Q4 2019 Earnings Call
<unk> conference call.
This call is being recorded with US today from the company is president and Chief Executive Officer.
Tim Hockey and Chief Financial Officer, Steve Foils.
A final containing Mr hockey and Mr. boils comments on the quarter can be found on the company's corporate website eight M.T.D. dotcom.
Under Investor Relations. This call's intended to in dressed related questions from investors and analysts questions from reporters can be directed to the company's media relations team or you can follow their Twitter handle at TD, Ameritrade, PR, which will be life tweeting this morning's call.
Let me take a moment to compile the question.
Your first question comes from the line of Rich Repetto.
Line is open.
Yeah, Good morning, Kevin Steve.
Thanks for all the information and ER and the rundown of the business initiatives that you're.
But you're focusing on and I guess my first question, but you mentioned a lot of areas.
We expect that you're working on investing on where you could see growth is is there anyway, you can prioritize them in.
Timber Steven like which one two or three have the greatest possibility of Bob impact in the top line and by how much it on what time table.
So it's Tim So let me take a first after that and let me actually talk a little bit more about the process because I think it's probably important.
When the announcement came out and we make the decision to go to zero. The first thing we did but you've got the the team together senior executive team and took a look at our strategy and then at our priorities for 2020 and started to Reprioritize those in light of the new environment and so many of these initiatives were underway some of them where.
For a little further out simply because we thought they were not as important in any environment, we used to yet.
So then we recalibrated those much of what you see in seat less than inside his commentary in terms of prioritization again it is relatively early days.
In terms of their absolute size these would be relative guesses to what we think they would be projecting in the out years, and we were frankly conservative in our expectations.
Revenue growth in the 2020 workout, so we're not going to be able to disclose much more in terms of the absolute but I just thought it was important to help you understand.
At these initial first couple of weeks stage, how we went through and prioritize and obviously there'll be further fine tuning as we learn more but over to see for more yeah. I just see red took a couple things. So you know we started our strategic resiliency project you know about a year ago, when we've been focused on.
Putting in place.
Customer profitability aligning our cost to our with our strategic priorities and Oh I think the organization has as a new a you know more fulsome view of where we're making armani and where we're expanding our resources and I think that's going to be.
Yeah, what's going to be a big area focus anyway, and it's going to I think his take on even more urgency with some of the changes that we have.
Fully paid lending is one that that's pretty exciting you saw in the quarter, how strong stock lending revenue was for us that's something that we've talked about.
Over the years had and no has never residents are that the top of those left the now with some changes in personnel and the new environment.
We're really excited about that we haven't.
Really put about one month that that in a in the plan for next year, but but you know that's a significant initiative for US Asia has spanned a a big initiative that we see you know a growing momentum in Asia, we're really.
Excited about that and of course, not you know institutional has always been a very strong.
Growth business for us, but but as we you know again segment out, though those customers and the already Ace we see that you know.
Those high net worth customers are particularly valuable to us or what have you know some new things introduced this year and some increased focus on that we think that's a great opportunity too.
Okay.
Thank you and then my one follow up would be in the commentary. The prepared remarks, you talk directly about and I think quote sustainable competitive scale benefit.
And it and specifically you say looking back to Scottrade purchase where the prudent decision.
So well I guess given that everything that's going on with Zero Commission and looking for efficiencies. Some say consolidation is way to maximize efficiencies, but I'm just trying to get an update on how America trade in the board I look at consolidation now that we're in a zero Commission in environment, you know going forward.
So a rich the team here with joking about after having a number of quarters, where we didn't have an M&A question on the call. How many we would get and how many different ways.
And so what so that's one and you know kind of ours entered answer on that is Ah. We will Oh, we will take a look at anything that makes financial and strategic sense, but you're right. We did make the comment that Ah that's got trade deal with fortuitous timing a scale is important we have scale, we're very comfortable with our earnings.
Our now even in this new in environment.
