AMTD IDEA Group (AMTD) Q2 2019 Earnings Report, Transcript and Summary

Good day everyone and welcome to 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, Tim Hockey; and Chief Financial Officer, Steve Boyle. An audio file containing Mr. Hockey's and Mr. Boyle's comments on the quarter can be found on the company's corporate Web site, amtd.com, under Investor Relations.

We do have a question from Devin Ryan with JMP Securities. Please go ahead. Your line is open.

Great. Good morning, guys. How are you?

Good, thank you.

Good.

Good. I guess first question on some of the moving parts in NNA in the quarter just given little bit lighter results. May be if you could just go a little bit deeper on some of the key areas of Delta from the prior quarter in both retail and institutional? I know you cited less investor engagement and a little less RIA movement. But it didn’t seem like we saw maybe the same degree from some of the peers. So it makes sense that that would be a driver, but just curious if you can go a little more deeper and what gives you confidence that that could recover?

Yes, sure. I’ll take a stab at that. And we tried to actually give a little bit more color probably a little deeper than we normally do in the prepared remarks, Devin. But look, if we look at the first quarter given our business model and mix, we saw a pretty significant outperformance, if you will. So we sort of combined the two and say, what does it feel like relative to the industry on a year-to-date performance. So 8% annualized year-to-date is the number that we look at. If we double click onto this past March quarter, then if you split it between retail and institutional, we did give you the color that institutional we saw the conversations with both prospective and RIA clients about moving more money over what was frankly pushed back a little bit as a result of conversations with their clients. And the good news is we’ve seen some of that trend diminish now, certainly with markets now reaching new highs. And so the pipeline seems to have picked up a little bit. On the retail side, similar trend. We saw a very strong quarter for our more recent trend in the December quarter, and then March was soft again because of sort of reaction from the markets and now we’re seeing a resurgence in the pipeline. So our sense is, this is a one-quarter anomaly, mostly driven by the effect of the market at the end of 2018, and we’re feeling pretty good about the future. Steve, anything else from your point of view?

No, I think that’s great, Tim. Thanks.

All right. I appreciate. That’s great color. And just a follow up on the Asia opportunity. I know you guys kind of touched on it briefly in the Q&A. But maybe talk a little bit more about what’s new in Asia. You’re scaling in Singapore and Hong Kong, but do you have any timetable on Mainland China, and whether it’d be potential partnerships with technology firms like WeChat like you have in other regions like in the U.S. or partnerships with retail brokerages in the region? I’m just curious if there’s anything else on the partnership side that may be looming here?

Well, okay. So clearly Asia is a growth strategy for us. And as we’ve alluded to, many of the partnerships that we’ve established here in the United States, these aren’t United States based companies. So there’s clearly relationships and discussions that are going on in Asia and in Mainland China as well. There’s a lot of work going on, nothing Nothing that we’re ready to announce just yet, but we’re building up in preparation for – let’s just call it an expanded growth curve once we get these capabilities and these partnerships cemented.

All right, terrific. Look forward to it. Thank you.

Thank you.

Next question comes from Chris Harris with Wells Fargo. Your line is open.

Thanks. Hi, guys. So wanted to ask you a question on the cash balances. A good bit of cash is now in purchased money market funds and that’s coming at the expense of the BDA balances. Have you guys given any thought or considered ways to monetize the balances to a greater extent that are in money funds? I guess one of the options available to you is to create your own money market fund product, but I didn’t know if there were other options that are potentially under consideration.

Yes. So, Chris, we did see that as you noted. It did come down pretty significantly in this quarter relative to the prior quarter. And we do get paid on most of those funds that are moving either to sweep or to purchase money funds. We receive remuneration for that. So it’s a positive for us. It’s obviously not as much as we earn if they were swept to deposits, but we’re still keeping the money in-house and we are earning on them.

And in terms of, Chris, the product development side, we’re always looking at what options our clients would like to have available to them, and when it makes economic and strategic sense for us, we’d look to do, but But we wouldn’t preannounce it on the call.

