TD Ameritrade Q4 Earnings Call Transcript

123jump.com Staff
06 Dec, 2010
New York City

The brokerage services provider net quarterly revenues dipped 7.4% to $608.84 million. Net income fell 27% to $113.96 million in the quarter on reduced trading activity. Earnings fell to 20 cents per diluted share from 26 cents per share a year-ago quarter.

TD Ameritrade Holding Corp. ((AMTD))
Q4 2010 Earnings Call Transcript
October 26, 2010 5:00 p.m. ET

Executives

William 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
Michael Vinciquerra – BMO Capital Markets
Richard Repetto – Sandler O''Neill
Daniel Harris – Goldman Sachs
Michael Carrier – Deutsche Bank
Eric Bertrand – Barclays Capital
Howard Chen – Credit Suisse
Mac Sykes – Gabelli & Company
Matt Snowling – FBR Capital Markets
David Trone – JMP Securities
Brian Bedell – ISI Group
Matthew Fischer – Credit Agricole Securities
Michael Grondahl – Northland Capital Markets
Joel Jeffrey – Keefe, Bruyette & Woods
Faye Elliot – Bank of America/Merrill Lynch
Brennan Hawken – Collins Stewart

Presentation

Operator

Good day, everyone and welcome to the TD Ameritrade Holding Corporation''s September 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.

William Murray

Thank you, operator. Good morning, everyone and welcome to the TD Ameritrade September quarter earnings call. If you haven''t seen it already, our press release and today''s presentation can be found on amtd.com. As is usual with our year-end call, we will be covering the fourth quarter and full year 2010 results as well as our outlook and strategy for 2011. As such, we anticipate using the full hour but we will leave ample time to cover your questions.

Before we begin, I would like you 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. We will also be discussing some non-GAAP financial measures such as EBITDA. You can find a reconciliation of these financial measures to the most comparable GAAP financial measures in the slide presentation.

We would also like to you 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 be reproduced in the media in whole or in part without prior consent to TD Ameritrade. Once again, we have a large number of covering analysts, so if you can keep your questions to two, we will try to get to all of you in the allotted time.

With that, we have Fred Tomczyk and Bill Gerber here to review our September quarter results and major accomplishments, et cetera. With that, Fred?

Fredric J. Tomczyk

Thank you, Bill and good morning, everyone. And thank you for joining us today to discuss our September quarter and fiscal 2010 year end results. We will also spend some time talking about our strategy and plans for 2011.

Many of our comments this morning shouldn''t come as any surprise to you. We have been clear on our strategy throughout this challenging environment and about our thoughts on capital deployment. We have said for some time now that with our strong balance sheet combined with our unique business model that generates a significant amount of annual cash flow, that a dividend would make sense at some point.

Well, we believe that now is a good time for us to introduce a quarterly dividend to our shareholders of $0.05 per quarter. While we continue to see a challenging and uncertain environment as we look forward, we believe our business model has demonstrated its resiliency in a very difficult environment and we continue to take an opportunistic approach to invest in some growth, acquisitions, share buybacks and now a dividend as a way to build long-term core earnings power and to enhance value for our shareholders.

On our June quarter earnings call, we said this summer was looking like a more typical slow summer season and it was. Our earnings per share came in at $0.20 per share due to lower trading and some one-time expenses we accrued during the quarter. Now, let''s turn to slide three to talk about our full-year 2010 results.

While the economic environment certainly continues to put pressure on short-term earnings, I think you will agree that we have executed well on the things within our control. Organic growth was very strong with a record $34 billion in net new assets and an 11% annualized growth rate.

This was our third consecutive year of record asset gathering and at the very high end of our target range. Trades, despite the slower summer season, came in at 372,000 trades per day, matching our results for fiscal 2009. Through October 22nd, trades per day were at 367,000 trades per day, an increase of 49,000 trades per day from the September quarter trading levels.

Our total client assets were a record $355 billion and we have grown our interest-sensitive assets to a record $66 billion, which further helps us mitigate the short-term impact of the compressed net interest margin while positioning us well for a more normal rate environment. All of this resulted in net income of $592 million or earnings per share of $1.00. And our accomplishments are not limited to our financial performance.

Let''s move to slide four for a look at our progress of some of the key strategic initiatives we focused on in 2010. Our first significant accomplishment was the implementation of a revised cash management strategy. You will remember that $20 billion was moved from free credits of money market mutual funds to our insured deposit account. This is the right cash management solution for our clients. And it helped us mitigate the impact of the near zero interest rate environment while positioning ourselves well for when rates do begin to rise.

We enhanced our trading platform to include improved functionality for futures, foreign exchange and complex options trading. We''ve seen good growth in the derivative space which now makes up 31% of our daily trading volume. We implemented a new data center strategy by completing the migration to a new state of the art data center which provides us with enhanced capacity, security and resiliency.

With this data center migration largely completed, we have reached a significant milestone in implementing our long-term technology strategy. We now have the right technology infrastructure in place and are turning our attention to the application and front end of our technology, things that will further enhance the tools and services that we make available to our clients and front-line associates.

We refinanced $1.25 billion, in long-term debt by successfully executing our first public debt offering. The decision to finance our debt in this manner took advantage of our investment grade credit ratings while opening up the firm to the public debt markets and staggering the maturity profile of our debt.

We also took the opportunity to swap our three and five-year tranches from fixed to floating, which has proven to be a good move in the current near zero interest rate environment. And finally, we bought back 15 million shares of our company stock in order to further enhance long-term shareholder value. That buyback was completed in early July and in August, we received authorization from our board of directors to purchase an additional 30 million shares. Each of these accomplishments underscores our commitment to delivering long-term value for our shareholders.

Now, let''s turn to look at our operating margins on slide five. Our unique business model that leverages technology in everything we do continues to drive strong operating margins. Our trading leadership, strong asset gathering results and revised cash management strategy further impacts those margins and helped us deliver a healthy return on our average client assets, even in this environment.

Our margins continue to lead the industry despite the compression brought about by the near zero interest rate environment which started in late 2008 and we expect considerable upside once this environment improves. When you couple those strengths with the unique partnership we have with TD, we are able to operate with relatively low-capital intensity and as a result, deliver a high return on equity.

We continue to lead our industry in operating margins and continue to generate strong supplies of cash and capital. Our cash -- our free cash flow has been and continues to be very strong.

