CEO of Brokerage Sticking to Game Plan

At Dartmouth College, Joe Moglia was defensive coordinator for two teams that won Ivy League football championships. But lately, as chief executive of online stock brokerage Ameritrade Holding Corp., Moglia is playing offense.

Omaha-based Ameritrade agreed last month to buy rival TD Waterhouse USA from Canada’s Toronto Dominion Bank in a deal valued at $2.9 billion, the latest consolidation in a cutthroat industry suffering from lackluster trading volumes and excess capacity left over from the stock market bubble of the 1990s.

In making the mega-deal, Ameritrade spurned overtures from rival E-Trade Financial Corp.

The planned “TD Ameritrade” combination would be the industry’s new leader in average daily trades, at 239,000, although its customer assets of $143 billion would still trail Charles Schwab Corp.’s more than $1 trillion. Ameritrade would get a network of 143 branch offices and increase the business it does through intermediaries by landing the third-favorite online platform among independent investment advisors.

Moglia, 56, made the switch from coaching football to financial services in 1984, when he began a 17-year stint with Wall Street powerhouse Merrill Lynch & Co.

Moglia, the head of Ameritrade for four years, met with The Times last week to discuss the pending purchase and the future of the online brokerage industry.

Question: You and your team at Ameritrade have been on an acquisition spree for several years, leading up to this deal. What’s behind your game plan?

Answer: When I got to Ameritrade in the spring of 2001, the stock market was in a tailspin and online brokerages and technology were really down. To strengthen our situation, we needed to be an acquirer and consolidate assets, because when the bubble burst there was a lot of excess capacity in the brokerage business.

I always thought it was important for us to be an absorber of that excess capacity.

When I got here, there were 200 firms that had online brokerage presences and about 15 names that everybody recognized. Today there’s probably 95 presences and six or seven names everybody recognizes. And three to five years from now there’s probably going to be 40 presences and three names everybody recognizes. That’s what is needed to absorb the excess capacity.

And I also thought that for us to grow organically we needed to be good not just in the active trader space, but in the long-term investor space and the financial advisor space. TD Waterhouse is strong in those areas.

Q: Mergers and acquisitions often end up being less successful than envisioned. How will you avoid fumbling this one?

A: Seventy-five percent of all mergers fail because the integration fails.

We’ve done seven acquisitions in the last few years. We’re 7 and 0 and we’re not going to mess this one up. We’re going to be 8 and 0.

There’s not a whole lot of conflict here:

We’re good in the active trader space, so we take TD Waterhouse’s active traders, put them on our platform and it all drops to the pre-tax line.

They’re good in the long-term investor space, and we’re fighting to get in there.

Q: In the wake of the 1990s market boom that went bust in 2000, stocks have endured a rocky five years and essentially gone nowhere, so it’s no wonder online trading has slowed. Will the boom times return?

A: The real heyday, that’s not coming back. But, to put it in perspective, there’s no reason we can’t get back to historical averages.

Throughout most of Ameritrade’s 30-year history, excluding one or two years where trading was crazy off the charts, what we call our “activity rate” has been close to 8%. That’s the average number of daily trades divided by the number of accounts.

Today we’re averaging 140,000 daily trades on an account base of 3.5 million customers, so that’s about 4%, or half the historical average. There’s no reason we can’t get close to the historical average, and that’s significantly better than where we are.

Q: What would it take to see that kind of trading rebound?

A: For the last year and a half, it’s been pretty much a sideways, droopy kind of stock market. Not much has gone on, so people remember what took place during the downturn.

What you would need is a fairly stable, positive market environment -- not something that goes to the moon but just a good, solid growth rate over three or four years. And by the third year out you’d get people back.

Q: Exchange-traded funds -- those baskets of stocks that resemble index mutual funds but trade throughout the day like individual securities -- are catching on with advisors and investors who see them as a cheap, flexible alternative to index funds. Could ETFs help fuel growth at your firm?

A: I think the ETF is one of the finest investment vehicles ever created. Mutual funds are expensive, and 70% of active managers underperform the indexes anyway. But for the most part, the individual investor still doesn’t quite understand what ETFs are.

We’ve created a process called AmeriVest where you can determine the asset allocation model that fits your profile, then press a button and fund your entire portfolio with ETFs.

Let’s say a 60/30/10 breakdown is right for you -- meaning 60% equity, 30% bonds and 10% cash. By definition you get diversification across asset classes, but within your equity component you’re getting international and domestic, large-cap, mid-cap and small-cap, and potentially, depending on size of your portfolio, growth and value.

If your life changes, say you get a divorce or retire, you press a button and you’re rebalanced.

Q: Your rival E-Trade moved last year from California to New York, the hub of the financial services business in the U.S. Are you busy scouting Manhattan office space, or does being based in the Midwest give you an advantage?

A: First of all, the majority of things that take place in an online brokerage take place online. You could be in Zimbabwe, OK? No. 2, in an environment where productivity, efficiency and scalability is the name of the game, you want to go where your costs are reasonable. California, to me, is on the expensive side. New York, to me, is on the expensive side.

And nobody even knows you’re there. I worked in Merrill Lynch’s downtown headquarters for 17 years and I never went to visit any of our competitors or anybody else there.

So we’re in Omaha, frankly, because it’s cheaper, better, faster. We attract a nice array of talent. People in the Midwest are very polite.

I’m not stereotyping now, but it’s easier to find good people for a call center in Omaha than it is in New York City. In New York you take an hour and a half to get to work and you’re on the phone, ‘Oh yeah, what’s your problem?’ ”

Q: Has your coaching experience come into play in your second career?

A: There are a lot of corollaries between being a leader as a coach and being a leader in business. In both cases you have to operate under intense stress and pressure.

In football your entire career was dependent upon winning games on Saturdays. In business you’ve got to demonstrate to the marketplace that you can provide sustainable long-term growth.

In both cases you have to have a strategy. The human resources skills you need in coaching -- motivation, discipline, communication -- you also need in business.

The art of football is different than the art of business, but the execution of what it takes to put together a successful team is similar.

I am absolutely a better businessperson and a better business leader because of my football experience.