Good day, everyone, and welcome to the TD Ameritrade Holding Corporation's March Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is President and Chief Executive Officer, Fred Tomczyk and Chief Financial Officer, Bill Gerber. At this time, I would like to turn the call over to Bill Murray, Managing Director of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone, and welcome to the March quarter earnings call. Please refer to our press release and March quarter earnings presentations, which can be found on amtd.com. The earnings presentation includes our Safe Harbor statement and reconciliation of certain non-GAAP financial measures to the most-comparable GAAP financial measures. Descriptions of risk factors are included in our most-recent financial reports, Forms 10-Q and 10-K. As usual, this call is intended for investors and analysts and may not be reproduced in the media in whole or in part without prior consent of TD Ameritrade. As is our usual custom, please limit your questions to two so that we can cover as many of your questions as possible. With that, let me turn the call over to Fred.

Thank you, Bill, and good morning and welcome, everyone. Well, we've now completed the first half of fiscal 2015 and we continue to execute well on our growth strategy, delivering strong results in trading, asset gathering and fee-based investment product. You can see evidence of the strength in many of the metrics included on slide three. We ended the quarter with average client trades per day of 477,000 and activity rate of 7.4%. Net new client assets were $16.3 billion, a 10% annualized growth rate and up 34% year-over-year. Client assets ended the quarter at a record $695 billion, up 13% from last year. Average fee-based investment balances were also a record $155 billion, up 16% year-over-year. Interest-sensitive assets were $101 billion, up 5% year-over-year and we earned net revenues of $803 million, down slightly from last year, but still our third best quarter ever. This resulted in our delivering $0.35 in diluted earnings per share for the quarter, which is flat with last year. Year-to-date we delivered $0.73 in earnings per share, up 4% year-over-year. Let's take a closer look at how the various elements of growth strategy contributed to these results starting with asset gathering on slide four. Net new client assets for the quarter came in at a $16.3 billion, a 10% annualized growth rate and up 34% over the same quarter last year. It is the second best asset gathering quarter in our history, second only to the December quarter. In fact, six months into fiscal 2015 we have gathered $35 billion, an 11% annualized growth rate and up 31% year-over-year. We continue to see strong performance from both our retail and institutional channels. The retail channel delivered its seventh consecutive quarter of year-over-year growth and net new assets. Efforts to further refine and optimize our…

Thank you, Fred, and good morning, everyone. Despite a continued challenging rate environment, we generated yet another good quarter on the back of strong trading volumes, double-digit asset growth, record fee-based investment balances and record client assets. However, challenges exist. One, the latest consensus view by economists is the first expected action on short-term rates by the Fed has been pushed to September 15 versus our originally-anticipated June 15. Two, the long end of the curve continues to trend downward, making it difficult to increase overall net interest margin. This resulted in our reinvestment rates year-to-date being 50 basis points lower and planned reinvestments are now forecasted to be 75 basis points lower than originally anticipated at the beginning of the year. And three, our mix of products traded and which clients are trading those products shifted this quarter. I'll discuss that in a moment. But we have many positive things going for us that contributed to our best six months to start a fiscal year in the company's history. With that, let's begin with the financial overview on slide eight. We'll start with the March quarter-to-March quarter comparisons on the left side of the page. On line one, transaction-based revenue is $350 million, our fourth best quarter ever, but is down $24 million or 6% due to both trades and mix. Trading levels were very healthy at 477,000 trades per day, a strong quarter, second only to the all-time record of 492,000 trades per day that we set in the March quarter last year. Our commission rate per trade decreased by $0.45 per trade, primarily due to both mix of products traded and more trading being done by active clients at lower price points, as well as lower equity shares traded per trade. Regarding mix, options were relatively stable…

We will now being the question-and-answer session. The first question comes from Patrick O'Shaughnessy, Raymond James. Please go ahead.

Hey. Good morning, guys.

Hi, Patrick.

Patrick.

So, what's your early read on the potential impact of the Department of Labor's Retirement Account fiduciary rules proposal? And I guess, specifically, as it pertains to your IRA business and as well as your institutional channel?