Let''s now look at how we performed on the asset gathering side of our strategy on slide six. As I mentioned earlier, we had a record year in asset gathering with $34 billion in net new assets. That''s 173% increase over the last three years and that''s over the same period during which the S&P 500 was down 15%.

This is a credit to our business model, our sales of service culture and our successful marketing efforts. And in 2010, both our retail and our institutional channels fired on all cylinders and had great years. Moving forward, our goal is to continue performing at this level and a level where we''re recognized as a premiere asset gatherer.

We have again established a range of 7% to 11% of annualized growth for net new assets for 2011, that''s $24 billion to $38 billion. We will continue to enhance and evolve our client offering and make it even more competitive.

In terms of client offerings, we recently launched our new ETF market center taking a page from the mutual fund world and creating a broad diverse menu of over 100 ETFs selected independently by Morningstar Associates. ETFs are the fastest growing asset class for retail investors and we thought it was important to have a competitive offering for long-term investors.

Our uniquely -- our offering uniquely allows clients to build cost-effective and diversified long-term portfolios while not impacting our active trader business. We launched the market center just a few weeks ago. And we can tell you that interest has been healthy and we received a lot of positive feedback.

We also intend to further expand our Amerivest offerings. We believe the ETF market center provides an upsell opportunity for clients to see the value in a diversified portfolio of ETFs but may also want the guidance and ease of use that Amerivest offers. Throughout the year, we will add new functionality to our cash management offering to create a more robust and competitive offering in this area.

And looking at our business model, we''ve added 100 investment consultants in our branches and in TD bank stores, filling a growing need for client and prospect sales, education and service. We will continue to focus our efforts on both our retail and institutional channels, helping each maintain the momentum they built over the last few years.

We will also further leverage our partnership with TD. We continue to see lots of long-term potential for this unique relationship but as I''ve said for some time, it will take time to develop both. And finally, we will continue to enhance our cross-selling capabilities across all our channels of our business.

Let''s now turn to client trading activity on slide seven. From a trading perspective, we continue to hold the leading market share position. In 2010, our clients placed 372,000 trades per day.

Now, in 2009, there was lots of news and information and in turn, many opportunities to trade off of. This year we started seeing more market uncertainty due to continued high unemployment, a slower-than-expected economic rebound and gridlock in Washington and as a result, we started seeing a less robust trading environment, which is evident in our activity rate which dropped from 8.1% in 2009 on a pro forma basis to 6.9% in 2010.

Despite these changes in the trading environment, we continue to launch new tools, functionality and services that help drive client engagement. We have seen good early adoption rates for futures, foreign exchange, complex options and mobile trading following launches earlier this summer. The interest in adoption we''ve seen in our new offerings tells us we are well positioned for when the environment becomes more encouraging.

Looking ahead now to 2011, we have set a funded account activity rate of 6.6% to 7.3%, which equates to 335,000 to 410,000 trades per day which represents a plus or minus 10% from our 2010 actual trading activity. We are on track to complete the thinkorswim integration in our second fiscal quarter. We are planning further enhancements to our mobile offering, including a new application for the iPad and we will roll out our three tier trading platform, which includes both web and software-based applications to better serve the range of sophistication amongst our clients.

And we will focus efforts on cross-selling our additional functionality and capabilities to new and existing clients. With plans for continuing the momentum of both the asset gathering side and the trading side of our growth strategy firmly in place, let''s now talk about our overall strategy for 2011 beginning with slide eight.

While none of us certainly expected to see the challenging environment extend this long, the fact is that it has and will likely continue to be a challenge for firms like ours moving forward. And it is our job to manage effectively through this uncertainty. We continue to see near zero interest rates.

At this time last year, we were looking at an increase in rates beginning in September, 2010. Those predictions continue to move out as the year progressed to the point where economists are now looking at a potential rate increase in late 2011 or even mid 2012. It hasn''t been our practice to predict rate moves but we have planned our 2011 year with an expectation that we will see no movement over the next 12 months. And to make things even more challenging, the yield curve has flattened with continued talk of a second round of quantitative easing.

The three and five-year LIBOR swap rates are down 60 and 70 basis points respectively since the end of June, which has an impact on the yields we earn on our IDA extension strategy. Each of these items has been taken into consideration when looking at our overall strategy for 2011 which you can see in more detail on slide nine.

Despite the tough environment, we continue to perform well on the things we can control and our focus will remain on building our core earnings power in 2011. We are well positioned for ongoing success and we will continue to focus on asset gathering as well as maintaining our number one position in trading.

We have completed a number of technology improvements and will continue to introduce new offerings to help us maintain that momentum. With interest rates staying lower for longer and the yield curve flattening, we are in the process of reviewing our IDA extension strategy with two goals in mind.

First is maintaining our upside of $0.07 in earnings per share for a 25 basis point increase in the fed funds rate and second, optimizing our net interest margin and as a result, our earnings over the next three years but we will stay within our target duration range of two to three years. We will continue to maintain tight expense management with focused investments and growth.

We talked about these investments last quarter, focusing on sales, marketing and technology development as key areas that have a proven track record of influencing our organic growth. We monitor those investments and the results in an ongoing basis and will, as always, make adjustments if we see a need to do so.

We will also continue with our efforts to deploy and return capital to our shareholders. We have built a financial position that now allows us to make strategic decisions that can deliver additional value to our shareholders. From our perspective, we want to protect and preserve our strategic optionality.

I''ve been around financial services for a long time and from my point of view, it is important that regardless of the environment, to always have options and to be in a position to take advantage of opportunities as they present themselves. Secondly, we always keep in mind the environment we''re in.

In the current environment, we think about return of capital in the following order of priority. First, we will continue to look at acquisitions or investments for growth that provide opportunities for us to add scale and/or capabilities to our business model. We are always looking at opportunities in the market but at the end of the day, it comes down to the right balance of financial and strategic risk and reward. And while there are a number of potential opportunities, we have not yet seen one that makes both strategic and financial sense.

Second is share repurchases which, as you know, we have been doing and will continue to do so on an opportunistic basis. Our board has authorized the repurchase of an additional 30 million shares. And third is introducing a quarterly dividend which we initiated this quarter. Bill will give you more details on that in a few minutes.

