Scottrade Inc. has clung to its independence over the past several years, relying on low commissions and comparatively extensive branch network to compete with the biggest firms in the rapidly consolidating online-brokerage business.
Rodger Riney, the chief executive of the St. Louis firm, said the merger climate has worked to Scottrade's advantage. "We're very steady and consistent. We don't close branch offices and we don't change our pricing very often," he said.
"We're not interested in acquiring anyone," Mr. Riney said. "We are absolutely not interested in being on the other end either."
But industry observers said they doubt the privately held Scottrade can keep clear of M&A forever. The scarcity of large firms left in the business probably makes buying one prohibitively expensive for Scottrade, so analysts tend to see it as an eventual takeover target.
"Scottrade is really the last of the big independent ones that are out there, and I would think at some point it would make sense for either TD Ameritrade or E-Trade to take a look at Scottrade, given the franchise they've built up," said Richard Herr, an analyst at Keefe, Bruyette & Woods Inc.
"I think that what has kept that from happening so far is that Rodger Riney at Scottrade doesn't really want to sell."
Scottrade has grown fast in the past year. Mr. Riney declined to talk about its profits but said revenue should top $650 million in its current fiscal year, which will end in September. Fiscal-2005 revenue of $464 million was up 33%.
Client trading volume has been growing. It averaged 144,000 trades per day in the quarter that ended March 31, a company record and 49% more than a year earlier. (Charles Schwab Corp. averaged 275,200 in the quarter; TD Ameritrade Holding Corp., a Toronto-Dominion Bank affiliate, 254,382; and E-Trade Financial Corp. 181,159.)
Scottrade boasts the second-largest branch network in the online brokerage industry - 265 branches, including three that opened in April. (Three more will do so this month) It had 228 at the end of March 2005 and expects to have 500 in less than five years.
Mr. Riney attributes much of the growth to a healthier market, customer satisfaction - and dislocation from industry consolidation. Last year, for example, TD Waterhouse and Ameritrade merged to form TD Ameritrade and E-Trade bought BrownCo and Harrisdirect.
Lower prices for trades also help. Scottrade charges $7 regardless of the customer's assets and level of activity. By contrast, E-Trade's lowest price, $6.99 a trade, requires at least 1,500 of them per quarter, said Keefe Bruyette's Mr. Herr. At TD Ameritrade, investors of all kinds pay $9.99 a trade under a fee structure introduced last month.
Lower pricing may be one reason that competitors have not taken a hard look at Scottrade, Mr. Herr said. "You'd have an issue where you'd be buying back your own customers - those that left you for a lower price," he said.
Scottrade does face some challenges. "Over time, equity trading commissions do go lower - and they'll have to compete with that - as these other companies have offsets" from asset management fees, Mr. Herr said.
For now, however, Scottrade intends to maintain its discount brokerage model. "Right now I think it's an advantage to keep it streamlined and simple and to appeal to clients who want just that from us," Mr. Riney said.
