TD Ameritrade Deal: A Peek at Where Broker 401(k) Money Goes

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By David B. Brandolph

Nov. 3 — Ever wonder where your broker invests his or her 401(k) contributions? A Bloomberg BNA analysis of the plans of online securities brokers TD Ameritrade Holding Inc. and Scottrade Financial Services Inc., which recently announced a proposed $4 billion merger, gives clues to answer that question.

If the merger is approved, Scottrade’s 401(k) plan will be combined with TD Ameritrade’s in January 2018, Katrina Booker, a spokeswoman for TD Ameritrade, told Bloomberg BNA in a Nov. 3 e-mail. “While there are a few minor differences, associates (post close) will be transitioned into the new plans with no interruptions,” she said.

Both TD Ameritrade and Scottrade operate a business model that offers a smorgasbord of investment options to their customers. It makes sense that companies dealing with investments would know a thing or two about investing.

To see where the 401(k) money of these companies is invested, Bloomberg BNA examined the Form 5500 that each company’s plan filed with the Labor Department.

Both plans offered 401(k) options from household name fund companies as well as lesser-name investment firms. Participants for both plans concentrated their investments in funds offered by the Vanguard Group and T. Rowe Price Group, particularly target-date retirement funds offered by the latter.

Vanguard found that target-date funds are quite popular in 401(k) plans. A Vanguard survey of defined contribution plan sponsors it serves found that, as of the end of 2015, 90 percent offered target-date funds to their plan participants.

Concentration in T. Rowe Price, Vanguard

Scottrade’s 401(k) plan reported that as of Dec. 31, 2015, it had total invested assets of about $231 million, including more than $195 million held in mutual funds from 12 mutual fund providers. The mutual fund total included nearly $54 million in target-date funds. The plan had 3,585 active participants.

Plan providers included such household names as Fidelity Investments, John Hancock Investments and American Funds from Capital Group. Participants concentrated their investments, however, in funds from Vanguard and T. Rowe Price, where they found more core offerings. The Scottrade plan also gave participants the option to select funds from lesser-known investment houses such as Harbor Capital Advisors, Cohen & Steers Inc., Eagle Asset Management, Ivy Investments and Victory Capital Management.

TD Ameritrade’s 401(k) plan reported that as of Dec. 31, mutual fund assets totaled more than $551 million, including $170 million in target-date funds. While the plan reported substantial investments in Vanguard and T. Rowe Price funds, participants also had significant investments in more obscure fund companies such as Primecap Management Co. and Dimensional Fund Advisers. Participants had smaller investments in funds from Lazard Asset Management, Loomis Sayles Trust Co. and four others. The plan had 5,851 active participants.

Target-Date Use Muted

Target-date fund participation at the two online brokers appears to be lower than at many other companies.

Vanguard found in its survey that nearly 70 percent of participants use target-date funds and 62 percent of participants who own such funds have all of their plan money invested in one target-date fund. Almost half of participant contributions were earmarked for target-date funds, Vanguard said.

Both the TD Ameritrade and Scottrade plans offered target-date retirement funds to their participants from T. Rowe Price. TD Ameritrade participants, however, were slightly more likely to invest in them than were Scottrade participants. TD Ameritrade reported target-date fund holdings of about 32.5 percent of total mutual fund investments and Scottrade reported target-date holdings of 27.5 percent of mutual fund investments.

To contact the reporter on this story: David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

TD Ameritrade’s Form 5500 filing is available at http://src.bna.com/jNm. Scottrade’s Form 5500 filing is available at http://src.bna.com/jNn.

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