Well, at first glance, it's a very workable document. We really – I guess, for the RIA channel, we don't see any real impact, they already operate as fiduciaries. This is the best interest standard, which is slightly different. It's a little bit more technical. Having said that, when we look at this – when we look at our IRA business, basically, we would say, this is a workable document, it's a workable framework. And it appears that on the surface they've tried very hard to listen to all the input that they received. And we're not afraid of the best interest standard and we've always said that as long as it's only applied when you're giving personalized investment advice, which appears to be the way that it's written. Having said all that, the devil is in the details. It's a very complicated, long document and it's going to take a time for us to assess it and understand it. So, I wouldn't want to go any further than that. But on the surface, it looks very workable. But I think this one is – it's a very complicated document with all the conditions and exemptions and whatnot. And so, I think we need more time to work through it and also to make sure we understand what they're trying to say.

Got it. Thanks. And then for my follow-up, just taking a look at your repurchases for the quarter, down substantially from what you've the prior three quarters. Was that a function of you guys going to the market with your debt issuance or was that kind of a conscious decision of your to pull back on repurchases during the quarter?

No. At the beginning of each quarter, we set an algorithm. Bill and I sit down and decide what that is. And then, the shares either get bought or they don't. And in the past quarter when we set it – I forget what the stock was, but it was obviously lower, and just the algorithm didn't go off this quarter. As we come into the third quarter, the June quarter here, we'll revisit that algorithm for the June quarter.

Got it. Thank you.

The next question comes from Mike Carrier from Bank of America Merrill Lynch. Please go ahead.

Thanks, guys.

Hey, Mike.

Bill, just question on the expenses and I think you were saying that the $410 million, $420 million in terms of the near-term environment. Just want to get your sense, when you look at the healthy net new asset growth, the expenses that are kind of driving that versus if you continue to see some of the rate pressures continue or the DART seasonality pull back, where do you have some more flexibility if those line items come in maybe weaker than expected?

Yeah. Certainly, Mike. If the numbers aren't hit, sorry, the incentives obviously go down. We've had our best two quarters in the history of the company back-to-back in terms of new assets. So, obviously, that has been very positive in terms of impacting incentive results. But if both trading gets weaker and net new assets gets weaker, then obviously there will be a corresponding decrease in terms of incentive comp in the future quarters.

Okay. All right. And maybe just as a follow-up, Fred, the net new asset growth has been healthy, and you gave some stats on the retail side, in the RIA side. And I think we're starting to see more growth on the fee-based assets and revenues. When you look at the client demand for those types of products and maybe what you guys have done to try to invest or broaden that product suite, anything that you guys are working on that could continue to drive that 11% contribution to revenues higher over the next couple of years, because obviously it's an area that has a lot of interest?

Yes. I mean, we definitely – I guarantee you we have not run out of ideas to drive both those numbers higher. And the management team remains very focused on it. And a lot of the investments that Bill talked about, particularly in technology and, to a lesser degree, in sales, are very focused on opportunities that we see in the future. I think, as I've said at the last call, we look at the robo-advisors. We continue to believe you need a combination of person, but also leveraging all the newer technologies. So, we are building out our own view of what we learned from the robo-advisors and so there's a fair bit of investment going into that right now. We're also looking at our branch business model and how we could increase the share of wallet more on what we consider our private client – services clients and what we call our high-potential clients, so that we can gather more assets and annuitize more assets. So, some of it is going to be in the experience and the leveraging of technology and some of it will be in how we incent and how we interact with our clients with our frontline salespeople. And we have initiatives underway on both of those.

Okay. Thanks a lot.

The next question comes from Rich Repetto of Sandler O'Neill. Please go ahead.

Good morning, guys.

Hey, Rich.

Hey, Rich. How did you not get on first this time?

I've been in a state of depression, because the Bruins didn't make the playoffs. So, I've been slow at everything here lately. I'm kidding. Hey. So, I guess my...

No you're not.

Yeah, at least the Patriots won the Super Bowl, so I'll rest on that. So, I guess, my question is, on the cash that you've built up, you didn't do a lot of buyback in the quarter, as Bill mentioned. But you also raised the debt and it looks from what we discussed or you communicated, really only half of that was for the higher requirement at the options clearinghouse. So, I guess, you have cash built – excess cash from the debt raise. It looks like you've got excess cash from not doing a buyback, and I know you did the dividend. So, are you – can you talk about what you'll do with this excess cash and how you balance that with, I guess, the outlook for the year and stuff?