Okay. Thanks for that guys. Just a related follow up. Would you consider offering a more competitive interest rate on less transactional cash balances to help support the BDA or is that not really under consideration at this point?

The nature of our business is that we think of the vast majority of the cash on hand as, call it transactional ready for the next opportunity to invest in. And so we found that the deposits themselves are generally quite sticky. When they’re not, we have tiered interest rates to accommodate clients looking for yield. And as a fallback obviously we have other products that are available to them. So again, it’s all on this continuum of what are clients thinking about in terms of the uses of their cash and how interested are they in keeping it. They’re powder dry for a trade versus searching for yield, and as you know, that’s an ongoing interesting discussion to have relative to the yield environment. With the yields now seeming to and interest rates now seeming to have topped out for a period of time, it’s one of the reasons why we think the cash shorting is maybe topped out or abating now.

Okay, great. Thanks, guys.

Your next question comes from Richard Repetto with Sandler O’Neill. Your line is open.

Good morning, Tim. Good morning, Steve.

Good morning.

Good morning. So the question is on marketing. We didn’t see the typical 20 million to 30 million quarter-over-quarter increase that we’ve talked about prior. So the question is, was that sort of an intra-quarter decision and you talked about lower production and lower R per spend. I’m trying to understand what that actually means? And then there was no change even though you said it could be at slightly below the annual guidance range but there was no change to the overall expense guidance. Just a little color on that.

Yes, so specifically on marketing call it two forces. We like to hold our Chief Marketing Officer accountable to. The first one is to make the efficiency of spend constantly improve, and then there’s the market environments inside the months and the quarter. And so, you’ve heard us say in the past when there’s a high degree of retail engagement that we’d like to fish while the fish are biting, and that means we up our advertising spend to react to that and we can turn pretty much on a dime on that front. The same is also true and the opposite is also true I should say when retail engagement diminishes a little bit, so we pull back and that’s probably what you saw. Yes, it’s a little – yes, an increase, but it was a little less of an increase you would expected in the March quarter. And so, we will calibrate the spend overall relative to the environment that we’re in, but knowing that fundamentally the longer-term driver is to get more and more efficient with every dollar of spend for accounts which has been the long-term trend.

Yes. And when we say production we mean creative costs,.

Yes.

So media spend less impacted the overall advertising spend.

Understood. Okay. And then my follow up would be my favorite topic, Tim, on the revenue synergy side. Any update there? You did mention something about Scottrade in the options – the increase in derivative trades and I know that they were well below Scottrade on the options trade was well below the percentage that Ameritrade had. Any color on the improvement there or revenue synergies overall?

Yes, I’d say just as we’ve talked about the last few quarters since the integration, we’re very pleased at the level of Scottrade revenue synergies. We said 300 million plus in five years, and it feels like we’re about a third of the way there already in terms of sort of macro numbers. Some additional color, yes, it comes through with much of the trading activity that’s easier. The wallet share, wallet penetration is just a slower thing and we’re actually seeing that in our conversation about NNA, for example. You’ll remember, the Scottrade clients all of a sudden had a bunch of different new locations, new staff members, and new systems to get introduced to. We did the integration about a year ago now, but they were only what we call the reseeding which means reintroduced to their new branch and staff and that only happened about six months ago. So that sort of wallet deepening exercise is always a longer-term thing, but the overall numbers are great and the economies so far and the revenue synergies are coming up very well.

Okay, great. Thank you. Thanks for the info.

The next question comes from Michael Carrier with Bank of America. Your line is open.

Hi. Thanks. Good morning.

Good morning.

Steve, maybe first question just on the expenses, you mentioned just given the weaker backdrop in the quarter, it looks like it’s continuing in April. Just what are some of the levers that you have or maybe in this for another quarter or two , particularly on the trading side? And I think you mentioned still looking for like positive operating leverage and I think in the past you mentioned like 200 basis points. So just wanted to get an update there. Do you feel like you can still generate that in a lighter revenue backdrop?