Now, in summary, let me say I''m very happy with what we''ve accomplished as a team over the last few years and how we positioned our company for the future. Our strategy through this difficult environment has worked well for us when you compare our performance and our financial position relative to others.

We have executed well against our organic growth strategy and continue to build our earnings power for when the environment improves. And through this financial crisis, I can''t think of another financial company that has received a credit ratings upgrade from non-investment grade to investment grade, refinanced their debt through a successful public offering, bought back 9% of their outstanding stock, purchased a great company such as thinkorswim and introduced a dividend, all within a 24-month period that includes the deepest and longest recession since the Great Depression.

Our capital position and our cash generation capabilities are such that we can do all of these things and still leave our firm with the flexibility to pursue future growth opportunities and maintain our strategic optionality. Looking forward, I feel good about our ability to continue to execute the next phase of our strategy in 2011 and beyond.

And now, I will turn the call over to Bill.

William J. Gerber

Thanks, Fred. The current economic environment remains challenging, as you all know. Continued near zero interest rates and seasonally lower trading volumes made the September quarter particularly difficult.

So let''s begin with the quarter highlights on slide 10. As Fred mentioned, we earned $0.20 per share in the September quarter and $1 for the year. Net revenues for the quarter were $609 million, based primarily on continued resilient asset-based revenues, which I will discuss in a moment. Trades per day were 318,000 or a 5.8% funded activity rate, the lowest activity rate since the June quarter of 2007.

Net new assets remained relatively solid with $6 billion in net inflows for the quarter and a 7% annualized growth rate. Finally, we have record interest sensitive assets and total client assets of $66 billion and $355 billion respectively.

For a more detailed review of the financials, let''s turn to slide 11. We now have comparable year-over-year numbers since the thinkorswim acquisition was completed prior to the September quarter of 2009. As such, let''s look at the September quarter to September quarter comparisons.

Transaction-based revenues for the quarter, seen on line one, were down $112 million from last year''s results as we experienced a more typical seasonal summer slowdown this year as compared to extremely high intra-day volatility last year. Trades per day were down 93,000 trades or 23% this quarter. This drop in trading drove approximately 75% of the decline in transaction-based revenues.

Our commission rate was down 9% to $12.29 per trade from $13.53 last year, primarily due to lower payment for order flow and trade mix. The order flow decline is due to lower volumes. Lower volumes equals lower payment per order flow.

In the area of options, which were 25% of our trades this quarter, our average contracts per trade are down 10% year-over-year to about 12 contracts per trade. Additionally, options payment for order flow has been cut by about 50% since last year due to the expanded penny pilot program.

The impact of mix is primarily due to a higher percentage of our trades being made by active traders with a negotiated commission rate and the continued increase in futures and foreign exchange trading. The futures and foreign exchange products were over 6% of our September quarter trading volume, up from about 3% a year ago.

On line two, asset-based revenue is up $57 million, or 21%. We will discuss this in a minute. All-in revenues were down $49 million or 7% year-over-year. On line five, operating expenses before advertising is up $11 million, primarily due to a $10 million increase in employment cost, mostly associated with higher sales incentive pay, about $4 million in higher quote expense, a $2 million write-off of some of our Kansas City data center costs as our data center shifted to Texas and $10 million of new arbitration and legal accruals.

Remember in 2009, we had a $14 million charge for our auction rate securities buyback from our clients. As we look at our operating cost structure, we continue to believe that about a $340 million per quarter remains the run rate for the company before advertising and interest expense.

On line six, advertising is up $6 million, as we began our seasonal fall ramp-up a bit earlier this year than last year. Despite the seasonally slower account growth of 125,000, we are very pleased with the average asset size of our new accounts being up almost 50% over last year consistent with our asset gathering strategy.

This brings us to net income on line 12 of $114 million, or $0.20 per share for the quarter, down $0.06 from last year. EBITDA on line 15 was still strong at $237 million for the quarter.

Now, let''s look at our full-year results. On line one, transaction revenues decreased $59 million or 5%, entirely due to lower commission rates. As mentioned earlier, lower share volumes are driving lower payment for order flow. Further, thinkorswim legacy commission rates were lower than TD Ameritrade rates. Thus, a full year of thinkorswim would naturally drive lower-based commissions. Trades per day were flat year-over-year.

On line two, asset-based revenues are up $134 million as a result of continued balanced growth. Balanced growth actually drove approximately $560 million higher revenue but this was offset by approximately $426 million less revenue due to interest rate declines. Those interest rate declines alone from 2009 to 2010 cost us about $0.43 per share for the year. Other revenues on line three are up $79 million, primarily due to a full year of the education business. This all results in net revenues being up $153 million or 6%.

Moving to expenses, on line five, our operating expenses before advertising are up $236 million. Having thinkorswim for a full year is driving approximately half of this increase. The remainder is primarily due to increased staffing levels, higher incentive sales pay for record net new assets, spending on the data center strategy and the thinkorswim integration, all of which we''ve been talking about for a while.

On line six, advertising was up $53 million due to a full year of the education business, as well as our planned higher core ad spend, which helped drive our record net new assets. On line 13, we earned $1 in earnings per share for the year, down 9% from last year. Despite lower earnings, we still generated over $1.1 billion in EBITDA as seen on line 15, which provides us tremendous flexibility in this environment.

Now, let''s turn to spread-based revenue on slide 12. The top graph shows revenue while the bottom graph depicts balances and rates. Revenue is up $49 million or 20% from the September quarter last year as balance growth increased revenue by $94 million, offset by rate compression causing a $45 million reduction. Clearly, the strong asset gathering and cash management strategy benefited us significantly.

On a sequential basis, spread-based revenue was essentially flat. As you look at the bottom graph, overall net interest margin declined 13 basis points from the same quarter last year and eight basis points from the June quarter. The declines are primarily due to the continued compression in the IDA, which had a net spread of 1.61% in the quarter. The primary driver of the decrease was that we had higher balances held short this quarter than in the June quarter.

As we said on the last call, we expect the IDA rate compression to bottom out at about 1.40% in late calendar 2011 or early calendar 2012. While interest rates have compressed further since that time, we still expect that the 1.40% is a good number at the bottom of the IDA spread. As we mentioned earlier, we are continuing to review our IDA extension strategy while staying within our two to three-year duration target and we will update you quarterly.

