regarding trades per day, given the lower intraday volatility and that the last two quarters of our fiscal year are seasonally lower, we opted to adjust the range down. Commission rate has held strong and as a result, we are actually increasing the range from prior guidance.

Net interest margin appears to have stabilized, but the mix of balances, particularly margin debt and the amount of the IDA short-term float, added to the continual repricing of previously extended IDA balances, can drive some variability. We are assuming no changes in the yield curve.

Similarly, net new asset growth is expected to be seasonally lower in the second half of the year. Of note, though, even with these lower seasonal growth rates, we still expect we would be near the high end of our yearly 7% to 11% net new asset growth rate we set as our goal last fall. All in, our new guidance range for 2010 is $0.90 to $1.10.

So in conclusion, the March quarter was a huge success for us in terms of our fundamentals and further positioning us for long-term earnings growth. Net new assets were gathered at a record pace of $10 billion, or 13% growth rate of beginning assets, a major accomplishment for us, considering that we just started emphasizing asset gathering a couple years ago.

The integration of thinkorswim remains on track and we continue to be pleased with the results we have seen. Interest rate sensitive assets are at record levels and provide a significant opportunity for future earnings power. We updated our guidance and we still have a very strong balance sheet and cash position.

In the long term, we are very optimistic about our growth and the value we will provide to shareholders. Our strategy at TD Ameritrade is working and we remain confident that we will be able to continue to execute on it. And with that, I will turn the call back over to the Operator for Q&A.

Question-and-Answer Session

Operator

Thank you. If you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from Patrick O''Shaugnessy from Raymond James.

Patrick O’Shaughnessy – Raymond James

Hey, good morning, guys.

Fredric J. Tomczyk

Hi, Patrick.

William J. Gerber

Hi, Patrick.

Patrick O’Shaughnessy – Raymond James

So did you trump Repetto here? I apparently did. I was apparently quicker on the buttons this morning.

Fredric J. Tomczyk

Good for you.

Patrick O’Shaughnessy – Raymond James

So my first question would, as we look at the traction you''ve gotten in some of the other investment products that you broke out for us this quarter, the balances were up pretty nicely quarter-over-quarter and certainly year-over-year from $16.6 billion to $29.1 billion. Can you kind of walk through where is that growth coming from, how much of it is just appreciation of assets versus people putting new assets to work there? And as far as what sort of products that you''re seeing traction with?

William J. Gerber

Certainly there''s a big piece of that that is representing appreciation. You have the mutual funds and you get into the Amerivest guided products. That one is doing quite well. We do have some of the other items in there that are the mutual funds. Sorry, I''m getting notes given to me. Advisor Direct is also a big one in there too. So we''ve had some very good growth in several of the products. We''re hopeful for them for the future, but as you said they went from 16 to 29, so that''s pretty good.

Patrick O’Shaughnessy – Raymond James

I got you. And I guess the follow-up to that would be, so of the $10 billion of net new accounts you''re seeing put in this quarter and less than that last quarter, can you kind of talk a little more about where you''re seeing those assets put to work? Obviously you make more money on assets in some products than others. So where are you seeing those go and to what extent can you guys kind of help people guide those towards maybe more profitable assets for you?

Fredric J. Tomczyk

They continue to go to a variety of places. I think if you look at mutual fund flows across the industry, ours wouldn''t be any different in terms of mutual funds and our mutual funds, people that are bringing us or buying mutual funds from us, is actually rising quite nicely. You''re definitely seeing that into bond funds and international funds, generally. We also -- our Amerivest suite, which we have brought it -- a broadened it to have an ETF version and we also have a mutual fund version which we''ve introduced and the sales of those products are up very, very nicely year-over-year, as well as Advisor Direct which is referrals from the branch system to the advisor community continues to be -- has been very, very high as well. So we''re definitely seeing a trend here, where people are moving more into the packaged products, advice-type of offerings and that''s good for us over the long term. It builds out our revenue

Patrick O’Shaughnessy – Raymond James

Got it. Well, appreciate it and I''ll let you move on to Rich.

Fredric J. Tomczyk

Thanks, Patrick.

Operator

Our next question comes from the line of Celeste Brown from Morgan Stanley.