Yes, great question. So we are committed to a positive operating leverage even as revenue growth diminishes. We have seen a little bit of weakness here and so we are sort of turning the ship on expenses. And so, I think we talked to and gave guidance this year that sort of a normal expense year would be 2% to 4%. This year we might have been more 4% to 7% as we did incremental investments. I think you’re going to start to see some of those investments payoff. That will start to drive our expenses lower. And then some of the discretionary spending and whatnot, I think you’ll see us tighten up on. So we would expect gradually to reduce the rate of growth over time and probably next year to be more in that 2% to 4% range. So, we are quite conscious of it and driving it down slowly over time.

Michael, if I can just add on. You’ve heard us say this before. We’ve had the benefit of very strong revenue growth, very positive revenue tailwinds, interest rates, taxes, et cetera, et cetera. So all of those have been helpful to allow us to invest over the last couple of years amplified by the additional efficiency we’ve been getting our tax spend. So it’s been a great opportunity for us. As revenues slow, the team here knows very clearly that we will operate under an operating leverage paradigm. On the other hand, relative to the other businesses that I’ve run in the past, the nature of the volatility in revenues, trading levels, et cetera can be call it more volatile in this business than others that I’ve run. And so, I don’t want to have a fire drill type exercise where people try to have hit operating leverage of 2% exactly every single quarter. That would drive frankly dumb decisions about cutting projects that are close to completion, et cetera, et cetera. So as revenue curtails over the next couple of quarters, we will bring this down and the team has the message, but it’s a very firmly held paradigm, but it’s over a fewer quarters as opposed to just every single quarter obviously.

Right, okay. That makes sense. And then maybe one follow up just on the interest rate sensitivity. So you guys included both the positive 25 basis points and then the potential cut by the Fed which I think is helpful. Just wanted to get some context around I think the range was maybe easier to 75 million, so obviously a wide range. But just what kind of goes into the low end versus the high end? And hopefully we’re not – things are getting a little bit better so we don’t have to go through that anytime in the near term, but just want to get your thoughts there.

Yes, great question. We have a decent amount of flexibility on the sensitivity. And if we do get a rate cut at some point in the future, obviously it will be a different environment than we’ve had for a while. We don’t do this in a vacuum. We do pay attention to what competitors do and we’ve seen in this cycle that competitors have been pretty rational on pricing. So the range that we gave, essentially the high end of the range would say that we sort of replicate – we reverse the betas that we had on the way up, on the way down. We don’t get hit too badly because we do have a lot of our investments in fixed which is hurting us a little bit today but will obviously help us if rates go down. And then the more positive number would say if we aggressively bring rates down or we lag on our margin rates on the way down a little bit that you could see a much lower or even no impact due to declining rates. So that will be a game time decision, but we do have a fair amount of flexibility there.

Okay. Thanks a lot.

Your next question comes from Bill Katz with Citigroup. Please go ahead.

Okay. Thank you very much. I think you mentioned in some of prepared commentary last night that you could be at the low – below the low end on pricing within the commission business – trading business, excuse me. So wondering if you’ll reflect to that a little bit. Is it a function of mix? You also mentioned pricing as well. Just sort of wondering where you’re seeing the incremental pressure?

Yes, I think it continues to be a pretty competitive environment, so we feel pretty good about headline rate that seems to have calm down a lot, but there is still a lot of hand-to-hand combat out there. We’ve increased the sophistication of our negotiation tools where we’re working on a customer-by-customer basis. But if we need to save good customers, we are continuing to negotiate. So we do think there’s going to be some continued albeit moderate pressure on commissions going forward.

Okay. And just as a follow up, I’ll just come back to expenses for a moment. Just trying to make sure I understand the dynamics a little bit better. I think I read last night that on one hand you sort of feel like there is the opportunity for operating leverage but on the other hand I thought the guidance was that your next couple of quarters could look like this quarter, ex the ad spend. So is sort of the second half of this fiscal year sort of baked in and where the operating leverage would build would be 2020 as the pace of growth slows or is it a little more flexible in the second half of this year as well?

