MutualFundWire.com: TD Ameritrade Makes a Strategic Deal With DFA

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Thursday, April 27, 2017

TD Ameritrade Makes a Strategic Deal With DFA

Thanks to a new "strategic relationship", one RIA custodian is making it a whole lot cheaper for its advisors to use Dimensional Fund Advisors' (DFA's [profile]) mutual funds. Perhaps other such custodial deals will follow suit?

Tim Hockey
TD Ameritrade
President & CEO

Last week on TD Ameritrade's Q2 2017 earnings call with analysts, transcribed by Seeking Alpha, TD CEO Tim Hockey confirmed that the brokerage and custodian "recently joined forces with Dimensional Funds ... in a strategic relationship." Hockey calls DFA "the largest mutual fund family" on the TD platform.

Hockey was light on details, only revealing that the DFA relationship "makes DFA's funds available to advisors for a reduced rate and introduces new educational and practice management resources." Yet two months ago AdvisorHub broke the news that TD was cutting the transaction fee on DFA funds to $9.99. That, RIABiz now notes, is a drop of more than two-thirds. By comparison, AdvisorHub notes, rival RIA custodian Schwab charges a $25 transaction fee on DFA funds while another rival, Fidelity, charges $50 to buy and $30 to sell. DFA-using RIAs, RIABiz notes, are reacting positively to the change, and some of the pub's sources wonder if Fido and Schwab will quickly follow suit.

The traditional tradeoff in the RIA channel has been higher asset-based platform fees on NTF (no-transaction-fee) platforms vs transaction fees but lower platform fees on institutional platforms. DFA, which has a big and loyal advisor base, has traditionally fallen in the latter camp, eschewing the higher platform fees required for inclusion in NTF platforms, and that has meant that advisors' clients (or advisors themselves) have had to foot the platform bill by paying transaction fees on DFA funds.

The new TD-DFA deal, like rival custodian Fidelity's new iNTF platform (with low asset-based platform fees and no transaction fees), seems to upend that traditional NTF-vs.-institutional model for the RIA custodians. Yet unlike Fidelity's new platform, the TD-DFA deal is a one-off that doesn't involve any other fund companies. But perhaps others will follow suit.

"Our scale puts us in a great position to get creative and try new things," Hockey said on the call last week. "We're evaluating other opportunities as well and we'll share more once details have been finalized."

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