Our current IDA duration is at 2.1 years. As you review our year in total though, net interest margin has remained relatively stable, although much lower than what we historically have had.

Let''s turn to the next slide to review our interest sensitive assets. We have approximately $66 billion in interest sensitive balances now which is a record, as we noted earlier. We grew almost $5 billion in 2010 in total interest sensitive assets but more importantly, we grew IDA balances by almost $14 billion or 45%.

The IDA remains our largest and most important asset. This growth is significant for our future. As we''ve said before, eventually all of this $66 billion in balances will receive the benefit of higher rates. The amount of each rate increase that we share with the clients will be carefully evaluated and dependent on each client''s particular asset tier and our desired competitive positioning but we are doing the things we can control in this environment, growing interest sensitive balances aggressively and managing our IDA extension policy. By focusing on both of these items, you can see why we are optimistic regarding our position when rates rise.

Now, let''s turn to slide 14 to discuss our excess cash. So what have we been doing with all of the cash that we''ve been generating? Slide 14 shows you what we''ve done with our strong cash flow over the past two years. We have utilized over 100% of our net income to the benefit of our shareholders through acquisitions, debt repayment and stock buybacks.

Through the end of 2010, we have bought back almost 54 million shares or 9% of our stock, at an average cost of just under $13.50. And all of this was done in the most difficult economic environment in our generation.

Now, let''s move on to our guidance on slide 15. The fiscal 2011 outlook statement is posted to the website and I''m sure you''re all closely evaluating the details. Here are the key numbers, $0.90 to $1.20 in earnings per share, 36% to 41% in operating margin. No change in the fed funds rate is expected, coupled with no change to the current slope of the yield curve. 0% to 10% market growth, 7% to 11% net new asset growth, which translates to $24 billion to $38 billion of net new assets.

Trades per day of 335,000 to 410,000, a net interest margin range of 1.95% to 2.05% and the IDA range of 1.50% to 1.60%. The key variables to our IDA range include, one, the degree of our assumed growth that we achieved, two, the mix of the IDA assets between retail and institutional and three, the total duration of our portfolio between our two to three-year duration target.

As you can see from the October trades to date of 367,000, the year is starting out much better than the slow September quarter. As we''ve done in the past, we will update everyone each quarter on where we stand on all key metrics which drive our income statement.

So in conclusion, we remain focused on building the long-term core earnings power of the company. We will accomplish this by building on the momentum from this year and driving organic growth through asset gathering and our leadership in trading.

We will manage our net interest margin within our existing guidelines as I just mentioned. Expenses will be carefully managed to ensure that we are obtaining the greatest benefit for the dollars spent.

And finally, we will continue to deploy our capital to our shareholders. We will always look at acquisitions that make strategic and financial sense. We will continue to look at share repurchases and we are now paying a $0.05 per share dividend quarterly.

As Fred said, the last 24 months have been very important for us at TD Ameritrade as we positioned ourselves well in the face of some strong headwinds. As we look forward to 2011 and beyond, we believe that our momentum and the strategic plans we have laid out this morning continue to make our future very bright.

And with that, I''ll turn the call over to the Operator for Q&A.

Question-and-Answer Session

Operator

Ladies and gentlemen, 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. Our first question comes from Patrick O''Shaughnessy of Raymond James. Please go ahead.

Patrick O''Shaughnessy – Raymond James

Good morning, guys.

Fredric J. Tomczyk

Hi, Patrick.

Patrick O’Shaughnessy – Raymond James

My first question is about your IDA yield. Can you talk a little bit more about how you can manage to keep that yield above the 140 basis point level while at the same time not really reducing your sensitivity to future rate increases going forward?

William J. Gerber

The 1.40 did have some conservatism in it when I said it last quarter, so we have certainly taken down some of the conservatism in it. But what we are also looking to do is really manage the duration of the portfolio a little bit. But the vast majority of the money is on the $0.07 is not going to change and that -- what is going to roll off next year, as an example, is still going to roll off next year. So, we don''t see that as being a shift at all.

Fredric J. Tomczyk

Patrick, just to add to that, I think staying inside the target duration range, the current shape of the yield curve almost begs you for a little to extend the duration a bit in the barbell market, which should give you the lift in the short-term as well. And if you do it properly, based on our models, you can actually optimize the next three years and keep your short-term upside.

Patrick O’Shaughnessy – Raymond James

Understood. Alright, that makes sense. And then my follow-up question would be as far as the dividend goes, can you discuss a little bit how you arrived at the amount, the yield a little bit over 1%, it looks like it is a little bit over $100 million per year in cash expenditure. And what was the thought process to decide that is the right level for the dividend?

William J. Gerber

When we looked at others in our industry and where they started with their initial dividend, that was one of the factors. Two, it was to -- if we return -- if we had paid the $0.05 per share dividend this year with making a $1, we would have been returning 20%, so we think that is a good return and obviously, keeping 80% for future growth opportunities. So, we looked at the industry, we looked at the initiation of dividend and then of course, looking at our results and our future prospects and felt as though it was a good conservative place to start.

Patrick O’Shaughnessy – Raymond James

I Appreciate it.

William J. Gerber

Thanks, Patrick.

Operator

Our next question comes from Mike Vinciquerra of BMO Capital Markets. Please go ahead.

Michael Vinciquerra – BMO Capital Markets

Good morning, guys. Thank you.

William J. Gerber

Hi, Mike.

Michael Vinciquerra – BMO Capital Markets

Just on the expense side, Bill, just trying to get my -- you mentioned 340 as being a reasonable run rate for next year. I would ''s have thought with the data center conversion under -- completed and I guess the conversion for thinkorswim''s clearing that we would actually see some costs coming out of the system, but it looks like you''ve got, I don''t know, zero to 7% kind of growth baked in for next year. Can you just talk about where that money from the savings of those two items is kind of going?

William J. Gerber

What we would look to do is to continue to expand the areas of the sales force on the front end, so we would redeploy those dollars to continue in the growth areas. So that would be -- and if we don''t -- if there isn''t the right time to expand into that for whatever reason, then you would see it come down.

Michael Vinciquerra – BMO Capital Markets

Okay. And you said there was like $10 million this quarter in legal accruals. Did I hear that right?

William J. Gerber

Yeah. Legal and arbitration, that''s right.

