Scottrade Inc. is taking new steps to add and broaden registered investment adviser relationships, but analysts say the St. Louis online brokerage will have difficulty since it is primarily known as a direct-to-consumer company.
Doug Talir, the director of Scottrade's advisor services division, said in an interview Wednesday that Scottrade has offered services to registered investment advisers since 2005 but wants to expand them. On Tuesday, it introduced an adviser services Web platform with upgraded trading and account management services. The platform offers advisers additional tools to help manage and organize accounts, trade more efficiently, track gains and losses and produce client reports.
"Direct-to-consumer has been our main focus for the past 29 years," Talir said, "but quietly over the past few years we have tried to find ways to support advisers to develop that business for us."
Though Scottrade, which is privately held, would not disclose how much of its revenue is generated through advisers, Talir said it is still a "relatively small portion of our overall business." Scottrade has served 700 advisers for the past four years, he said, but this is a "small community," and services to it have been developed slowly based on the advisers' feedback.
Talir said that, by enhancing its platform, Scottrade hopes to gain relationships. "Obviously, this business is growing," he said. "We see our competitors with a significant part of their business through this channel, and we want to do the same thing. We have a multiyear road map for building this business."
Analysts are skeptical whether Scottrade will be able to add share in the registered investment advisory market. "Clearly the RIA market is growing and becoming a more important sector for securities distribution, but it is a very diffused market, and it is hard to reach many advisers because they are so dispersed geographically," said Burton Greenwald of Philadelphia's BJ Greenwald Associates. "It is very tough competitively to reach these advisers, and it is even tougher, [given] the services that Scottrade is currently offering."
Scottrade is seeking new services for the platform. Last year, it bought Portfolio Director, an online portfolio management software provider that offers fee-billing capabilities and model portfolios for advisers.
Talir said Scottrade plans to integrate Portfolio Director's services onto its advisor services Web site within six to nine months.
"We really want to grow this area of our business organically, but we remain open to small deals," he said. "We want to focus on developing services so we can attract all different types of advisers, whether emerging or established."
Greenwald said Scottrade's primary focus this year has been adding branches nationally to develop its retail customer base.
Though the retail platform remains Scottrade's "primary focus," Talir said, the company is building its advisory platform "behind the scenes," and "we think it could be a significant portion of our business in the future."
In view of the difficult economic climate, he said, advisers are interested in using third-party services if it can save them time and money.
"Given [that] Merrill Lynch is now a part of Bank of America and Lehman's bankrupt, there are a lot of breakaway brokers that are going independent," Talir said. "This is a tremendous market opportunity for us. This is the fastest-growing segment of the financial services industry. A lot of advisers are looking at the independent RIA market. We think that there is a tremendous opportunity to work with advisers right now."