I think our comments were relative to today’s situation and I think to the extent that we see additional weakness that’s unexpected, we do have some levers to pull there. But to Tim’s point, we think it got to be a gradual grind down and the bigger impact will be on 2020 expenses that are on expenses for the rest of the year.

Okay. Thank you very much.

Your next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Hi. Good morning. Thanks for taking the question. I saw recently that you guys recently announced the decision to I think sell or exit part of your retirement plan business. I’m just wondering if you could talk a little bit about what specific business that is that you are exiting or selling, at least talk about what the proceeds might be and how you think about redeploying that as well?

Yes. So let me start and Steve can talk about the economics. This is a business that is what we call retirement TDARP, TD Asset Retirement Plan – actually Ameritrade Retirement Plan I should say and it’s something that we had been sub-scaling. It was a bit of a bolt-on. It was something that we want to continue to be able to offer to our RIA clients. But when Broadridge came to us and made an offer because they are a much larger player to be our supplier inside that stack, we thought this is a great opportunity to focus on the business a little bit more. So there are really two parts to the business. So one was business with third party administrators and that’s a part that we sold. We’re remaining in what we can TDARP which is our business providing retirement plans for RIAs and we are going to have Broadridge help us with some of the backend servicing on that. But that’s still going to be available to our RIA clients. So it was really just creating a little bit more focus within the business on what we think is core to our future. And to your point we do expect a small gain on that and we’ll talk more about that in the coming quarters as that comes to a close and what we plan to do with the proceeds there.

The way of think of it is we’re still in the business. We’ve just outsourced the custody at a cheaper and a more efficient level. And so we think this is a great way to redeploy our own internal assets to something that is more on point and to partner up with Broadridge given they’re good at the back office end.

Got it. Okay. Thanks for that. And just a follow up on your stock plan business. I saw you also made some recent moves, partnerships this past quarter there, if you could just talk a little bit about some of those recent initiatives there? Maybe a little bit of color about your stock plan business today, how big it is? How you’re thinking about the opportunity set? And then also related to that, curious your views around the opportunity set with private companies, private shares, opportunity for helping broker and provide liquidity to firms that are staying longer in the private markets and the opportunities that you see there for stock plan?

Yes. Thanks. Honestly, we’re a bit surprised with our announcement about our new relationship with Certent went out this past year. It’s been a bit of a change but stock plan services is still a relatively small business for us, but we have aspirations for growth and we thought reestablishing a different mix of relationship with Certent was important as part of that. But it’s still relatively small. We focus on the smaller to the middle market plans. And one of the things that Certent allows us to do is to work with private companies, but our current system did not. So it opens up some opportunities for us to fuel our growth.

Yes. And the new relationship is going to allow us to provide a little bit more of our customized TD Ameritrade offering and we think that will be positive in the future.

Okay. Thank you.

Your next question comes from Chris Shutler with William Blair. Your line is open.

Hi, guys. Good morning. This is actually Andrew Nicholas on for Chris. Maybe first a question for Tim. What kind of growth rates do you aspire to as a management team organically if you’re not getting help from higher rates and if the trading environment is more steady state? Are you placing any more emphasis on looking at acquisitions given the slow organic growth outlook? And if so, what are the areas we should be thinking about?

Yes. So in terms of a growth rate from an asset point of view as you know, we always like to get to the high single digits but we’re sort of in the mid-to-high single digits now. Revenue is more in an environment as we said of trading itself and interest rates then you look to get the operating leverage we’ve been talking about. You question specifically around acquisitions or not, as we’ve always said it’s a pretty standard answer. We will take a look at anything that makes sense for us both strategically and financially. There are some opportunities perhaps remaining in a consolidating industry, but at the end of the day we got to make sure that we’re winning the day-in and day-out battle for the next client that we’re focused on. So yes, revenue growth is going to be tougher in the outlook that we’re now seeing given the pretty significant shift in interest rates. But on the other hand we’re very, very confident in our strategy and our business model and we’re starting to see it pay through.