Michael Vinciquerra – BMO Capital Markets

Okay. And then just a second thing on the outlook, the line item that jumps out to me is your fee-based revenue. It looks like 25% to 40% growth on a year-over-year basis. Obviously, your run rate toward the end of the year was much higher than that. Can you give us a sense for your confidence in terms of growing the assets and it looks like you have got a slight increase in the yield baked in as well? I assume that relates to your ETF strategy.

William J. Gerber

It is the mutual funds and the money market funds are -- have been -- have rebounded slightly, so that is what you''re seeing more in terms of yield on those two.

Michael Vinciquerra – BMO Capital Markets

And as far as driving the growth though, you''re just looking at balanced growth kind of building in, you''re seeing the solid flows continuing, as I think you mentioned, 7% to 11%?

William J. Gerber

That''s right. And certainly, we see the mutual funds growing as the market goes up.

Fredric J. Tomczyk

We have been working at getting our 12B1 fees up and for a lot of the long-term investors right now, you''re seeing a lot of the flow go into bond funds, as you''ve seen in the market.

Michael Vinciquerra – BMO Capital Markets

Great. Thank you, guys.

William J. Gerber

Okay, Mike.

Operator

Our next question comes from Rich Repetto of Sandler O''Neill. Please go ahead.

Richard Repetto – Sandler O''Neill

Good morning, guys.

William J. Gerber

Hi, Rich.

Richard Repetto – Sandler O’Neill

I guess, the first question, Fred, is on the net new asset growth. A lot of the story has been the conversion to gathering the asset accumulation strategy, so I know how you''ve linked the account growth of say 150 to 175 per quarter to good net new asset results. So, you''re a little bit below that this quarter. Is that just seasonality? Because you did spend a reasonable amount and sort of a cost to generate a new account was up high, too. Was that the seasonality and you expect to swing back in the current quarter?

Fredric J. Tomczyk

There is two factors going on there. The first one is that it definitely is a seasonality and I think that there definitely was an overhang over the market I think through the summer. When we did our June earnings quarter, our June quarterly earnings call, we said it felt like a more slimmer summer slowdown season than it was. So, the first couple of months, June, July and August were definitely slow.

As we went into September, we started to ramp up our advertising, particularly in the last couple of weeks of September, around the ETF market center and the options and the futures and foreign exchange and mobile offerings. So, a lot of that happened and the marketing expense happened late in the month and that doesn''t show up in our new accounts until the next quarter. But we are definitely seeing -- there was definitely seasonality and there was definitely an overhang in the market.

If you look at the market right now, it has gone up since Labor Day by 9% to 10%. And you''re starting to see the trading levels and things pick up a bit more in October.

Richard Repetto – Sandler O’Neill

Got it. Okay. And then I guess a follow-up to the CFO here. The -- on the expense side, you know you said 340 and 342 was a good base rate and you ran at 350. I know there was the one time legal thing, but I''m looking at like communication that was 30 million, occupancy was like $3 million from the prior quarter, up $3 million. So, I guess I''m trying to see, are these levels more indicative of the run rate going forward or what? In particularly communications and occupancy and equipment.

William J. Gerber

I think the communications is probably a decent number to look at going forward and the O&E is probably the same. Those are decent numbers. I think it''s from the classic other expense that we would see that being a little high and that should come down. That''s where the legal and arbitration problems are.

Richard Repetto – Sandler O’Neill

Okay. Okay. Thanks, guys.

William J. Gerber

Okay, Rich.

Operator

Our next question comes from Daniel Harris of Goldman Sachs. Please go ahead.

Daniel Harris – Goldman Sachs

Hi, good morning, guys. How are you?

William J. Gerber

Hi, Dan, good. How you doing?

Daniel Harris – Goldman Sachs

Fred, I was wondering if you could point out the two or three things that are most important that you feel you have the most control over for 2011. What would they be and how do you think we should judge you on those over the next 12 months? Obviously, you can''t control things like DARTs to some extent and net interest margin but where are you going to be spending most of your time?

Fredric J. Tomczyk

Well, most of my time goes on -- if I was going to pick three areas, Daniel, it is very much on the organic growth and making sure we are pushing out some stuff at the front end. Now, that we''ve got the data center largely behind us, we still have some work to do, some cleanup there, but that was a big step. So, we will have a state of the art infrastructure and that includes not just the servers and the hardware, but also the networks and switches and all of those types of things and new telephone systems.

So that all -- we have a little bit of work to do that, so that will take us through the end of December. But then, now it is turning to the front end and introducing new things, which is all about organic growth. So, it is the asset gathering side and on the trading side. I would like to see the market environment and sentiment in the market be a little bit more positive. It certainly has improved since Labor Day but hopefully after the election, sentiment in the market will improve. But it would be of the organic growth stuff.

The second area, I definitely, spent a fair bit of time on is just the balance sheet and return of capital strategies and making sure we''re paying attention to the M&A side, managing our balance sheet, managing the IDA extensions and optimizing our earnings would be the second area I spend a fair bit of my time. And the third part, probably you don''t see as much is just making sure the organization is working well, that we have the right people in place that we''re on the issues as they come up and we''re keeping the momentum going.

I think my message to the organization is, as you guys all laugh, but Rich might laugh at this, but as I always say, it is one thing to get up to the top of the mountain, so to speak, to have the kind of asset gathering we''ve had, it is another thing to stay there. So, the analogy I use is very much it is one thing to win the Stanley Cup, it is harder to repeat.

Daniel Harris – Goldman Sachs

Fair enough. Second question, I think something you said struck me. Did you say the average assets per new account were up 50% year-over-year and if that is accurate, what do you attribute that to?

Fredric J. Tomczyk

That is accurate. That definitely is us shifting our marketing strategies and programs and the way we have segmented the client base and the way we upsell, it has all been very much focused on gathering assets. And as a natural thing, we will drive -- it means you''re basically getting bigger clients with more business because we''re introducing things that we may have had, but they weren''t aware that we have had and that was one of our issues.

We definitely know where we''re underpenetrated from, I will call it a share wallet perspective. And we know that that''s mutual funds and we also know that is deposits. And so everything we''re doing and everything we try to do in our marketing program is to make sure we''re at the right target market and we''re making them aware of the offerings we have, which people historically have not been aware that we have.

Daniel Harris – Goldman Sachs

Thanks very much.

William J. Gerber

Okay, Dan.