Really, the $750 million was primarily there for, I call it, the liquidity insurance policy. So, it's really we're going to keep it at the holding company. It is there for use by the broker dealers in case of particularly the two OCC and NSCC as they are going through their own liquidity requirement needs, and to address something that we would say is plausible, it's not crazy numbers, but we don't think it's likely, meaning we think we've raised enough money to handle it for a long period of time. But that is really 100% of what that $750 million was raised for. The excess cash that came in, in the quarter, obviously Fred talked about when we set the algorithm we'll continue to look at what the algorithm is for the June quarter and go accordingly. But those are – so I think that answers, I would guess, both sides of your question there, Rich.

Yeah. And Rich, I think DTCC is now starting to talk too. So, I mean, all the clearing organizations, the central clearing organizations are starting to put in what I would call more pro-cyclical liquidity and collateral call provisions. And so, we just want to make sure we've got plenty of liquidity. I think when financial institutions have issues, usually if you have capital shortage you can get through it provided you can get through the short-term liquidity is the important thing.

Understood. Understood. And I guess, my one follow-up would be, on the average commission, and you talked about energy futures being more popular in the mix. And I guess the question, has that continued? Because we saw – we're seeing they trended down a little bit in April. But has that futures been a percentage of the mix and then been constant? And then the follow-on to that is really, is there anything you can do to relieve the pricing on futures if it is such a lower price point compared to the other stocks and options?

To your first question, futures continues to be strong. So, that has not changed. And as you know, we look at this – it's interesting, when you look at this over 13 quarters, Rich, their 13-quarter average commission per trade is about $12.50. We've been at $12 before, in fact a couple of times during that 13-quarter average. So, it has happened and we didn't change anything in the quarter. We didn't notice anything unusual. This is all about mix of trades, but mix of the people trading, they're more active traders, and the lower shares per trade as we looked at it. With respect to futures pricing, we've also looked at that. And we're a premium-priced player relative to the competition in the markets and we don't really see a lot of room to move up. And so, I think it is what it is and it can happen, depending on the mix and mix of who's trading and the contracts and shares per trade, which does impact the base commission and the order-routing revenue. So, we'd love it to be $12.50, but there's nothing abnormal in our results. And we've looked at futures and all of our analysis tells us that it's additive, not substitutive. So, at the end of the day, this is about revenue. And our transaction revenues continue to do well and are in the upper half of our range, so we don't anticipate taking any action on anything at this point.

Okay. Thanks, guys.

Okay, Rich.

The next question comes from Kenneth Hill from Barclays. Please go ahead.

Hey. Good morning, guys.

Ken.

So, you guys had an RIA survey out to start the year. I think the RIAs noted threats from broker dealers promoting more fee-based services, which was their top threat. You had some nationally-branded RIA companies and do-it-yourself offerings. So, from your seat, kind of coming out of the conference earlier in the year, what do you feel is your best position to help these RIAs and what are you guys working on, I guess, more vigilantly to help them deal with these issues?

Well, we just came back from the RIA conference. We didn't -obviously the robo-advisor is a hot topic – but we have a clear position on that with the RIAs and it's understood. And then down market, below $500,000 or even below the $1 million type of client, we're going to annuitize assets. When we get to the $1 million-plus or even the $500,000-plus and somebody's looking for real true customized advice, then we will refer to the RIA. We've been consistent on that. With respect to helping them, the Veo Open Access platform makes available to them on nine different sort of robo-advisor offerings if they want to use them. So, we haven't gone out and cut unique partnership deals. We basically just give them the technology and the access. It's very much an open access platform. We have nine of them in there. There has been interest initially, but I can tell you at this point the take-up is pretty light.

Okay. I just wanted to follow-up then on net new assets, so great quarter for you guys. I know you gave some operating expense guidance here over the next couple quarters, but as you think about growing net new assets longer term, how are you thinking about positioning on increasing branches or even sales head count longer term to help, I mean, grow the net new assets at a double-digit pace?

If somebody would have told me we could have done this six-and-a-half years in a row when we started, I don't think I would have believed it, but we've done it. And I thought this year we couldn't do it, and here we are at 11% so far this year. It does tend to slow down a lot second half of the year. But where we are as a management team at this point will go into its planning cycle now for next year. And we've been pretty consistent that any of our investments all go into – basically it's going to be technology initiatives, because we do believe the world's changing, basically due to cloud computing, mobile computing, social media, data and analytics and we're investing into all – three of those four trends. The cloud we're not using as much, but the other three we're using heavily, and developing things to use them heavily. And second, has been either marketing and/or salespeople, and we will look at both of those. And we continue to see good opportunities. We're going to continue to invest in building our earning power, but it will be either in marketing, salespeople and/or technology. And we'll make that judgment and make those decisions over the next three to four months.