Got it okay. Thank you very much 10 and Steve.
Next question comes from a line of Chris Shutler. Your line is open.
Yeah, there Chris.
Your next question comes from the line of Rich Repetto.
No I already asked and answered thank you.
Okay.
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Hi can you hear me.
Okay.
Great Okay great.
Hi, guys, sorry about that sounds like you're you're thinking about your and your pricing your solutions your service level, depending on how engaged clients are with TD ameritrade.
Would you maybe flesh out what you're thinking about a little bit more there. Thanks.
Oh, Yeah, Chris I'll take that some of the work that Steve It had been alluding to is that we've done a a lot of analysis in the last couple while about where costs are being driven and the segmentation and that type of our of our client and so we put segment leaves and play a they are now working through the.
Offering decline experienced for each of those different types of segments and we really do understand.
The cost and the revenues associated if we hadn't had the commission impact a few weeks ago than I could very well have imagined in the next call. It over the next year, we would have started to be much more targeted in the appropriate price or value for each of those clients as opposed to whatever.
Well, we found interesting in that in this industry is it'll go to one price. It's all with a high degree of emphasis on awareness about particular price point.
In late about a with that price going now down to zero. It doesn't preclude us from really understanding where there are opportunities to best charge for the value created so I think that work will continue I think the the team is actually quite energized to not have that sort of sort of damocles hanging over us which is the price point.
That was very painful in the and the revenue give up wasn't wouldn't help at all but it's actually a bit liberating in terms of really trying to understand where we can create value for clients and then potentially charge for it. So the good news is we've got a I'd like to say, probably 18 months head start doing that work and so that should just be accelerated now yeah.
I think similarly to Chris on the expense side, you know, there's a number of things that that we give to everyone. Today that you know a number of our clients really don't utilized but that cost us money and so we think there's probably ways to value engineer that offering. So that you know that the clients still see a great offering.
I don't know to change, but but it's a lower cost to us going forward. So I think you'll see that as well.
Okay, great. Thanks.
Then at the follow up in that my commentary you mentioned that Oh Zero Commissioner environment, you think that other could be some disruptions to the I'd be d. and full service broker industries, maybe just elaborate on that that comment and how do you see that playing out over time.
Well first I would say.
If you co pack 45 years this industry category by online brokerage that quote discount brokers was born out of price competition. That's on the price was 75 Bucks. So here we are now at zero.
In the last 45 years, our category has been a winning share from Oh.
Others full service categories, Wirehouses and so now that that number has gone all the way down to zero I think that trend will accelerate so that'll be a category accelerant to all of it.
More recently the impact of course has been that there had been new entrants set of Euro price point, that's largely been there differentiating characteristics that has now been and gone away and I would say more idiosyncratic to us at TD Ameritrade, we have been.
Holding our dart share at the at the largest in the industry and gaining any share in the last several while even with the two dollar price delta to our largest competitors.
So that overhang, if you will have gone away as well. So now we're competing straight up and as zero environment, and we think that all of the investments. We've made in the client experience are really going to start to pay off because we've got the best experience that's platforms, the best trading and education.
That's network.
And not just by our estimation by third parties. So we think in that environment, We will we will win.
I think Chris on on the institutional side, we think that you know that the changes in the environment aren't going to drive you don't more I'm first going to emphasize fees, that's kind of create discussions with clients friction, we think there'll be more breakaway brokers or potentially here.
In this environment and you know more people out a you know rethinking things tends to get them to think about the independent model and we think that that's very good for our institutional business.
Your next question comes from the line of my My carrier Your line is open.
Good morning, and thanks for taking the questions on you guys mentioned filling comedy and keeping expenses flat over the next few years.
While maintaining healthy net new asset growth heading in the house high single digits. So assuming there is some you know comp and other costs associated with the net new assets that come in the door, maybe what are some of the offsets to keep the expense base flat over the next few years.
Sure so.