Fredric J. Tomczyk

Good morning, Celeste.

Celeste Brown - Morgan Stanley

Hi. Good morning.

William J. Gerber

Hi, Celeste.

Celeste Brown - Morgan Stanley

A couple of questions for you. One, you increased your expense guidance for the year and it sounds like it maybe is related to the sales incentives for the NNA growth, but trying to understand if revenues are coming down, why expenses are going up for the full-year. And second, if you can talk a little bit about RIA asset growth and whether your growth is coming from industry growth or share growth or a combination of the two? Thanks.

Fredric J. Tomczyk

Okay. what we''re seeing for the balance of the year is probably $325 million, maybe $325 million to $330 million for the last couple quarters would be my guess in expenses, Celeste. We have some timing issues regarding some using of professional services in the next two quarters that we delayed. We''re seeing our depreciation and amortization increase a little bit, as we get our Carrollton data center online. But we are still in pretty good shape relative to expenses.

William J. Gerber

Yes, the data center -- we -- when we had done our previous guidance, we had it happening a little bit sooner, but we delayed that just a bit, just to make sure we are wall ready. It''s a complicated conversion.

Fredric J. Tomczyk

The second question was around the RIA? We''re -- we continue to see very healthy trends across the board. The break-away broker market, despite what some people are seeing in the market, I guess, we''re just not seeing it. We continue to see very healthy break-away broker pipeline and new brokers joining our platform. The program we put in place to help people that want to break away, join an existing RIA, continues to work very well. And we''re seeing the existing advisors do what we''ve done, which is they''re back in the market quite aggressively and they''re doing quite well. So it''s -- I couldn''t point to any one thing. It''s just -- we''re very busy right now in our sales and service channels in the advisor network.

Celeste Brown - Morgan Stanley

Do you think your efforts, some of your consulting efforts or consulting services efforts are helping to drive your share or do you think you''re benefiting mostly from rising tide, raising all ships in this environment?

Fredric J. Tomczyk

There''s a bit of the rising tide but we''re very happy with how our advisor business is doing. There''s no question, the practice management programs we put in place with some third party partners is very strong and we''re seeing different firms want to do different things. Some will opt for efficiency. We''re seeing more and more opt for increasing volumes. And we''ve got demonstrated proof and it''s become very popular.

Celeste Brown - Morgan Stanley

Thank you very much.

Fredric J. Tomczyk

Okay, Celeste.

Operator

Our next question comes from Rich Repetto from Sandler O''Neill.

Fredric J. Tomczyk

What the heck happened here, Rich? Number three.

Richard Repetto - Sandler O’Neill & Partners

Joe Moglia told me I should co-locate to Omaha so I could be earlier on the call here. I guess -- just the follow-up on that last question, so great number in the net new assets. Is it more tilted now towards the institutional channel? Is the mix contributing more from the institutional channel?

Fredric J. Tomczyk

Actually, both are doing very, very well. I think over the last couple of years, what you''ve seen is we got our retail side pretty much firing on all cylinders, I''d say 18, 24 months ago. They continue to do very, very well. And if you recall back then, we said our advisor business was recovering from the conversion. That has come full circle now. And our advisor business has really also firing on all cylinders. So what you''re seeing here is both of those channels performing very, very well and so we''re very happy with both right now. As you know, we don''t disclose the details, but both are compared to what we consider our long-term growth objectives and industry growth rates between retail, institutional, both are doing quite well.

Richard Repetto - Sandler O’Neill & Partners

Got it. Got it. Understood. And on the expenses, Bill and the sales incentives for the net new assets, now, the comp ratio did pop up. And we know that there''s some of the fight to taxes or whatever, payroll taxes. What comp ratio do you think going forward would be appropriate?

William J. Gerber

I think that this quarter is probably a little bit high, because of those two items. So I would probably maybe cut that increase in half and go with that comp ratio.

Richard Repetto - Sandler O’Neill & Partners

Got it. Okay. And the last question, I guess I''ve got to ask this. The consolidation game, you got the cash and we''re still not -- haven''t done a dividend, there was no debt paydown or repurchase this quarter, so I guess, Fred, I guess the question is as credit improves, it appears that we were -- that, you know, you could potentially be closer to the transaction than certainly three months ago. Is that a fair assessment or -- and I understand there''s all kinds of other variables that ultimately a transaction rides on?