Okay. Thanks for taking my questions.

You bet.

The next question comes from Christian Bolu from Credit Suisse. Please go ahead. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker) Hi. Good morning, Fred. Good morning, Bill.

Hi, Christian. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker) Hi. Just a broader question on expenses. Fred, you've been – you've historically taken a very thoughtful approach towards expenses using things like Lean methodologies to contain expense growth. Are we done with this process here and, just generally speaking, the longer-term trajectory for expenses going to be higher?

We're not done. In fact, I think we have some bigger things we want to do that are going to take a little bit more time. Having said that, I think, as an organization, we need to get better at when we realize the – when we see the benefits – we need to start taking some more of them to the bottom line as opposed to just automatically having the organization reinvest them. And I would acknowledge that we could get better at that. But in terms of the benefit and the lift that we've seen from our Lean initiative, it's been very healthy. And the opportunities we see in front of us continue to be very good. But we need to get better at harvesting the efficiencies. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker) Yeah. Okay. And then, I guess, another question on fiduciary standards. Again, you've been a leader in terms of optimizing your call centers and making those call centers the front line of sales. In a fiduciary world, do you anticipate there could be some changes to the way those centers are run and could that have some sort of impact on kind of net new asset generation?

Start off with, I mean, we don't – with respect to the call centers, we don't – our initial read, even though we're still working through it, is that no, with respect to call centers, there's not a big impact. I do think we have to work through one detail where it may have an impact and that is where you're selling an IRA from a 401(k) rollover. And so, we're trying to understand that. It's not clear to us yet what that all really means. We're glad to see there has been exemptions for that, there has been exemptions for self-directed brokerage and things like that. And we're not afraid of being held to a best interest or a fiduciary standard when we make a recommendation. In our mind, that's just the way we operate. So, we're not as nervous about that. But, again, as I said, the devil is definitely in the details here and it's a very long, complicated document. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker) Okay. And just as you mentioned, the IRA rollover, how much does that contribute to your business today?

I'm not sure how much the rollover...

Top of my head, I can't – I don't have that number.

I don't have that one either.

Okay? Christian Bolu - Credit Suisse Securities (USA) LLC (Broker) Okay. Thank you.

The next question comes from Chris Harris from Wells Fargo Securities. Please go ahead.

Thanks. Hi, guys.

Hi, Chris.

Hey, Chris.

So, first question's on the outlook for IDA. You guys talked about guidance maybe migrating toward the lower end of your range. Kind of curious about where the yield could go from there. It seems to me that if it gets down to 1.10%, that's kind of right up against where the three-year LIBOR rate is. So, just not sure how we can frame up how much more maybe downside, assuming rates kind of stay where they are?

Yeah. I think that that's fair, Chris. I think the – I mean, it feels – I remember a few years ago I said I thought our rates had bottomed at like 1.56% or something like that and I wanted to take those words back every moment since. But it does feel as though we're hitting this – hitting a level. But as we all know, rates are negative some places in the world and we just have to see what the heck is going to go on here. But I agree with kind of your gut instinct.

Okay. A follow-up question and a broader strategy one, I think you guys were considering kind of taking a look at, perhaps, some modest International expansion. Just wondering if you could maybe comment on that, if there's any updates to those plans?

There's no significant update to that plan. We continue right now, as we work through our strategy, look for what we call dealing with our opportunities. We see International as an opportunity, but there's a lot of people that have failed at it. So, we want to make sure we've thought it through and we see it and we take baby steps before we take any major steps.

Got it. Thanks.

But we're not – at this point, we haven't made a final decision and we are going to be – but we will make some decisions before the summer is over.

The next question comes from Alex Kramm from UBS. Please go ahead.

Hey. Good morning, everyone. I know it's a difficult area to touch on, but securities lending, sec lending, so anything you can give us a little bit more color on in terms of – obviously, it was down in the quarter, benchmark suggests that, but maybe a little bit more. So, maybe give us a little bit of an update, like where the concentration lies and why it declined. And then also what you're seeing so far this quarter? And again, I know it jumps around.

