| 13 May 2010

About two months ago we started compiling the public information shared by the various online brokers into a set of charts that allowed us to view their performance over time. This view, we felt, gave us a more complete and holistic sense for each broker's performance.

It was using this view that we could show that the growth in new accounts, for example, was usually tied to an increase in advertising spend. (Though not always.) We were also able to get a better sense for how their recent performance compares with their past performance, but in a more visual sense.

The next step for us in this process is to compare the top brokers to one another. Now that we had the data this was a pretty straightforward exercise, but a useful one. We'll plan to update these charts on a quarterly basis so you can stay on top of these trends with us. So, without further rambling...

We first take a look at trading performance -- though arguably less meaningfull than it used to be as the broker price war has eaten into the once-lucrative margins generated by trading activity. Still, the first thing you notice is just how in sync all the brokers are with their trading activity. In fact, the only blip is Schwab's (SCHW) Q1 2009 trading bump. Otherwise, the firms tend to march along in lock-step. This is good because we will quickly see when someone steps out of sync with the others in future reports. We'll keep watching.


When we look at new accounts you start to see the first, uh... what's the word I'm looking for? Catostrophic collapse? No, that's two words. Anyway, whatever you want to call it, just make sure you notice that this chart measures new account growth, not total accounts, and that the scale dips into the negative. We do this so that E*TRADE Financial (ETFC) doesn't fall off the chart completely which might be, you know, a little embarassing.

TD Ameritrade (AMTD) only reports their new accounts on a quarterly basis, so their numbers roll along in three's. Still, you get a good sense for their performance relative to Schwab. The clear winner on an abosolute basis in Q1 is Schwab. We say absolute because any discussion of new accounts is not complete until you take a look at advertising spending which, coincidentally, we'll explore next.



Okay, so taking into account advertising spend we can safely say that Schwab is not only the absolute winner on new accounts but is also the relative winner when taking into account advertising spending. The firm actually underspent TD Ameritrade by $10 million in the quarter but generated 44,000 more new accounts than AMTD.

It is still shocking to us that E*TRADE spends as heavily as Schwab and TD Ameritrade to generate far fewer accounts. They need to realize that their approach is not efficient and not working. To help them come to this realization, we created the next chart.



The only point we'll make here is that E*TRADE lost accounts in the fourth quarter, so actually the bar should go to about $30 million, but we don't have enough pixels for that. We made a point of discussing E*TRADE's results here, if you're interested, but this chart puts their recent performance in perspective. By the way, TD Ameritrade spent about 30% more than Schwab for each new account, on average, each quarter. If E*TRADE doesn't get their act together we'll just drop them from this chart so you can see that.

Still like those super bowl commercials and that new baby?





Finally we look at total assets. As always, we must point out market performance. The S&P 500 gained about 43% during this same timeframe. We know that the growth in assets generally correlates to the growth in the markets, all else being equal. Schwab gained 35%, TD Ameritrade gained 52% and, surprisingly, E*TRADE actually gained 47% during the same timeframe. Though both AMTD and ETFC were working from a much smaller base relative to Schwab's nearly $1.5 trillion asset base. Given that, we declare Schwab and TD Ameritrade about equal winners in asset growth. We give E*TRADE a consolation prize for hanging in there.



As always we encourage your reactions and feedback to this round of data. It's the first round, so let us know what you would like to see in future reports.