Operator

Our next question comes from Mike Carrier of Deutsche Bank. Please go ahead.

Michael Carrier – Deutsche Bank

Thanks, guys. Good morning.

William J. Gerber

Hi, Mike.

Michael Carrier – Deutsche Bank

Just a couple of product questions. You mentioned on the option side, with the reduction in payment order flow with the pennies that you saw some pressure over the year. Do you feel like, at least on that product, that that is starting to settle as most of the options are under the pilot? And then just on the futures in 4X, I guess any clarity, because it is a product that obviously there is a lot of demand and you''re seeing strong growth. But just so we can understand, one, from a fee standpoint, how to think about that and from your guys'' cost, in terms of how much of that you guys run versus being outsourced?

William J. Gerber

Okay. Let me make sure I got that right. The payment for order flow, is that settling down in the options area? Yes. It has been coming in. We will see if it holds at this area but we think that, yes, the -- if there is further decline and say it is muted, but we think there could be upside there as well.

On the futures and foreign exchange products, certainly, if you go to the website as well, you can see our pricing in there. We are outsourcing the clearing of those and probably will continue to do so for a while. But -- so that would certainly eat into it but the future, the average commission rate is probably about $5.50 maybe and in the foreign exchange, it is probably $3.50.

Michael Carrier – Deutsche Bank

Okay. Thanks. And then just on the follow-up, just in terms of the cash use, you guys have the buybacks, you have done the dividends, you have done acquisitions that have made a lot of sense. Just given where are you are at today and then the outlook and particularly, just given the buybacks versus the TD''s ownership gap, I just wanted to get your thought on how you can manage that and then just the uses going forward. Thanks.

Fredric J. Tomczyk

Well, it is always nice to have options, as I''ve said. And with the $30 million -- 30 million share repurchase authorization, which are in none of our numbers to date. We have done some things with Barclays, but it is in none of our numbers to date. We think we have lots of flexibility to buy back shares for the next -- for the foreseeable future and we will be opportunistic on that. We have the dividend and we basically will continue to be a very diligent in looking for acquisition opportunities. But they have to make strategic and financial sense. But right now, we''re comfortable with where we''re at. We think we''ve got lots of options and we''re going to continue to pursue all of them and we will see where we are a year from now.

Michael Carrier – Deutsche Bank

Okay. Thanks, guys.

William J. Gerber

Okay, Mike.

Operator

Our next question comes from Eric Bertrand of Barclay''s Capital. Please go ahead.

Eric Bertrand – Barclays Capital

Hi, guys. On the cash flow point on following up there, where is TD''s ownership today versus the cap? Would these opportunistic repurchases involve direct buybacks from them in order to negotiate that cap?

Fredric J. Tomczyk

They''re right at around 46% right now. I''m not -- I think there is a legal -- I will have to check this, so don''t quote me on this. But I am not sure we can directly buy from them. I think we have to buy from the market in general.

Eric Bertrand – Barclays Capital

Okay. Fair enough. And then as a follow-up to the cash deployment, you commented how you bought back more than your entire net income over the last couple of years. Is that a rate that you would want to continue at over the next couple of years or was that kind of a catch-up for an under deployment, from ''07, ''08?

Fredric J. Tomczyk

No, what you are seeing there is very much opportunistic. When the stock was down in the $11 and $12 range, we thought that was a perfect environment, given our balance sheet and cash position, to be aggressive on stock buybacks. There is the thinkorswim acquisition in there and then we popped back 34 million shares right off of that because we wanted to do it with cash, but the shareholders of thinkorswim didn''t want cash. They wanted shares. It turned out to be a smart move on their behalf -- on their side.

And so, it was very much more just our balance sheet, our financial position, our prospects for the future and being opportunistic on what we saw was a dip in the market that wasn''t going to last.

Eric Bertrand – Barclays Capital

Very briefly. What is the payment for order flow component of your average commission today?

William J. Gerber

We haven''t disclosed that for a while, Roger. But -- so, we''re just not going to disclose that.

Eric Bertrand – Barclays Capital

Okay. Thanks.

William J. Gerber

Okay. Thank you.

Operator

Our next question comes from Howard Chen of Credit Suisse. Please go ahead.

Howard Chen – Credit Suisse

Hi. Good morning, everyone.

Fredric J. Tomczyk

Good morning.

Howard Chen – Credit Suisse

On the goal of optimizing NIM in a low interest rate environment, Bill, could you just provide a bit more detail on what you''re thinking here and how much of that maybe is bedded in the 195, 205 outlook for 2011? I guess, you alluded to the goal a few times and I heard tweaking duration but was hoping for a bit more, if possible?

William J. Gerber

I think it is really more of the duration tweaking, to be quite honest, Howard. The other things that are embedded in there, margin, et cetera are somewhat outside of our control and -- but it is really -- as I said, with the duration of the portfolio at 2.1 years, with the -- our range of our target being two to three years, we''re sitting right on the bottom end. And we just need to -- we''re evaluating what do we want to do to try to extend the duration and then you do get into the mix going forward of institutional, which we tend to keep shorter and retail, which is kind of more normal, longer duration. So, that''s unfortunately about as much detail as I can go into on it. Is there something more specific you need on that?

Howard Chen – Credit Suisse

No. I can follow-up offline, but just the second part of the question, Bill, what is bedded in the 195 to 205 estimate, in terms of your NIM optimization?

William J. Gerber

It is 150 to 160 is the range right for the IDA and we would look to move the duration up to maybe 2.3 to 2.56 years.

Howard Chen – Credit Suisse

Okay. Got it. And then second, switching gears over to, I think on investment spending, you''ve recently spoken to about $30 million of incremental spending. Where are we in that deployment and what are you anticipating in terms of return off of that in the 2011 guidance range? Thanks.

William J. Gerber

It is in the -- basically almost all in the run rate in the September quarter right now and the -- what we see from that, because it is all -- it''s mostly in the sales force, we''re going to see some more net new assets and that''s why we would expect that -- they are probably the easiest people in the company to measure, to be quite honest. So -- because their net new assets are marked every day. So, we would expect that that is going to be the benefit that we''re going to see from that group going forward.

Howard Chen – Credit Suisse

Okay. Many thanks for taking the questions.

William J. Gerber

Okay, Howard.

Operator

Our next question comes from Mac Sykes of Gabelli & Company. Please go ahead.