Yeah. Alex, this is, as I think I've said specifically, I think, singularly the hardest thing to forecast for the entire year, because we just don't know what's going to be shorted, and et cetera, et cetera. So, it's very difficult to give a lot more color than that. Sec lending has been strong. For the first six months, it's been very strong. Obviously, the first quarter was stronger than this quarter. But it feels, again – and a little bit similar to Chris's question a second ago, it feels like we're kind of in a zone right here that what we had this March quarter will probably be a closer run rate for the next couple. Again, that's just my gut feel. We'll have to see.

All right. And then just following up on the interest rate sensitivity. I mean, obviously, some questions just now about IDA, but I mean you have this guidance up there in terms of the EPS impact from higher rate, and I think there has been some questions, in particular this quarter, during the quarter in terms of what a flattening yield curve will do. And I think you made some comments at an event that even in a flattening yield curve, you'll still get like 90% or so of the upside that you've laid out. So, maybe you can just talk a little bit more about how we should be thinking about different environments and the flattening yield curve if that's what really is playing out and why you still get some of that upside maybe on the brokerage balance sheet? Thank you.

Sure. The hard part with this is which way the yield curve going to flatten, is the short end coming up or is the long end coming down, and worst of those two is the long end coming down. We certainly are more sensitive to the shorter end of the yield curve. So, worst-case scenario, longer end comes down, yeah, that's going to be difficult. But with the nature of how the calculation works, particularly in the IDA, we do benefit from our spread there. But the amount where we will certainly see the benefit or the things that bolster all in that interest income, of course, margin loans have been all-time high. Seg cash is pretty good, et cetera. So we've got other things that net out what's going on in the IDA part of the equation, but the IDA specifically, if the long end comes down, that's the hardest part for us to fight through.

All right. Very good. Thank you.

You bet.

The next question comes from Alex Blostein from Goldman Sachs. Please go ahead.

Thanks. Hey. Good morning, guys. A quick question, I guess, on the competitive dynamic in the space and, specifically, as it relates to the margin lending side of the business. It looks like the rate has come down a little bit. I think you guys alluded to that in the prepared remarks as well. Can you just help us understand, I guess, a little bit what's going on? Is that people getting more aggressive in anticipation of higher interest rates or this is just more one-off this quarter?

Well, if you look at our growth, our margin balances are at record levels and where more most of the growth has come from is our clients that have over $1 million dollars of margin debt. And in that space, you're negotiating. So, all you're seeing is the mix shift here. Just like our trading, more of our trading is coming from the active trader pool, more of our margin debt is coming from the active trader pool. And in that group, you typically have negotiated rates both on trades and commissions.

Got it. Great. Thanks.

The next question comes from Chris Allen of Evercore. Please go ahead.

Good morning, guys.

Hi, Chris.

Hey, Chris.

Most of my questions have been answered. I guess the one, you noted earlier that retail assets coming in. You've seen some higher-quality accounts. I'm just kind of curious where you guys are pulling these accounts from. Are they coming from wirehouses or other places, or maybe bank retail branches or...?

Well, I think as much as anything, Chris, what's happening is we used to be focused – our marketing department was focused on just acquiring accounts and it measured itself and managed itself on accounts. The incentive systems were designed on accounts. And that's been a historical thing for the online brokerage business. And this year, we shifted them all to be on assets. And we've now started to measure the quality accounts and focus in more on the quality accounts. So, they've changed where they're advertising and what they're advertising, and it's just driven a higher account. We continue to get business from the wirehouses, the independent broker dealers and it continues to come from the same sources. But it's really much more of a strategic shift in our marketing department and where they're marketing and what they're marketing.

Thanks. And then just a quick one on the fiduciary topic, do you think this creates any opportunities for Ameritrade that may potentially further accelerate the trend towards the RIA channel? Just kind of curious if you see any kind of competitive dynamics that could work in your favor from this?

We continue – as we said before, it's a workable document from our perspective. It's much better than I think many had feared. We agree with the best interest standard, we don't have any issues with that. I think the devil here is all in the details and it's going to take a while to work through that. I don't see where it hurts the RIA channel. If anything, it might help it. But I think the reality here is it's a very long, complicated document and we've got to work through the details and make sure we understand it.