You know as I mentioned, we've been a you know sort of gearing up for that I think that the biggest emphasis is that we're really focused on a you know those places where we really think that we actually saw where we can when and where were trying to.
Stop things. So you know we announced the branch closures last year, we refined our branch network still incredibly important but a little bit streamlined.
We've shut down our trade architect do good platforms.
We shut at our Investor tools business, we closed our we sold off our trust business in June . So we're really focusing on you know what what is our core competency where can we grow not trying to be all things to all people and we've also been really enhancing our automation.
And so we're providing you know a much smoother digital.
Experience for our clients were reducing pioneered tense, we're reducing the reasons to call last week.
Hi tool that helps us understand why clients or are calling and where were addressing the things that drive the most.
Call volume into our call centers were looking at the flow through our our branches to make sure that were really providing value added activities to our customers not just doing.
Servicing or for doing servicing we're doing it with.
You know a lower cost customer service reps as opposed to.
Financial consultant. So you know a whole host of things that we think you know will be powerful and 2020 and beyond this we as we go forward, but just a couple other things on that as we alluded to.
The strategic resiliency work was really trying to.
Bucket our costs against three categories of things the first one and the most important as those things that are really differentiators for us our our platforms, our education offerings things that make a stand out relative to the competition in our clients really value.
And category is the just keep the lights on what you need to do in your focus there of course is to make that more and more efficient and automation that really helps there.
And the third category are those things that aren't differentiate us there are things that we might have tried that we're keeping on life support but our clients are saying they don't really value and that you already category, you should be slimming down or getting out of entirely Steve gave you. A few examples of decisions made already and we have others in the hopper. That's a that'll all be driven by the data that are going to fell asleep.
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Okay. That's helpful. And then just a quick follow up on than some of the new initiatives. One area. You mentioned was building on a more compelling offering Amin solutions for both engage investors and then for the higher net worth or a clients I guess just curious when you think about where you offered today. What do you think is needed you'd be more successful there.
So Tom spends as we know it's been growing at a huge rates, but there was some offerings and sort of the family office side that our clients with larger books that are interested in having a donor advice fund is something that we're working on.
Should have a relatively soon some of the at the higher end services that our private charitable giving trust accounting cash management capabilities all of those things that are that.
What are helpful to the higher net worth clients and.
Been asking for a while and those are those are important.
Yeah, and I guess, we've also been looking at what are engaged investors, what what what they see as you know advice or how from Austin with what they really value in that and we think that there's opportunities to I'm going to provide extra services for people that there'll be willing to pay for and we're working on some.
As offerings in the upcoming here.
Alright, Thanks, a lot.
Next question comes from line of Chris Harris Your line is open.
Thanks, Good morning, guys.
With respect to the commission cuts, Kansas the decision.
Yeah happens really quickly and its permanent but I know you guys have been thinking about this I'm sure for quite some time. So can you walk us through your thought process on wide zero right away.
As opposed to maybe dropping it too few dollars and seeing what happens from there.
Yeah, Thanks, Chris the.
Well if you imagine this has been a bit of a slow moving train.
For literally decades, the discussion about what price point will be here when.
I said, it's gone from 75 down to Mount Zero, what we had done over the last couple of years, especially in early 2017, when the last round of price cuts happened is really understand customer price sensitivity curves and so we've done a lot of analysis as to at what point clients, we're going to be too sensitive and too sensitive.
Then we would have to high on attrition risk, where we not to move.
So at the same time, we sort of start thinking about how do we get our strategic resiliency program ready and and standing up at the same time are getting prepared for what we thought would be perhaps than eventuality, although probably not as early as that actually happened.
I'm going to zero, what the analysis told us that a boat about a call. It two dollar or three dollar price point, you can eke out.
An extra premium if you will.
For the value proposition that you provide.
But below that price point, and especially at zero. There is that when the major competition goes to zero than it is a pretty much came over from a from that particular price being commissions betrayed.