Fredric J. Tomczyk

Yes. There''s -- on any transaction, as we''ve always said, we do look at them. It has to make both strategic and financial sense to us, particularly now. I think we''re got our organic growth going quite well, so it''s got to be worth it and worth the distraction costs. But they''ve been -- our history, we''ve done a lot of acquisitions and it''s served our shareholders and our business quite well. So we continue to look at that.

In terms of capacity to do deals, we definitely have that capacity from a financial perspective, whether it''s the use of cash, the use of shares, or the credit markets and capital markets. We''re in a very good position here to take advantage of opportunities. We just -- but it needs to definitely makes strategic and financial sense from our point of view.

Richard Repetto - Sandler O’Neill & Partners

And has the environment become more -- how do I -- is there more conversations? Is the environment now better than it was, given the volatility and the economic uncertainty of, say, three or six months ago or so?

Fredric J. Tomczyk

I suppose it''s a little bit better. The capital markets are a little stronger. But I would have said even three to six months ago we would have been in a good position to do a transaction. I think you''re alluding to some other issues around credit trends,and I think -- I''m not going to comment on any specific target.

Richard Repetto - Sandler O’Neill & Partners

Got you. Okay. Thanks, guys.

Fredric J. Tomczyk

Okay, Rich.

Operator

Again, if you have a question, please press star then one on your touchtone telephone. And our next question comes from Mike Vinciquerra from BMO Capital Markets.

Michael Vinciquerra – BMO Capital Markets

Good morning, guys.

Fredric J. Tomczyk

Hi, Mike.

William J. Gerber

Hi, Mike.
Michael Vinciquerra – BMO Capital Markets

Coming back on the costs, I''m just kind of looking -- and I know it''s too early Bill to start thinking about necessarily fiscal 2011. But when I think about three things. First, the savings from clearing the securities business from thinkorswim by the end of the calendar year, you''re going to close, I believe one of your three data centers sometime in the next six to 12 months. Also, you''ve mentioned in the last call you''re looking to cut down on professional services fee. Should we expect that outside of comp and other things like that, all else being equal, cost run rate for 2011 starts to actually look a little bit better than it is for fiscal 2010?

William J. Gerber

I think that''s pretty reasonable. I mean, I think there''s going to be in the continuing costs, I would say that that''s probably pretty reasonable, Mike.

Michael Vinciquerra – BMO Capital Markets

Okay. Also, looking at one of the big reasons for doing the TOS deal was the revenue synergies, not the cost side. Are you guys able to quantify yet, how much you think you''ve gained in terms of revenue synergies from that deal or is that still going to be ramping as we go through, say, calendar 2010?

William J. Gerber

That''s going to continue to ramp. What we have found is that when the legacy Ameritrade clients get on to the thinkorswim platform, their trading activity increases noticeably and it is an excellent platform. We''re obviously very pleased with that. So I think what we''re seeing is that it''s going to be the adoption rate, the pick-up rate is going to continue. And I''m not sure where we''re going to quantify how much it is, but certainly thinkorswim is part of the family now but we have witnessed the -- the more active trading by our clients than when they do adopt that platform.

Michael Vinciquerra – BMO Capital Markets

I think last quarter you mentioned that you were something like 70,000 Ameritrade clients were using a form of the swim platform. I assume that number has continued to grow.

William J. Gerber

Yes, about 100,000 now.

Michael Vinciquerra – BMO Capital Markets

Great. Okay. Thanks very much.

Fredric J. Tomczyk

Okay, Mike.

Operator

Our next question comes from Michael Carrier from Deutsche Bank.

Michael Carrier – Deutsche Bank

Thanks, guys.

Fredric J. Tomczyk

Hi, Mike.

William J. Gerber

Hi, Michael.

Michael Carrier – Deutsche Bank

Hi. Just on the net new assets, obviously the growth continues to be very strong and you gave the clarity on the different channels. I guess just one of the things that we always focus on is just where the money''s going, meaning in terms of whether it''s going into the securities, into advisory products, into cash, into mutual funds. And I know you gave some color there, but any additional detail, just to get a sense of really where investors'' heads are and also just that the long-term products are starting to gain more traction?

