TD Ameritrade clients start using their cash

NEW YORK Tue Jun 24, 2014 6:58pm EDT

Tom Bradley, president of the retail distribution of TD Ameritrade Holding, speaks during the Thomson Reuters Global Wealth Management Summit in New York June 18, 2014.  REUTERS/Lucas Jackson

Tom Bradley, president of the retail distribution of TD Ameritrade Holding, speaks during the Thomson Reuters Global Wealth Management Summit in New York June 18, 2014.

Credit: Reuters/Lucas Jackson

NEW YORK (Reuters) - The high levels of cash that TD Ameritrade customers have been keeping in their brokerage accounts since the 2008-2009 financial collapse is on the decline, a sign of growing confidence in the U.S. stock market, company executives said at Reuters Wealth Management Summit on Wednesday.

Cash represents about 19 percent of assets kept in more than 4 million retail brokerage accounts at the Nebraska-based broker-dealer. In the previous five years, cash levels averaged between 20 percent and 22 percent, said Tom Bradley, president of retail distribution.

Cash levels of investment advisers whose clients have accounts at TD Ameritrade have dipped below 8 percent, added Thomas Nally, president of the firm's institutional division.

The investing behavior of discount brokerage clients is closely scrutinized on Wall Street as a sign of how robustly investors are buying stocks and, more conservatively, bonds.

TD Ameritrade's retail clients are more active traders than those at rivals Charles Schwab Corp and E*Trade Financial Corp, creating higher levels of cash than buy-and-hold investors as they trade in and out of markets.

Cash in the approximately 9 million brokerage and money market accounts at Schwab declined from a peak of about 20 percent in 2009 to 13 percent at the end of the first quarter, and generally ranges between 5 percent and 10 percent in accounts that financial advisers keep for their clients at the San Francisco-based firm, a Schwab spokesman wrote in an email.

E*Trade clients at the end of May kept 16 percent of their assets in their 3.1 million accounts in cash, down from 19 percent in March 2013, a spokesman wrote.

Separately, Bradley said clients appeared indifferent to TD Ameritrade's disclosure that it made $236 million in its last fiscal year by selling their orders to trading firms and exchanges. The total was more than in the previous year and higher than at Schwab and E*Trade.

Discount brokers do not share so-called payment for order flow revenue with clients, but say it subsidizes low commissions and does not affect their commitment to get the best execution for trades.

On Tuesday, however, a TD Ameritrade executive told a U.S. Senate subcommittee that the company often routes orders to exchanges that pay it the most.

The practice was criticized in Michael Lewis' recent book, "Flash Boys."

Fewer than 200 of TD Ameritrade's more than 4 million clients questioned the practice since the book's publication, Bradley said. But Nally said it was too early to judge the impact of a "60 Minutes" TV interview in which Lewis said U.S. markets are fixed.

"Think about Mom and Dad sitting on the couch ... and hearing the markets are rigged," he said. "They'll start stuffing their money under their mattress."

Charles Schwab Chief Executive Officer Walt Bettinger recently suggested that firms disclose how much they receive for each trade order on a customer's confirmation statement.

"I wouldn't have a problem with that," Bradley said at the Wealth Summit.

(Reporting by Jed Horowitz; Editing by Lisa Von Ahn)