We don't necessarily believe that that's true for all prices through all services different obviously sensitivities of clients for different offerings, but at that particular flashpoint.
Zero, we needed to match and so that's why the decision was made on the day in and we went a couple days later.
Okay got it a.
And then with respect to.
For your longer term planning can you remind us when the.
When the agreement with TD Bank comes up for renegotiation.
And could there be some potential relief without agreement given what's happened on the commission side of your business.
Yeah. The agreement actually we have to notify each other by July 2021, whether we wish to renew it and extended.
And that would be effective 2023, so there's lots of time between now and ban and then lots of times after but yes, there's an opportunity to have discussions with TD and see what the appropriate price for deposits are.
Thank you.
Your next question comes from the line of Devin Ryan Your line is open.
Great Good morning, Tim and Steve So I wanted to touch on the 49% increase in new accounts since the move to zero that really stood out to us and if we can maybe dig into that a little bit more I'm curious if net new assets corresponded with the new account trend just over the cut a short period of time and where there was accounts coming from.
If you candidate they ought to active trader clients that are just moving over and then.
Any expectations I'm looking for just around.
What new account growth could look like especially now that your prices have been removed as an impediment.
Yeah, So I'll take that so first Evan I would say the data we have so far in on a couple of weeks and really is quite anecdotal. There's the initial euphoria of zero are literally our client advocacy scores go up and literally daily we track and daily. They go up 10 point in the last couple of weeks.
And which is great given that we've also had about a 10 point increase over the last year. So a pop on on a steady increases fantastic. Then we got all of the activity of new clients being attracted because of the headlines and probably the new stories.
And as we alluded to there's lots of great anecdotes of clients coming home.
That said, Hey, we love to service.
But in fact, we thought that the price point, we'd better elsewhere. So therefore, there is no differentiation point and now we'll come back to everything that you have so unfortunately all of this is relatively anecdotal.
Some of the M&A data, we have it takes time to build especially in our institutional business, but we've seen some very encouraging signs the cats.
It can transfer is that we can track daily coming in are quite positive.
And a you know that our sales teams themselves are actually using it as an opportunity to talk to our clients and to to bring them back so.
I'd say, there's no anecdotal negatives that we're hearing other than perhaps funds story clients were calling us, saying, hey, we're worried that zero that you can't afford to give me. The service that you are willing that you've been giving me so I'd be more than happy to pay the 695 price to get the service I've been having him and of course, we have.
I'm happy to assure them that they will get the service that they're used to and is there a price points. So.
We're thrilled about this and our teams I can tell you where associates are incredibly thrilled to be half the cloud at the price differential taken away and so we can compete head up because I'm not game, we will win.
Yes, you should take the commissions [laughter].
Real quick follow up.
Just on the balance sheet, you bought some treasuries in the quarter I'm. Just curious how you guys are thinking about using the balance sheet from here just in the overall asset liability management and how much you could or would think about expanding that.
Yes, so I don't think will expand it too much that was sort of a opportunistic thing that we were able to do.
I think you'll see most of the changes that we do going forward in the.
In the BD a.
Balances, but what we did at the time you know this summer or that the treasury and swap curve sort of off a skew it and it was it was a much more advantageous for us to put on duration on on the treasury curve and most of it isn't the holdco. So it's a mark to market.
Theres a couple hundred million that's in the broker outside of said cash.
And those treasuries have about a 10 year duration so.
Do you see some some decent movement with with rate changes.
Your next question comes from the line of Brennan Hawken. Your line is open.
Good morning, guys. Thanks for taking my questions.
And for those keeping the square at home Here's question number two on the M&A front.
So we've got commissions now at zero is some would argue that the that previously was a impediment or a potential risks for competitive response to any deal in motion. How do you think about that when you consider.
An industry, where scale is now increasingly important and also maybe Tim can you add how.
Despite the fact that there's a leadership transition happening now.