Fredric J. Tomczyk

Without going too specific, I think you can look at our growth in the different types of assets or product categories. And that gives you a pretty good feel that as a combination of people''s buying patterns and the market, so it''s not always easy to delineate that. But I would say cash continues -- clients continue to have a healthy amount of cash. And we have seen more recently people becoming somewhat more optimistic and more interested in the long term. And as I said earlier, we''re not seeing anything in our trends that would be any different than what you would see in the market. Obviously, with our active trader business, you''ll see more in the securities and the option space. But you''ll also see bigger cash amounts, so active traders do keep a fair amount of cash around.

Michael Carrier – Deutsche Bank

Okay. And then just on the outlook statement, if I look at the -- based on the current quarter versus the fiscal 2010 guidance for both spread-based and fee-based asset balances, both look relatively flat, at least at the low end. I''m just trying to understand that, given that the organic growth rate should still be decent, maybe not the 13% that we saw this quarter, but you still have assets coming in. So just really where your head''s at in terms of expectations for those two buckets?

William J. Gerber

I think to be -- we''re probably being a little conservative on the low end. So I think that the growth we''re having is still very strong. We would see the seasonal growth, as I mentioned during my prepared remarks to be a little bit lower but we''re probably a little bit conservative, on the low side.

Michael Carrier – Deutsche Bank

Okay. All right. Thanks a lot, guys.

William J. Gerber

Okay.

Operator

Our next question comes from Joel Jeffrey from Keefe, Bruyette & Woods.

Joel Jeffrey – Keefe, Bruyette & Woods

Good morning, guys.

Fredric J. Tomczyk

Hi, Joel.

William J. Gerber

Hi, Joel.

Joel Jeffrey – Keefe, Bruyette & Woods

Can you talk a little bit about why commission rates have stayed relatively strong? Is it increased payment for order flow, or is it more options volume?

William J. Gerber

It''s really more options volume. Payment order flow has been pretty stable, but the options mix has increased or kept the rate higher, yes.

Joel Jeffrey – Keefe, Bruyette & Woods

Okay. Great. And then I know there''s been obviously a lot of talk about consolidation. And I know there''s obviously some other online brokers that have specifically been referenced, but are there any other sort of client products or businesses that you guys are actively looking at or interested in getting into?

Fredric J. Tomczyk

There''s certainly areas where we would say they''re more capability-based acquisitions, that we have and do look at on a regular basis. And as I''ve said before, the management team is going through our strategy right now in terms of the longer term, given how much cash we got, how much cash generation and capital raising capabilities we have, if we so need it. So we are looking at various alternatives in terms of adjacent businesses. We haven''t come to any conclusions at this point. And anything that we would be considering right now, would not be a significant. It would be more acquiring something that actually just gives us the base capabilities to build from.

Joel Jeffrey – Keefe, Bruyette & Woods

Okay. Great. Thanks so much.

Fredric J. Tomczyk

Okay, Joel.

Operator

Our next question comes from the line of Matt Snowling from FBR Capital Markets.

Fredric J. Tomczyk

Hi, Matt.

William J. Gerber

Hi, Matt.

Matthew Snowling – Friedman, Billings, Ramsey Group, Inc.

Just wondering if you could give us an update on where you stand, in terms of moving forward with the referral program with TD Bank?

Fredric J. Tomczyk

That''s been in progress now for I guess it''s about three months. We are working through the conversion process, which is a little complicated because of regulatory reasons. As we get into the summer, we will start to turn more and more of our attention to moving from trying some different models and pilots to a more aggressive strategy. I think that will start to roll out more towards the fall. As we get it right, on a go-forward basis, that will take time. In my experience, having done this in the Canadian market, it usually takes you more time than you think. I don''t expect it will have a material impact this year or even next year, but over the long term if we get this right, there''s a very good opportunity there.

Matthew Snowling – Friedman, Billings, Ramsey Group, Inc.

Of the $10 billion, there was none from the bank?

Fredric J. Tomczyk

It would be very, very small, insignificant.

