Thursday, Jul. 07, 2005

New Game Plan

By Jyoti Thottam

After 16 years coaching football, Ameritrade CEO JOE MOGLIA knows comebacks. Once a dotcom disaster, Ameritrade has revived on his watch. It recently snubbed a bid from E-Trade and instead bought TD Waterhouse U.S.A., part of Toronto-Dominion Bank. Moglia spoke with TIME's JYOTI THOTTAM about online trading in the post-bubble era.

TIME You're a popular guy these days. Why all the interest in Ameritrade?

JOE MOGLIA Our performance has been extraordinary. In a difficult environment our market cap has grown by five- or sixfold. We have greater than 50% pretax margins. We've got a pristine balance sheet. We are 25% of the active-trader market in the U.S. We're a very, very attractive asset.

TIME Why did you choose to merge with TD Waterhouse over E-Trade?

JM Ameritrade is very, very strong in the active-trader space. The area we want to move into is the long-term-investor space, and TD Waterhouse is very strong in that.

TIME There were 150 online brokers in 2000, and there are only 95 now. How much more consolidation will there be?

JM Significantly more. Five years from now, I think there will be 40 to 50, and there will be three names that everybody's familiar with.

TIME So what changes will Ameritrade customers see postmerger?

JM Greater customization and choice. If you want a do-it-yourself online experience, you can have that. If you want to have a relationship with a branch, you can have that.

TIME Are you expecting layoffs?

JM There will definitely be layoffs. You can't achieve that kind of savings [an expected $578 million] without layoffs.

TIME This merger is paying a nice dividend to the Ricketts family. [Founder Joe Ricketts and his wife Marlene stand to gain $804 million.] I think he should take you out to lunch.

JM I agree.

TIME Has your industry grown up?

JM I think it has. All of financial services has. Things clearly did get a little bit out of hand [in the late '90s]. You cannot go through something like that without learning from it. You go out of business, or you learn. We're in business for a reason.

TIME How long before traditional brokers like Merrill Lynch are obsolete?

JM They'll never be obsolete as long as they have a focus on the client. They just have different businesses than what we are. The focus on the retail side of Merrill Lynch is truly the wealthy, person-to-person relationship. There's only so many people you can do that with. That's where an Ameritrade comes in. While the Merrill Lynches of the world go after the wealthiest of our society, the online brokers go after the mass affluent. There are 37 million households that have between $100,000 and $1 million in assets. Clearly the full-service firms can't come close to getting all of those. The online brokerages can. We have about 3.5 million clients. Our typical client has about $125,000 in investable assets, so it's very much part of that mass affluent market.

TIME Every other financial-services firm is pushing offshore outsourcing. Why do you keep call centers in Nebraska and Texas?

JM We're not in a San Francisco or a New York City, so the costs for us are very reasonable relative to the rest of the country. Plus, it's close to us, and we can control it. Having said that, if we thought it was best for our company longer term, we would do that. We would not rule it out.

TIME Your book Coach Yourself to Success advocates long-term investing. That's interesting advice from someone who makes his living off trading fees.

JM At the end of the day, it's not always in our clients' best interest to be trading a lot. The most underserved market in the United States is the long-term investor. Wall Street, frankly, charges an awful lot of money to give the impression that managing your own money is incredibly complex and sophisticated. It's just not that difficult.