He gen two or may impact to your decision to pursue.
Any strategic alternatives.
So on the M&A question, I think asked and answered but on the CEO transition I think that's important.
So the process is underway certainly the board has convened search committee they've had the search firm there are candidates being considered I can tell you that the move to zero has absolutely improved the opportunity to.
Get a good quality CEO in here I can tell you that when I was considering coming to TD ameritrade a number of years ago of course, the that's that sort of damocles about when is price point going to zero going to happen nobody wants it to happen on their watch well did on my watch, but I can tell you that that's now gone away so having a new CEO come in I think just made made it easy.
Year to attract them.
Okay.
And then.
Then when we think about and Tim. This is this is nothing negative about you you know how I felt about a year leadership I said it during the last call I was kind of confused about the announcement of the transition. So this is didnt men with all and clear due respect can you explain to us what the process.
It is for review given the fact that there is a CEO transition in place. There's some really monumental changes happening to the industry and while I have full faith and confidence in your judgment. You you are not going to be there beyond February and so like dealing with the repercussions of decision.
And having like continuity through this very very difficult period. It it's pretty important and one of the questions that we regularly debate with around with investors is you know whether or not that factor is impacting.
Merritt trade how involved is you know the board in these dynamics in these discussions in these decisions. If you could just shed a little light on there and sorry, it's a bit of an awkward question you know I am I.
I appreciate the question in fact, I think it's a it's a perfect question because it is on everybody's mind and it shouldn't be the elephant in the room.
Look the couple of things happened. After my announcement in July 1st thing was to get together with the team My leadership team first and say look the phrase I use as me as we there's no more CEO . There's now a senior leadership team that is going to take the organization forward. So I can tell you that after July the discussions both.
With the board and collectively came up with a very very tight and cogent set of.
Strategic strategy and tactics that I can hand over to my successor in the middle of our fiscal 2020.
And it's the tightest I've ever seen frankly, and then of course the world changed in early October in terms of the board I think thats, an incredibly important discussion the board, we probably have more conversations with the board collectively since July to make sure that theres very tight alignment with the senior operating committee around both the strategy and.
Good day, the announcement around the price competition came out we can being the board within I think six hours and we had 100% there and 100% support we walk through the analysis, we walk through our research we walk through what had happened in the industry and there was 100% support for the teams collective decision on on what to do moving forward. So.
It is a great question I can tell you I will as I told the team I will be here.
Swinging with every breath I happened to my last day, and I'm very confident both the team and the board with the new CEO will be able to compete even more strongly in powerfully and the new environment.
Great question I appreciate it huh.
Next question comes from line of Bill Katz Your line is open.
Okay. Thank you very much taking the other question here just sort of change tack a little bit wonder if we go back some of the fiscal a 20 guidance assumptions and it's one if you could sort of maybe unpack on the revenue side, a little bit I guess, what I'm struggling a little bit is just to sort of the underlying number of rate cuts, you're assuming versus what the forward curve might be anticipating inc.
Peel back the 10 basis point decline in the net interest margin year on year, just given a lot of the moving parts and so how do how did you get to that dynamic just given what looks like BD, a guidance, where the yield so actually yields off for client balances what have you.
Yeah, So so bill and maybe I'll start with the interest rate assumption. So we wrapped up our plan a little bit earlier as Tim mentioned this year than the unusual and and rates for sort of all over the place we decided just to land on a on a scenario and stick with it and so we do have a in sort of the mid point since.
Aereo, a one rate caught in March but we've given you all the all the changes that we would expect you know what the impact of the other of an additional rate would be and you can move that at different points of the year and whatnot. So that was why we tried to abuse explicit in or in our foot note. As we were so you can.
I'll take that for for what you want to on the on the net interest margin side, you know, there's theres a lot of moving parts. There you know.
As you know margin spreads are higher than be D.A. spreads, we've had a lot of movement and and segregated cash, but generally you know the decline just because rates are starting to come down here and you know that's going to be probably is not going into next year as well.