Matthew Snowling – Friedman, Billings, Ramsey Group, Inc.

Okay. Thanks.

Fredric J. Tomczyk

Okay, Matt.

Operator

Our next question comes from Fay Elliott from Banc of America/Merrill Lynch.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

Hi, good morning.

Fredric J. Tomczyk

Hi, Faye.

William J. Gerber

Hi, Faye.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

I guess to cut to the chase on the net new assets, a very strong number. Wondering if it''s not going into the fee-based balances, which it doesn''t look like grew too much and then excluding the bulk move in average IDA, it looks like IDA growth kind of slowed to about 7% quarter-over-quarter from about twice that in the previous quarter. If we can''t identify where the assets are landing, can you give a sense of what you''re earning on these assets, on these net new assets at this point, what the rate would be?

William J. Gerber

Generally, we look at about 70 basis points is what we make on all assets. So total client assets. That''s been kind of the rule of thumb. But the bulk transfer that happened in the IDA really happened between the -- a lot in the December quarter too. So maybe offline we can go through the math and kind of true-up the growth rate in the IDA, but that''s certainly a very powerful engine for us going forward, as you know.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

Okay. But just -- because that number, that 70, would be skewed highly by the spread that you get on the IDA -- and I was just wondering if you''ve been able to identify I guess, where the assets are that landed with you guys this quarter and what, again, you are earning off of them?

Fredric J. Tomczyk

As assets gather, we do look at that. I think in any given quarter, even inside six months, what''s going to make a difference is the market move, much more so than the assets gathered. But as you look over 12, 24 or 36 months, the asset gathering actually starts to show up and compounds the increase, along with the market. And so -- you have to -- if you''re going to look at asset gathering and try to drive any conclusions on earnings power, you really have to look at it over the longer term versus the shorter term.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

Okay. And then one last question, in terms of your client cash as a percentage of assets under control, I just remember having conversations a while back where we were talking about typically being at around 10% or 11% and that''s not abnormal for other firms. It''s clearly a lot higher now than it is in the past and I guess that''s to be expected, with client risk aversion and so forth. But it''s higher now. Would you expect, as we enter a more inflationary environment and your clients become more active and clearly start to trade more as I assume you''re expecting, that some of the cash assets would flow out of these cash products?

Fredric J. Tomczyk

To start off with, I''m not sure where you got the 10 to -- I guess it was 11% that you referenced. We would typically be more in the 15% to 20% range for client cash. That is -- that does vary more, if you''re a more active trader you will typically have more in cash overnight and that kind of stuff, whereas if you''re a long-term investor you would have slightly less in cash. So it does matter over time the mix between those two general categories. Having said that, during the crisis here, we had our client cash rise up into the low 20s, mid-20s, so it''s actually come back in. I think it''s at 17.5 right now.

William J. Gerber

Yes.

Fredric J. Tomczyk

Which is right in the middle of what''s normal for us.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

Okay. So we would have about halfway to go, to get to what you''re saying is the more normalized level. I guess we can go offline as discuss how the math I''m using to get to the 10 to 11.

Fredric J. Tomczyk

I don''t know where you''re getting the 10 to 11, Faye. It''s historically been 15 to 20. I personally haven''t seen 10 to 11 at this firm.

William J. Gerber

We''ll take it offline.

Fredric J. Tomczyk

We''ll take it offline, Faye. And 17.5 is right in the range of what we typically are.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

And you''re using the assets under control as the denominator?

Fredric J. Tomczyk

Yes.

Faye Elliott-Gurney - Banc of America/Merrill Lynch

Okay.

Operator

Sir, I''m showing no further questions in the queue.

Fredric J. Tomczyk

Okay. Well, thanks everyone today. I recognize there was another major player that''s been in the news quite a bit today that had their call this morning, so thanks for your time and attention. We feel very good about how we''re progressing on our strategy, our asset gathering efforts and how we''re positioning the firm for the future. We do see the competitive environment heating up a bit and we continue to be very, very focused on executing our strategy and positioning ourselves for 2011 and 2012 and the future. And we''ll look forward to talking to you again next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today''s conference. This concludes the program. You may all disconnect. Everyone have a great day.