Mac Sykes – Gabelli & Company

Hi. Good morning, guys.

William J. Gerber

Hi, Mac.

Mac Sykes – Gabelli & Company

Just, you talked a little bit about the revenue side on the IDA. If we did get sort of a longer term persistence in lower rates, out past 2011, 2012, do you think about changing your cost side at all perhaps? Is there anything there you can do? I know it doesn''t match up against some of the fix costs but would that be some strategic thinking you would think about this year?

Fredric J. Tomczyk

It definitely enters our mind and we''ve talked about that as a management team. To this point in the process, we have been very much focused on the organic growth and continuing to grow the organization that has clearly worked for us and managing our balance sheet and cash position and returning capital. If there is an area that as we look forward here now, given that interest rates are going to stay lower for longer and the yield curve is flattening out, we probably do need to be more diligent on expenses and that is definitely something as a management team and I am going to spend more time on.

Mac Sykes – Gabelli & Company

Just one follow-up, last week there was an asset manager that took charge related to contributions to its money market funds ahead of the SEC disclosure rules that will take effect, I guess in November. Do you expect these new reportings to affect you in any way?

William J. Gerber

No, no. That one''s not going to affect us.

Fredric J. Tomczyk

We''re really not in a money manager.

Mac Sykes – Gabelli & Company

Great. Thank you.

William J. Gerber

Okay, Mac.

Operator

Our next question comes from Matt Snowling of FBR Capital Markets. Please go ahead.

Matt Snowling – FBR Capital Markets

Hi. Good morning, guys.

William J. Gerber

Hi, Matt.

Matt Snowling – FBR Capital Markets

Can you tell us where you''re reinvesting new cash in the IDA suite? At what rate?

William J. Gerber

The rate right now is probably still in the -- why don''t I wait until I get the answer and then I can tell you.

Fredric J. Tomczyk

It''s going to depend, because there is two pieces here. There is a retail piece, which is -- it would be longer and the institutional piece will be shorter, so they will be slightly different rates, not slightly, they will be, given the shape of the curve, they''re different rates.

William J. Gerber

It is in the low to mid twos.

Matt Snowling – FBR Capital Markets

Okay. And just maybe a follow-up question in the sense that, I think you said you plan on rolling out more expanded cash management offerings to your customers. Is this something you''re going through TD to offer or?

Fredric J. Tomczyk

Well, yes and no. Obviously, any banking -- the banking stuff is all TD Bank because we don''t have a bank. But what we''re really talking about here is we''ve known and we''re focused on and this probably won''t happen until probably the second or -- or probably the third quarter is a better date. But basically, we know we''ve had some gaps in functionality in our cash management offerings, our clients have been cleared to watch that. Some of the things we do on money movement and other things, it is just not easy for them to do. So, we are putting in a whole new banking front end that''d be the Fidelity profiles platform and so we have to change all of our processes for that.

So, the first step will be putting Fidelity profiles in and converting our existing processes into that, which will improve the experience for what they would have today. The second phase, which is probably the third quarter, will be much more focused on enhancing that functionality and the experience and flows and what can feel at the front end in conjunction with the website.

So, that is really the two things. So, this is a lot more about functionality. And then if we decide new products, whether that be enhanced checking accounts or savings accounts, we will make that decision sometime next year.

Matt Snowling – FBR Capital Markets

Okay. Got it. Thanks.

Operator

Our next question comes from David Trone of JMP Securities. Please go ahead.

David Trone – JMP Securities

Thanks. Good morning.

Fredric J. Tomczyk

Hi, David.

David Trone – JMP Securities

Good morning. On the trades per day, maybe looking at the full year, 372, how many of those would go from revenue to non-revenue under the new ETF strategy?

William J. Gerber

It is actually fairly small. We looked at, in those particular 101 ETFs last year, would have reduced revenue by less than $0.01, so…

David Trone – JMP Securities

Got you. Okay. That''s good. Good detail. On the account change, you were up 5% net on the fiscal year. Can you tell us what the delta was for the segment that you had characterized as non-active trader?

Fredric J. Tomczyk

We don''t break it out that way, David. But suffice it to say, with the average account size up, there is no question -- the long-term investor definitely is a bigger mix of our new accounts this last year.

David Trone – JMP Securities

Is it safe to say -- would it be double digit by any chance?

Fredric J. Tomczyk

I don''t want to quote that, because I really don''t know, David.

David Trone – JMP Securities

Okay. That''s all I have. Thank you.

William J. Gerber

Okay.

Operator

Our next question comes Brian Bedell of ISI Group. Please go ahead.

Fredric J. Tomczyk

Hi, Brian.

Brian Bedell – ISI Group

Good morning. How are you doing?

Fredric J. Tomczyk

Good.

Brian Bedell – ISI Group

Good. Just a follow-up on the online banking strategy or the banking strategy in general, Fred, you talked about a third quarter, I guess first of all, is that a fiscal third or calendar third quarter target?

Fredric J. Tomczyk

Fiscal.

Brian Bedell – ISI Group

Fiscal, okay. And would this include functionality whereby you think you''d have online bill pay, checking and a debit card combined in order to target your improvement in your wallet share?

Fredric J. Tomczyk

Yeah. That would be and probably should clear on the fiscal third quarter. The reality is if we actually implemented it towards the end of the fiscal quarter, we probably wouldn''t make a big deal out of it until actually September because we''re not going to launch a big marketing campaign in July and August.

Brian Bedell – ISI Group

Right, okay. So essentially, you do the online banking strategy as more of a 2012, fiscal 2012 impact rather than a 2011?

Fredric J. Tomczyk

Yeah. I think it''s -- the main thing that we''re focused on is getting all the gaps right fixed in terms of our offering and enhance the opportunity for us to give us another option to get greater wallet share.

Brian Bedell – ISI Group

Is there anything prohibiting you from effectively implementing that strategy with TD Bank at all?

Fredric J. Tomczyk

Well, in essence, it would be with TD Bank because the bank would be TD Bank.

Brian Bedell – ISI Group

Right, right. So, they''re on board with your strategy?

Fredric J. Tomczyk

Yeah. One of the things that it clearly recognizes that we are a very good direct model, because that''s essentially what we do with a combination of marketing and technology and call centers, augmented with the physical channels. So, it is a natural thing for us to extend into direct retailing of some other products, other financial products.