Okay, and just a follow up and thanks for taking the question. This morning, just coming back to the net new asset outlook for you.
You like others are supposed to adjusted to remove see impediment for growth yet your organic growth rate has sort of stayed the same attempts to your assumption year on year to look at fiscal 19 guide versus now I think when you initially guiding for this year is that just appointed conservativism is there anything that's different that's sort of Ah temper some of that view.
And then as you think about that mix going forward, just what how does the yield on that incremental growth compared to legacy book of business.
Yeah. So on the actual growth rate, what we decided to do with our 7% to 10% range was to not adjust that as the result of the most recent change given when we were putting that it was really two weeks and as we said earlier the anecdotal trends that we're seeing our very strong, but you will have to come out with subsequent core.
Any revisions obviously with performance on once we've got a little bit more time under our belt.
No I think I think thats right and we were at seven last year's who are sort of below in the range I think the fact that we're now in a zero rate environment, obviously that was not in last quarter at all what happened October Onest is you know, we think a positive factor going forward.
I guess, just when I'm sure Bill. This is exactly your question, but we have heard from a number of folks you a wider why do we think you know everyone is saying that that zero was going to help them into why do we particularly think that I think you know the fact that.
We are.
We were growing without zero zero was our price was our biggest a client years and in fact, where we are seeing reduced revenue by the most amount of money and so by definition, our clients are going to be getting that much more value.
In the offering I think those are all reasons why we're quite confident that this is going to be.
Powerful for us.
Your next question comes from a line of Michael Cyprys. Your line is open.
Hey, guys. This is that Firestone on for Mike just wanted to circle back to an earlier question I guess, what else what a lack of a permanent CEO being named prevent the company from executing on M&A.
That's number three.
And so it doesn't pass or is the company, including the board and the management team will all we considered or opportunities that make strategic and financial sense, it's more than just one person.
Okay. That's helpful.
And then a little higher level, you mentioned kind of focused on growing in Asia. In your prepared remarks is there any place else internationally, and then axis kinda in the near term that would make sense to to expand into.
We've actually done to scan globally, a number of times as we do our strategic work and we decided to focus on our Asian opportunity that makes most sense, we think thats the biggest opportunity for its for the next at Awhile. So no other considerations right now.
Okay. Thanks.
Your next question comes from the line as Kyle Voigt. Your line is open.
Hi, Good morning, if you look at your two larger he broker competitors both on generates significant revenues from offering proprietary products. So wondering if you can give some updated thoughts on the pros and cons and having a proprietary product offering and is that something youd consider more seriously now and as your commission environment.
Yeah, we've looked at this a number of times over the years.
The best time, too if I think doled out a proprietary product offering with probably 25 years ago and there's a significant.
Pricepoint pressure, obviously on active and passive.
As you know we've got a very open architecture model, our our wrap products and our advisory products are helpful for us.
But there is that we feel secular pressure on on that particular category as well and we also think that there is something.
That's helpful. When we in fact have.
And open offering that isn't a branded specifically TD ameritrade and make all things available for our clients, but as you know you need absolutely massive scale for an offering in asset management. These days and so we don't think of that makes sense right.
Okay. Thanks, and my my follow up is just with respect to one of the bullets in the prepared remarks, taking a hard look at your contracts to review the value attained.
You just clarify was that more in reference to expect your expenses or your revenues or both.
And wish when you're referencing these these contracts in the value attain would that include.
Relationships with market makers and order routing revenues and you think there could be some incremental revenue opportunity there over time. Thanks. The short answer is that anytime.
Delivering what we deliver is an ecosystem with lots of partners and so they all have contracts and as a result, we're going to examine all them and prioritize and make the small and so for example, about 50% of our costs or our third party contracts. So those would be something on the expense side, but we look at things on the revenue side as well.
Thank you.
Your next question comes from the line of Brian Bedell. Your line is open.
