NEW YORK (Reuters) - TD Ameritrade Holdings AMTD.N is partnering with Mercer, the employee benefits consultant, to try to narrow its wide gap against competitors in managing Americans’ nest eggs as they enter retirement.
Under a new agreement that has not been publicly announced but was confirmed by both companies, Mercer is beginning to recommend TD Ameritrade to people in Mercer-administered 401(k) plans who want to transfer their assets to Individual Retirement Accounts or other investment accounts when they retire.
A Mercer spokesman also said the benefits consultant chose TD Ameritrade as the preferred broker for its entire suite of 401(k) rollover services.
Mercer, which administers about $81 billion for about 1.3 million people in 261 corporate retirement plans, used to provide the brokerage service directly.
The companies declined to discuss other aspects of the relationship, including any compensation Mercer may be receiving from TD.
TD Ameritrade is hoping that the arrangement will help it close a big gap with its rivals, such as Fidelity Investments and Charles Schwab Corp (SCHW.N). They both have big businesses supplying mutual funds and other products to 401(k) plans, giving their brokerage units insights into when people may be ready to seek help converting employee-run accounts into investments they more directly control.
TD Ameritrade does not have a platform for 401(k)s because it does not manage proprietary funds.
“Retirement is a hard gap to fill in,” TD Ameritrade Chief Executive Fred Tomczyk said in an interview at the firm’s annual conference for independent investment advisers in San Diego. “We’ve decided not to go there the direct route.”
A few years ago the online broker considered using some of its cash surplus to buy the retirement plan business of State Street Corp (STT.N) but passed because of the high price tag, Tomczyk said.
The arrangement began last year but it is still too soon to gauge progress, a TD Ameritrade spokeswoman said. The Omaha-based online broker also hopes to carve out arrangements with other 401(k)-plan administrators, she said.
Tomczyk was candid, however, about the difficulties of making such arrangements work. They are labor-intensive beyond initial negotiations because a plan administrator must embed the TD Ameritrade option within every plan and educate participants about the option
“It’s worth a try,” Tomczyk said.
With a flood of Baby Boomers nearing retirement, retirement accounts are a major focus of retail brokers and investment advisers. IRAs are the fastest growing channel in the retirement market, fed by rollovers from 401(k) plans. About $4 trillion now resides in 401(k) accounts compared with $5 trillion in IRAs.
A major theme at the TD Ameritrade conference for the 4,000-plus independent advisers who use its services was to encourage them to get more involved in helping small companies set up retirement plans. The broker’s trust company, which is not involved with the Mercer venture of the company’s retail brokerage, helps coordinate plans with only about 50 participants holding average balances of about $80,000 per participant.
Separately, TD Ameritrade officials said that customers are getting more engaged in equities markets. The company, which earlier this month said that commission-generating trends were growing compared with December, is expected to announce that daily trades in January were up more than 10 percent from the average of the previous three months.
Reporting By Jed Horowitz; Editing by Jennifer Merritt, Gary Hill