Great. Thank you. That makes sense. And then changing gears a little bit, I think in the prepared remarks last night you mentioned enhancement rolled out to new advisors via the end-client Web site and I think one of the things you had mentioned was some new cash management functionality. Just hoping you could maybe add a little bit more color to what that would be and give a little bit more detail there?

I’m actually trying to think about it. Certainly the client advisor --

So what we’ve tried to do and I don’t necessarily the cash management thing. What we’ve tried to do is we rolled out a new advisor client platform. So in the past when our RIA ultimate client looked at our materials like our client Web site and now we’ve customized that, so they have a special, more simplified view for investors to meet their needs.

A couple of other features that we talked about, obviously the new virtual agent chat functionality, ability for clients to move money themselves versus the advisor client. It’s sort of more self-service simplifies the experience and they like it a lot and they like to have – it takes a lot of the administration away from the advisors answering those questions themselves.

Sounds good. Thank you.

The next question comes from Dan Fannon with Jefferies. Please go ahead.

Could you expand a bit on the trend in kind of interest running assets? Obviously margin has come up a bit here in the March quarter, maybe talk briefly about what it’s done in April but also then seg cash and then the other bucket have moved a fair amount in the quarter, kind of some of the dynamics there?

Yes, so we saw a nice bump-up in margin this quarter as the markets have recovered. We would expect margin to recover as well. We don’t give out anything on April, March in balances. Obviously we’ll do our monthly disclosures going forward. And we’re pretty optimistic that if this environment continues that margin should continue to grow for us. The seg cash item was really just an anomaly at year end the way we do our weekly seg calculations, we had a bunch of money that looked to be corporate cash that was locked up very soon after our quarter end. So where we are now is more indicative of what we’d expect in the future.

Okay. And then just in terms of the buyback, I guess Steve how would you characterize this quarter in terms of activity and it’s been kind of a little bit up and down the last few quarters, and so just want to think about the program in any kind of curtailments that we might see going forward or should we think about a more steady state for the remainder of this year?

Yes, so we’re pretty focused on the annual guidance and we felt pretty comfortable with that. We’re trending towards the high end of the announced range that we had. And so you may see some bumps quarter-to-quarter based on timing and whatnot, but we would expect to be pretty consistent buyers of our shares over time.

Great. Thank you.

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

Great. Thanks very much. Tim, if you can maybe characterize client behavior a little more sort of coming into the end of the first quarter and into April? In terms of obviously at this lower DARTs that you disclosed, but we’ve also seen pretty good growth in your ETF marketplace. I’m just trying to get sense of are clients doing more investing through ETF marketplace or do you see more engagement in trading? And looking at your net buy and so obviously which is really strong in the first quarter, are they continuing to do that in April and is that sort of coming out of cash, so to speak?

Yes, so as you noted very strong net buying in both retail and institutional. I would say the tone is cautiously optimistic that there has been obviously a very significant drop in the VICs in this past quarter, so the trading levels were low but clients were taking the opportunity to get back into the marketplace and take advantage of the lower prices at the end of last year and obviously . In the ETF market center we’ve now got over 40 billion and so I’d say there continues to be interest in products and as we said a little bit of the cash sorting has moved up more into the fixed income higher yielding instruments over the last little while.

Right. And based on how you’re seeing that trending on the disclosure in the DARTs, do you see that trend continuing – those trends continuing into April based on that lower trading --?

Absolute trading levels, I still see somewhat muted.

More like client cash deployment into the markets and into the ETFs?

No. As we said earlier that seems to be abating from levels that were a little higher in the previous quarter, so we’re seeing that sort of continue to – as you’d expect given the interest rate outlook and what’s happened to the curve.