Thanks a lot, guys.

The next question comes from Joel Jeffrey of KBW. Please go ahead.

Hey. Good morning, guys.

Hey, Joel.

I think in the past you've talked about the activity levels of your mobile traders being a bit more than what you see out of your standard traders. I'm just curious, I mean, do you see that continuing? And then, do they trade differently or, maybe better said, are they trading sort of different products in terms of derivatives or options? Are they more likely to trade those than they are equities? Any kind of color would be great.

Yeah. No, we continue to see trends and all of our analytics tells us that when people go from having a desktop platform to a desktop and a mobile platform, they trade more. I think the last time we talked about it was 0.75 trades per month, and we expect that as this gets bigger and bigger, it will come down a bit. But we have noticed that – we have definitely noticed that they do trade more and we don't notice any discernible difference between what they trade.

Okay. Great. And then just lastly, I apologize if I missed this before, but the decline in cash as a percentage of total assets, is this continuing to be driven by the increased net new asset growth from the RIA channel?

There's a bit of mix. I think when you're looking at it quarter to quarter, I think as I look through everything, Joel, I mean, we're at six-and-a-half years of an up market. You're seeing margin balances at record levels. You're seeing lots of net buying activity. You're seeing client cash as a percentage of assets down. You've seen the IMX basically arise. It's a little softer right now. It's just we've never had seven years of up markets. It has been my personal opinion, it's much more – it's just everybody's in right now. We've got a lot of monetary stimulus in the system. Everybody is in the equity markets. And I just hope as this all comes out, I've said this is going to be volatile and it's going to be choppy and we'll see how this plays out. But it's a little bit mixed, but it's more just, because we're low points on both retail and institutional in terms cash as a percentage of clients assets, it's mix a bit, but it's both channels are the same. They're at lows we haven't seen for a long time.

Great. Thanks for taking my questions.

The next question comes from Bill Katz of Citi. Please go ahead.

Okay. Yeah. Thanks so much for taking the question this morning. So, Fred, as you think about the business, where you are today, maybe the industry at large, I wonder if you could talk a little bit about the dynamic between growth and margins, because it sounds like the growth opportunity's still there, but it also sounds like there's a fair amount of spending to go yet, both for you and some of your peers. So, when you think about – so the ultimate question is, what do you think the right margin for the business is, assuming rates stay flat or if rates were to actually normalize over the next several years?

That's a loaded question. I mean, the way I think about this business in the long term is you have to have a growth orientation. I mean it has very high marginal economics. So, you basically – if you don't have a growth orientation, you're just at the vagaries of the market year-in and year-out. And when it comes down, you can't possibly cut fast enough to make it up. So, I think, on any organization, in this business, you need to have a growth orientation, number one. Number two is I continue to believe that all of the long-term secular trends are in our favor, that the industry is very well lined up with the trend toward technology, the trend towards the RIA channel and the trend towards more people getting more self-directed and wanting to get more active in their investing and trading. So, I think all that's there. So, if you have that kind of a profile and you're lined up well with those, I think you have to have an orientation towards growth. In terms of investing, I think that's why you're seeing it, because I think – I don't think any of us – all of us are focused on growth and all of us see opportunities and maybe slightly different opportunities given where we are in terms of where we ought to make those investments and changes and why. Third, in terms of margins, I think right now we're running close to 40% for the year. I think that's not a bad number for us, if interest rates stay where they are. And when we look at our NIMs, they're moving inside a very narrow range right now. In a rising rate environment, you can see margins go – definitely go north of 50%. As I've said in the past, I think our job is not to drive our pre-tax and EBITDA margins to 60%. If you're getting 50% returns or margins and you're getting very good healthy return on equity, particularly for someone like us who has a capital-light business model, it should be about driving growth more. And so, we will have a preponderance to invest as interest rates rise to just keep the growth up. We're very proud of the growth we've had every year, I can't believe we're going to keep it up another year and every year the management team comes up with enough ideas and actions that does it. So, you should rest assured we're very much remained focused on that and remain focused on growth.

I guess, just last question is – for me is just your asset growth has been strong and you mentioned you're gaining some scale in technology and maybe incentive for your sales staff. But just a two-part question, one is where is that growth coming from? I didn't quite understand what you said before. Is it just coming from market share or just expansion of the opportunity? And then, secondly, could you talk a little bit about the cost of the acquisition in the RIA channel and what the competitive dynamics are?