Brian Bedell – ISI Group

Right, okay. And then just lastly, on the sales strategy, the sales incentive strategy with the staff, can you just talk a little bit more in granularity about plans in the retail channel versus the RIA channel? Both in terms of incentives and where you see the stronger growth coming from over the next 12 months?

Fredric J. Tomczyk

Well, if we could keep up the kind of growth rate we''ve had in 2010, I would be very happy. We set our target range for this past year and this year of 7% to 11%. We were just over 11%. In 2010, just maintaining that I think it is very good. We have added sales people. The reason for that is because of the growth we''ve seen the last couple of years has increased the account load in the target client for people on the branches above the ranges that we like to manage inside.

It starts to take away sales capacity, so we''re really adding them to reduce the count load to free up additional sales capacity. We also see -- now that we''ve proven we''ve changed the call centers from service only to service and sales. And we''ve segmented our service and sales offering across our client base and have proven ability to upsell and gather assets that we''re going to start to embed other things into our client base, introducing the complex options and futures and foreign exchange, the mobile offering and continuing down that path.

And then the last one is we have added some of those sales people to TD Bank branches to try to get that up a little further. The pilots we ran in New York worked and so now we''re expanding that out, but we''re going to continue to expand that a measured pace to make sure we get it right in each market and are doing it properly as we expand across the country. So, we see all of those as opportunities to further enhance the asset gathering and embedding more of what we have to offer in our client base.

Brian Bedell – ISI Group

Do you think you see more net new assets from the retail channel or the RIA channel over the next, say 12 months based on the strategy that you''re implementing?

Fredric J. Tomczyk

Yes. We are going at both very, very hard. Both had very strong years and we''re going to continue to push on both and also work at expanding out our Amerivest offering, annuitizing more of our revenue. We see an opportunity there. As I said earlier, we know where we have low share wallet, which is mutual funds and deposits. We''re going to continue to focus on that and expanding our offering and making sure all of our clients and the market are aware of the offerings that TD Ameritrade has.

Brian Bedell – ISI Group

Great. Thanks very much.

William J. Gerber

Okay, Brian.

Operator

Our next question comes from Matt Fischer of CLSA. Please go ahead, sir.

Matthew Fischer – Credit Agricole Securities

Hello. Good morning, guys.

William J. Gerber

Hi, Matt.

Matthew Fischer – Credit Agricole Securities

A couple of follow-up questions. First, you said options were 25% of total DARTs.

William J. Gerber

Yeah.

Matthew Fischer – Credit Agricole Securities

That is for the quarter?

William J. Gerber

Yeah.

Matthew Fischer – Credit Agricole Securities

Okay. And the 6% futures in FX, is that baked into that or is that separate?

William J. Gerber

That''s separate. So 31% is the combo that''s there.

Matthew Fischer – Credit Agricole Securities

Okay. And then ETFs, what percent of DARTs were they, I guess, factoring in part of them? I guess you said it was a very small piece.

William J. Gerber

Well, it is decent size. It is 12%, I would say.

Matthew Fischer – Credit Agricole Securities

Okay.

Fredric J. Tomczyk

That includes -- the 12%, Matt, includes leverage for ETFs and when you back down to the 101 that we put out, it is actually quite small.

William J. Gerber

Right.

Matthew Fischer – Credit Agricole Securities

Okay. Got you. And then on the net new asset side, I guess you''re not going to tell us going forward any mix, but can you give us some -- you said the longer term investor, the accounts grow faster, what about net new asset mix for institutional versus retail? Any…

Fredric J. Tomczyk

We don''t break that out, Matt but what we have said and I have said and I will repeat is that I think everybody knows that roughly a third of our total client assets are institutional, two-thirds retail, that''s the first point. The second point is that the RA channel is the fastest growth channel in the wealth business, so it will grow at a rate that is likely in the range of two times the retail space. If you do the math on those, you can come pretty close to what you might see at our organization.

Matthew Fischer – Credit Agricole Securities

Okay. Great. Okay. That''s fine. Thank you very much.

William J. Gerber

Okay, Matt.

Operator

Our next question comes from Celeste Brown of Morgan Stanley. Please go ahead.

Fredric J. Tomczyk

Good morning, Celeste.

William J. Gerber

Are you there, Celeste?

Fredric J. Tomczyk

Are you on mute?

Operator

It actually seems as if she took herself out of queue.

William J. Gerber

Okay.

Operator

Our next question comes from Mike Grondahl of Northland Capital Markets. Please go ahead.

Michael Grondahl – Northland Capital Markets

Yeah. Thank you guys, for taking the questions. Real quick.

William J. Gerber

Hi, Mike.

Michael Grondahl – Northland Capital Markets

Could you -- howdy. Could you talk about the competitive landscape a little bit in the trading business? And then secondly, maybe just to help us simply understand two year duration versus three year duration, what are the reinvestment rates at two year today, versus three year. Just kind of help us understand that delta?

Fredric J. Tomczyk

Okay. Let me take a shot. The competitive landscape, I think, as you look at some of our numbers and whether you want to take new accounts or net new assets, I think whether it is trading or whether it is asset gathering, I think you have to keep in perspective that in 2009, everyone kind of pulled in when the recession hit and we pushed.

So, we definitely had a blowout year in 2009. And I think what you''re seeing in 2010 is everyone has come back into the market, people have rediscovered the active trader. There has been some price changes. There have been some new client offerings. And so I think it is just a much more competitive environment right now and I think that is going to continue and be quite intense as we go into 2011. And then as I look at it, what has really happened is there is much more of a marking war. I think people have rediscovered the importance if you''re going to gather assets and grow of marketing. And so that''s the competitive offering.

Specifically to the trading side, we look at that in a variety of ways. We look at obviously the bigger competitors, whether that is Fidelity or Schwab in their trading offerings. We definitely look at Etrade and Options Xpress. But I think that the fringes, we also look at players like TradeStation and interactive brokers and what they''re doing, so we look at all if that.

At the really active trader side, we look at them probably more so than we do some of the players that are more obvious in the market and so that -- it is a constant battle. It is an attractive market. You can make a lot of money in active traders. We''re the leaders there but it is a very competitive space.

With respect to duration, I will let Bill talk to reinvestment rates, but keep in mind, just try to -- the best way