Right, okay. And then the follow up would be on the BDA strategy in terms of – and maybe Steve the floating rate portion at 19%, just thinking about that going forward and your extensions are now at the five year. I guess how do you view where you might want to keep floating balances at going forward and what type of spread you would like to see to get you back into the seven-year extensions?

Yes. So we’ve historically tried to stick pretty closely to our hedge profile. We saw the percent of floating balances tick down a little bit and it spiked at year end as we got sort of that surge of RIA cash in the calendar fourth quarter of the first fiscal quarter. We’d expect to be pretty consistent over time. We think that staying in fixed allows us to guard against rates going down. But 19% is pretty consistent with I think where we’d like to be over the future. In terms of the seven year, we’d like to see sort of a normalization to the historic five-year, seven-year spread before we start extending at the seven-year point in the curve again.

Right, okay. And then if client cash continues to move down, would you – how would that impact your positioning on the floating portion of the book?

We have a lot of flexibility, so we don’t see any issues in maintaining our floating rate balances.

Got it. Okay, great. Thank you.

Your next question comes from Kyle Voigt with KBW. Your line is open.

Yes. First, could I just ask as a follow up on the last question just in terms of this tax season specifically, there’s been talk of tax reform causing some higher tax bills for individuals? Just wondering if you can comment there if you’re seeing anything different this year versus prior years?

Yes, great question. We’ve asked the question because we do see at exactly this time of year the cash outflow generally to pay taxes. So we went back and looked at it on relative other years. It doesn’t seem to be really an outlier, although I wondered the exact same thing whether you’d see with less supposed refunds coming that there would be more cash. It doesn’t seem to be a larger driver, a little tough to tease out.

Okay. And I’ll finish with another question on just the corporate cash balances. I think you have close to 1.1 billion in excess cash from the balance sheet. Just wondering what’s the right level or the minimum level that you’re kind of willing to go down in terms of corporate cash? And then how should we be thinking about uses of that cash over time being deployed?

Yes, we don’t give out a detailed number of a specific level but we do have plenty of liquidity right now and we’re going to continue to assess those opportunities opportunistically as we go forward.

Thank you.

The next question comes from Patrick O’Shaughnessy with Raymond James. Please go ahead. Patrick O’Shaughnessy: Hi. Good morning, guys. So first of all thank you for the additional detail into your client asset composition. And one of the things that I think kind of jumped out to me was the client fixed income assets were up, I think it was 26% year-over-year in the March quarter. Are clients using fixed income instruments as cash alternatives or is there something else going on with that asset bucket?

Yes, that’s part of the sorting that people are doing as they’re trying to figure out what’s the instrument that’s right for me. So we’ve seen a trend up in that category, absolutely. I think what you’re seeing, Patrick, is the attractive rates on brokered CDs on our platform are driving some client interest. And so that’s included in that bucket. Patrick O’Shaughnessy: Great. And then there was a footnote in your Q&A where you spoke to or you mentioned client pay changes in early April. Can you provide a little more color on what those client pay changes were specific to the BDA?

We made some very minor adjustments in some of the lower tiers as we figure out what client sensitivity – sorry, weren’t sure you’re talking about. We tweaked the rates basically very, very in a minor way in some of the tiers inside our BDA.

Yes. So what we tried to do is look each month at client behavior and see where there are opportunities to make changes. So we’re just able to tweak a couple rates there in some tiers that we thought were quite price sensitive. Patrick O’Shaughnessy: All right, great. Thank you.

The next question comes from Brennan Hawken with UBS. Please go ahead.

Hi. Good morning. Most of my questions have been answered. Maybe just a few follow ups. So on the point there about potential brokered CDs, have you approached potentially TD given the relationship that you guys have with them, the BDA that you offer to consider whether or not there might be some chances to term out some of these deposits with clearly a strategic partner in a way that could help improve the economics for everyone involved?

Well, we’re already terming out our BDA. We do have a lot of options in our brokered CDs right now. TD tends not to be a big offer of brokered CDs, but we have a whole stable of banks that provide lots of different brokered CD options. So it’s a pretty robust part of our offering for our client. And in terms of our own money that’s left, we have a significant amount of flexibility as to where we want to invest those.