Great. Thanks. Good morning, good maybe this question before on M&A and strategy together, but Tim I'm just yeah, obviously.
As you sort of.
Begin to exit over the next several months just just to get your your view given what Weve, what's happened now in the industry.
You do you think consolidation makes more sense in market consolidation makes more sense.
<unk> or do you think I'm the organic growth initiatives that you laid out and thanks again for laying out all of these in the prepared remarks actually makes more sense and and that.
The independent firms can thrive better on their own with with these initiatives.
Yeah, well I'd, probably be route to give exactly the same answer all over again, but I should allow us in particular.
We will continue to make sense of any offering that.
Look at anything that as financial and strategic sense more generally if you're asking in an industry that benefits from scale and an industry that have small players that have had there price differential which was their main value proposition stripped out there will probably be some consolidations that makes sense and in any industry, but for us.
In particular, and we're very comfortable with our scale in our size and it's got great acquisition, obviously helped us get there to be very competitive in a zero environment and so.
We're comfortable where we are.
Thanks, and then just on the revenue a initiatives, especially in the new environment.
Maybe Steve if you could just talk about the you did that sort of ability to get to that you dollar improvement per account. It would that just sort of a sampling or where do you think that's that's readily achievable in the next one to two years and is the stock lending.
Sort of the the easiest one to get doing then maybe just to layer one more in on banking do you think there is potential to launch more cohesive banking strategy with with TD bank like more of an online transactional banking strategy that could also generate new client activity.
Yes, So let me start there I do think that theres lots of opportunities, including additional banking products and so no clearly down would be something that we'll continue to move forward on.
What we did as we looked at our segmentation work was you know it showed a light on the fact that we do have a number of customers who have relatively small revenue with us and we think it their number of ways, where we are providing value that people will be willing to pay for and so the.
$2 on a month per account was was sort of a way to think about that so I do think is very achievable.
I'm going to come on one fell swoop, it's probably lots of smaller things, but but absolutely we'll do that and I do think you know some of the.
The other things like a fully paid blending you know that's going to be last on those small clients and more on on clients that have substantial positions with us.
An opportunity not only for us to make money, but for for them to share in ER, and where were making so I think it helps.
You know our value proposition as well as our earnings.
Your next question comes from the line of will now your line is open.
Hey, guys. Good morning, I, maybe just to put a finer point on I think Bill's question earlier as a the midpoint of the range assumes like a 176 fed funds rate I think the odds of October rate cut or in the 90 percentage rate and you know I think the forward curve is roughly 130 to 140 rate on average next year. So I guess, if we do see something.
More like the forward curve out in 2020.
Do you guys still think you're in the revenue range and if we are more towards the lower end then that rate environment do expenses kind of match that.
Yeah. So you know our view would be that you know we've we've given you all the data and you can make the a re call I think if you did see two or three rate cuts next year, you would be towards the lower end of the revenue range and but we think its uh huh.
The range is a good range and that the low end would be.
Good result for us if that were the scenario, what we tried to do with to both the conservative on some of the inputs to the initiatives that Steve laid out and as it that might be a little bit an offset as well.
Your next question comes from the line of Steven Chubak. Your line is open.
Thanks, Good morning, I just wanted to ask a question on to the relationship with T.D. So we'll call. This question for and a half on the M&A topic fight Tds had strong ambitions in U.S. wealth and one of the perceived hurdles that leads to a combination historically had been the uncertainty around pricing so it commissions nowadays.
Zero growing convergence of U.S. Walton digital I'm, just curious to the pricing developments change in nature of their relationship with TD and keep provide some insight on the merits of a potential combination.
I think that qualifies as a full blown number five not four and a half but.
So first of all the price point.
I don't think has any bearing whatsoever on the relationship with with TD.
You'd have to ask TD, what they are there plans are production down the road, but our relationship is strong and and the price point doesn't have any impact on our whatsoever.