Well, the RIA channel is just – the cost of acquisition is much more about acquiring the advisor. And then when you get into that, you are getting into some help in the first year to make the conversion. We haven't seen that it's been competitive, but we haven't seen it change more recently. I think we just haven't seen a change there. We continue to see that our approach – our technology and our service and our approach to sales continues to work very well and resonate. We get very high marks in the RIA community. Our current technology platform is differentiated. We're continuing to invest to actually move that along even further, because we don't want to sit still. But the assets are – they're coming from all the same places. I mean we continue to – as I've said in this business from day one, our job is to disrupt the full-commission brokerage model, whether that's at the wirehouses or at the independent broker dealers. And it will vary from time to time where it's coming from. But we just think we have a better business model on both the retail side and for the producer in the RIA side where it's at the higher end of the market. But we have moved up market in the RIA channel and with some of our strategy and thinkpipes and those types of things have started to appeal to a bigger RIA.

Okay. Thanks for taking my questions, guys.

The next question comes from Chris Shutler from William Blair. Please go ahead.

Hey, guys. Good morning.

Hey, Chris.

First, I was just wondering if you could give us a rough breakout of the NNA between retail and institutional and maybe compare that to the last 12 months.

In the quarter, it was about two-thirds institutional and one-third retail. If you went back over the last 12 months, it'd be more like 70% institutional, 30% retail.

Great. And then secondly, just a lot of moving pieces in the model, I mean volatility is clearly good for trading. Maybe would – it probably would increase the cash in your account as well. It would probably be happening if you get an increase in interest rates. On the flip side, down markets might result in lower margin lending and fee-based business. So, really just wondering what, in your view, Fred, is – what's kind of a perfect environment for you going forward? Maybe that does seem like the short end is probably going to move up and maybe get a little bit of a flattening here. So, just wondering how are you thinking about the – what would be a really good scenario for TD Ameritrade from here?

I mean, the best scenario right here would be to see a modest correction and some volatility with interest rates rising. Would be – if you had a 5% or 10% correction and then basically the markets were choppy because the Fed was going to change the Fed funds and it did, in fact, after six-and-a-half years increase Fed funds, with a generally underlying bullish trend, like if it went down and then started to come back up, that's a perfect environment for us.

Yeah. Okay. Thanks.

The next question comes from Brian Bedell of Deutsche Bank. Please go ahead.

Hi. Good morning.

Hey, Brian.

Brian.

Most of my questions have been asked and answered. But maybe if you could just talk a little bit more about the active trading segment as we move into the second half and then, more strategically, going forward in terms of your initiative to grow that segment, where you see the mix of trading being done within the active segment between futures, options and cash equities? And then, do you see more pressure on the margin-lending yields from that segment or from the RIAs?

Okay. Geez, you got a lot of questions in there. Let me just see if I can handle them all.

(58:08).

On the active trader space, anybody that's an active trader and goes through our education programs is going to be more focused on options. And this current market futures is just – I think the way the education all comes is you will focus more on derivative trading. And you will do multi-legged trades, and so a lot of spreads and things like that. And I think the futures space, it's not that we've done anything unique. I think we just happen to be having to build it out and being in the right place at the right time, which is how this business works. It's important that you have a broad array of products so that traders can trade in any type of market. And in hindsight, building up the futures turned out to be very prescient. Basically, we were in the right place at the right time. We built it out – price of oil fell 50% – you're going to shift to futures. So, I think that there will be more derivatives than cash equities. The best thing we can do with active traders is make sure they're using a mobile device. They can trade anywhere, anytime they feel like it. And keep in mind that futures market is a 5x24 market, so you can have trading in the middle of the night. With respect to margin balances, yeah, I would say, no, it is more the $1 million retail client than it is the institutional client. The institutional side uses some margin, but not as much. It's much more at the high end of the retail market.

Okay. Okay, that's helpful. And then maybe just lastly on the – maybe Bill, I think I may have missed the IDA yield expectation in terms of the rate that you're thinking about for the second half that's driving the 75 basis points lower reinvestment?