When I said term, sorry, I mean terming the customers out. Obviously we know that you guys into the latter. But okay, that’s fair enough. If they’re not big into that offering then that’s not going to work that well. And then just a follow up on the Certent point. So it seems like you guys are approaching this from a white label perspective. Is that right? And does that suggest that it’s going to be kind of a long-term commitment to use their technology? And then through the course of that, are you looking to build up some particular skills and capabilities within your own employee base around some of these plans? Can you kind of put a little more meat on some of the bones around how you guys intend to approach it strategically from your perspective as far as the capability goes? Thanks.

Yes. So first of all, strategically yes it’s a growth opportunity for us, albeit small as we said. So our Certent deal I think we signed as a three-year deal but we would expect that to continue to grow. Your question about whether that’s white label, yes that’s correct. And we have a very capable and dedicated team in our stock plan services business and we’re looking forward to great growth from them. But it’s again just a relatively small part of our business.

Thanks for the color.

The next question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

Good morning. I just wanted to see if you could update us on your thoughts between the spread between client asset and revenue growth? Just because excluding spread revenues we have seen a long-term decline in the ROCA and I just wanted to get any thoughts on the forward trends?

Yes, so we do see a little bit more growth in our institutional business that tends to be a little bit lower revenue business but a lower expense business as well. And so we think we get great profit margins in all of our businesses and we should be able to continue to grow EPS which is really our key focus.

And just as my follow up on investment product fees, they continue to tick down here and I think you attributed most of that to the ETF center growth, but that will probably grow faster than the overall business going forward. So is there any reason that this line shouldn’t continue to tick lower and is there any other items in there?

Yes, so there were a couple timing items both in the fourth quarter – the calendar fourth quarter, the fiscal first quarter and this quarter. So that rate on investment product fees was probably just a little bit high in the first quarter and a little bit low this quarter. So I think you’ll see that bounce back as we move forward. Other than that we expected more to grow with balances.

Thank you, Steve.

And we have a question from Steven Chubak with Wolfe Research. Please go ahead.

Hi. Good morning. So the first question I had was on the client cash balance disclosure, certainly really appreciate the fact that you guys are willing to provide the additional detail. I was hoping that you could give us some rough numbers for what the rough fee rates are across each of the different – across the four cash buckets that you listed just so we can more accurately forecast the revenue impacts in the event some of those cash sorting dynamics persists?

No, we don’t give out that information, so it’s all blended in the investment product fee number which has been pretty stable over time.

Got it. Okay. And just one follow up for me on subscription pricing model. It’s an idea that’s been thrown around for the trading business and I guess the hope is that it could proceed by the marketplace as something that’s high multiple and drive more predictable and sustainable fee streams. I was wondering if you can update us on how your thoughts have revolved around the prospect of maybe launching a more subscription-based model.

Yes, I think generally and probably driven by the tech industry there’s quite a shine on subscription-based models. But I would broaden that out to say there’s multiple pricing options and models that one can take when looking at any industry and any business. And so we’ve got some work underway as part of our strategy if we were to say what are those options available to us and which are most attractive and which would be palatable from a client point of view. So nothing to talk about here other than we’re always looking at it. Subscription models are interesting but there’s other versions that we could consider as well.

Great. Thanks for taking my questions.

At this time, I will turn the call over to the presenters.

Great. Well, thanks everybody. I appreciate it. Lots of calls and lots of ability to give some color on the results. As we said I think in hindsight where we looked at the tone that we had set in the prepared remarks, it sounded like it was a little bit more dower than we had anticipated. But frankly, as I said, we’re quite confident that our client-first strategy is working and our client satisfaction scores are up nicely actually in the quarter, which we’re happy about and we see some bright lights in terms of organic growth in the future notwithstanding a slightly slower Q2. Thanks everybody for calling in. We’ll talk next quarter.

This concludes today’s conference call. You may now disconnect.