Okay fair enough. Thanks for taking my questions.
Your next question comes from the line of Max.
Your line is open.
Good morning, everyone.
Two questions or do you expect any changes in the profitability of payment for order flow.
Given the industry move to zero commissions will for you and perhaps other participants.
No we don't and as as you know our focus is always on best execution for our clients.
Great and then could you talk about the competitive threat from short duration cash.
Business going forward.
Yeah. So you know we already have a number of.
Financial fixed income alternative opportunities available to our clients and a you know to the extent that they have a you know investing cash they utilize those we have.
Active Cds that are you know getting ready to mature here you seem to money move into the money market funds as as the as the curbs in inverted here and so you know I'm sure there'll be lots of new products coming out, but we don't really see that as as a big threat to our cash balances we think that.
Our cash is principally transactional cash and that clients are relatively rate insensitive on it and one in immediately investable form so that they can make trades, where they want to make trade. So I'm not not a big issue for US we don't think.
Thank you.
Your last question comes from the line of Christian.
Your line is open.
Good morning, guys. Thanks for squeezing me in here.
I guess number six on M&A, maybe a different angle on that question.
Can you talk about maybe the pros and cons of America trade being absorbed by a bigger rifle.
It's a different feasible given to TD equity stake and would there be any sort of strategic benefits to being part of a bigger a larger group.
So question I'm glad you asked the question at number six.
So the you phrased. The question can you talk about the merits and the answer is no.
I think it's been asked and answered look there's lots of ways around that but Luckily. We will continue the board will continue to look at all combinations that make strategic and financial sense I really can't give you any more color than that would be inappropriate just to be just to be clear I'm asking it in terms of someone ticket you out not do you take it somewhere else I understand what you're asking.
Okay got it alright, so move on I guess, maybe on organic growth I guess, the retail business was soft again this quarter in terms of organic growth that you alluded to a pickup in Oh slows post Zero Commission. So maybe a couple of questions there.
More color on what these flows are coming from is it from peers, who already went to zero from other players in any way to maybe quantify sort of the all piston activity you expect well you hope to get from.
From a you know zero commissions, maybe if you go back to the free trade I'm often yard in the late Ninetys what was the differential in activity rates on the average featured Richard account versus versus other accounts.
Mr and that one I'm really happy to answer [laughter]. So all sorts of things that first of all the eight cats, and which is really our best opportunity to see from individual players, where we're getting the flows a from all over you can imagine some of the zero price players.
You know when their competitive plank of turned out from underneath them that would be one, but they're relatively small dollars anyway in terms of what has been over there or all the outlay cats are in and out our outflows are slowing and our inflows are increasing but it is pretty widespread you mentioned the free trade offering we had literally 20 years ago, we actually went back and looked at some of the analysis.
Of the trading intensity of those accounts.
Ironically it was a it was it well.
We actually had a double check it was over 20 times the trade rates from clients, who are participating in the free trade now we don't think that that will be the case.
Well, we'd have to buy a whole bunch more datacenters.
What's going to zero, but there is absolutely an effect.
When you remove the friction from trading there, we'll get more more activity as you know and we said many times even in a world a zero commissions traders are by far our still our most profitable customers and we've been growing that segment.
In many cases high single digits and low double digits over the last awhile. So we're very.
Excited about the inflow of new activity and ER and we think our offering will continue to win in this environment.
There are no further questions at this time I turn the call back over to presenters.
Great well, thanks, everybody for calling in as we said, even though it was a great quarter and a great 2019. It was sort of overshadowed on October 1st well the news, but I think you've got a sense that the team is United in a series a very tight tactics to take advantage of this opportunity and that frankly after many many years of having the discussion and have.
To answer what will you do if commissions go to zero.
I think that now that day is now here clients are are better off as a result of it and we will continue to grow even faster in the years ahead. So we're quite excited and and thank you all for being part of the call.
This concludes today's conference call you may now disconnect.