Yeah, I think, Brian, there's not a lot of money that's rolling over in the second half of the year, but it is obviously below what we had anticipated at the beginning of the year. We are looking at the – I think, all in – we're going to be trending toward that or near that 1.10%, to Chris's earlier question. So, I would say that that's probably a decent rate to look at. If it's below that, it's not going to be materially below it.

Got it. Okay. Thanks so much for taking my questions.

You bet.

The next question comes from Steven Chubak from Nomura. Please go ahead.

Hi. Good morning.

Hi there.

I was hoping that you guys could elaborate on some of the commentary that you've given, I believe, Fred, there was a comment you'd given earlier concerning the secular shift towards more futures versus options. Specifically, if we see a decline or waning volatility in the energy space, would you expect to see some of the activity actually return to higher commission options or is the increased trading in futures, as you said, secular, which could drive permanent rebasing in that blended commission rate?

No, I would say that the shift towards futures is cyclical, not secular.

Okay.

And I would expect that if oil prices rose here and stabilized, you would see somewhat of a – I don't know how much – but somewhat of a shift back into the options space.

Okay. Yeah. I just wanted to clarify that. So, thanks for that, Fred. And just switching over to spread balances, the current growth trajectory, just in terms of balance growth, suggests that you could fall short of the lower end of your 2015 guidance. And given some of the earlier commentary, I believe it was in Joel's question, on sources driving that reduction in cash as a percentage of client assets and the remixing towards more institutional money, how does that inform your outlook for spread balance growth longer term? And I guess, in that same vein, are you still committed to that 13% to 18% cash level as a percentage of client assets that you alluded to last quarter?

Well, we don't see the year coming out at the lower – below the lower end of guidance range, I guess. We've said in the lower half, but not the lower end. I mean, there is – first off, and I'm talking overall.

Okay.

We haven't seen client cash as a percentage of assets at these levels in a long time. As I said, I think this is more just we're at the end of a six-and-a-half year up market. Margin loans are at records, client cash is at low levels. Net buying activity is at levels we haven't seen. And so, you just – I think you're in the latter stages of a very strong bull market here from after a pretty severe financial crisis. So, it is what it is here and you've got a lot of monetary stimulus in the system. I think most investors don't know where to go right now, but they're going into U.S. equities, viewed as the best risk/reward right now. One day that'll change. Anybody that can predict that when that is, let me know.

No. Certainly, fair enough, Fred. Thank you for taking my questions.

Okay.

Our last question comes from Devin Ryan of JMP Securities. Please go ahead.

Hey. Thanks, guys. Good morning and appreciate for squeezing me in here. Just a quick follow-up here on mobile since it's been a nice story. Can you guys give any perspective around how much of the client base is currently using mobile and driving that 15% of DARTs? Really, how has that trended? Meaning, has the improvement in mobile activity been driven more by greater adoption rates versus just existing customers using more? Is it the same mix as the overall kind of the customer base? And then, if you just look out over the next couple of years, kind of where could that go, because I know that this has been additive for you guys?

Well, if you take out – if you project it out over the three years to five years, based on current course and speed, we would say that mobile will take over from desktop in that period in terms of log-ins and trades. Now, normally, it starts to slow, the bigger you get, the harder it gets. But there's no question and there's a significant shift going on towards mobile. And where it's coming from? It's coming from both existing clients, but it's also coming from new clients that are using mobile-only. And the interesting thing from our perspective is we notice, when you have both is when that's the sweet spot. And I've seen this in other parts of retail financial services. It's the clients that are the most active use all your channels, not one of your channels. And so, basically, we're pretty focused on cross-selling it into our existing clients, but also making sure we have good applications that you can open an account on mobile, which is not always the easiest thing to do, as you do have to simplify it down.

Great. Thanks very much.

Okay.

This concludes our question-and-answer session. I would like to turn the conference back over to Fred Tomczyk for any closing remarks.

Well, thank you and thanks to everyone this morning. As you can see the things we can control, whether it's asset gathering, trading levels, adoption of mobile, which that was a big topic today, and annuitizing assets, we continue to do very well. We're focused on our expenses right now for the last couple of quarters now that we've gotten through the tax season and the surge of the year. And then, we're very focused on setting ourselves up for 2016, but also finishing up. As Bill said, we're only six months through the year. We've got six months to go, and that's not lost on any of our management team at this point. We want to finish off the year strong and set ourselves up for a good 2016 and we'll see you in July when we talk about our June quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.