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Fred Tom Tomczyk, CEO of TD Ameritrade

Michael Falco

Fred Tomczyk, chief executive officer of TD Ameritrade, has a unique vantage point from which to monitor American investors and the state of the world's biggest economy.

TD Ameritrade is the third largest online broker in the United States measured by client assets, and Mr. Tomczyk, a Canadian, is a 20-year veteran of the financial services industry. His roles prior to becoming Ameritrade's head include vice-chairman of corporate operations for Toronto-Dominion Bank and chief executive officer of London Life Insurance Co.

We discussed the latest investor trends and what they say about the health of the broader economy.

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You sound optimistic. Are you seeing improved investor sentiment?

We're definitely seeing improved investor sentiment, and I think market sentiment as well.

Why do you say that?

I think a lot of people look at things like interest rates or unemployment. The way I look at it is those tend to be trailing indicators as opposed to leading indicators. So we look at leading indicators, such as new accounts, log-ins, activity, mutual fund flows, securities flows, all those types of things.

And what are you seeing?

If you look across our business we have an RIA [registered investment adviser]business or an institutional business, and definitely the RIAs have done their job and are back fully invested here, having taken money from cash and invested it into the market, and have ridden the market up. And we've seen the more active traders have come back and are quite active. We've seen that going on for a while now. We saw that start in the latter half of October, pick up in November, pick up the first few weeks of December, slow down for the two weeks around Christmas and the holidays, and then pick back up in January quite nicely. We're also seeing flows move from bond funds into equity funds, and, in fact, of the equity fund flows, 40 per cent are into U.S. equities, which is the first time we've seen those shifts since the recession started.

What is the investor appetite for ETFs right now?

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They continue to be popular and get even more popular. We are getting a very good reaction from clients to the [TD Ameritrade]ETF Market Center.

Some of your competitors offer unified managed accounts for retail investors. Your company offers them only to institutional investors. Why?

Right now I think we will keep it for the institutional space. We have the Amerivest family of products and offerings that work very well for the mass and mass-affluent market, which is really what our retail offer is targeted at.

Has the recession spooked people out of managing their own investments? Are they looking for managed accounts?

Through the crisis a lot of people were unhappy with whoever was managing their assets, and so there was a shift to self-directed. I would say advice is still strong and growing but there is a pickup toward the more self-directed, do-it-yourself area. There is a trend in the adviser community from the broker dealer channels to the independent channels, both independent brokers and independent registered investment advisers. You're seeing a trend from active management to passive management, or index funds, and you're seeing a further trend beyond that to ETFs. So what you've got now is a fairly broad based improvement in investor sentiment.

What are you seeing with respect to derivatives? More trading?

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Yes. We've been focused on this for about three years now. We saw that there was an increased appetite, particularly for option trading. We offer a lot of educational programs to help people understand how to properly trade options. I think many people think it's just taking bigger risks, but the kind of stuff that we teach is the basics of options in terms of covered call writing, protective puts, how to hedge your position, or if you want to take a directional bet that you always understand your upside and also how to cap your downside. A lot of times this is more for risk management than for anything else, and increasingly we're seeing the more active traders move into spread option trading. We're also seeing increased movement to futures.

Are you expecting investors to decrease the proportion of cash in their portfolio in 2011?

Yes, we've seen that happen in the institutional space, and we're starting to see it a bit in the retail space. The retail investor is coming back, but they're not all the way back, and there's still a number of them waiting for further evidence.

You've built apps for handheld devices such as Android phones, iPhone, BlackBerry and Windows Phone 7. Are people actually trading stocks with their phones?

We've seen increased popularity of these applications. On any given week we have 100,000 unique users come in through mobile applications. They are trading. Just under five per cent of our trades are coming through mobile now, and that's double a year ago. It's going to continue to increase. And when you put the tablets with them, you're seeing an increased trend to mobile and tablets that I don't see stopping. I live in New York, and when everybody's walking around you've got to be very careful, they're always checking their mobile phone.

You're also working to find new customers through referrals from TD Bank branches.

TD Waterhouse, the online broker for TD in Canada, does a lot of their new business through the TD Canada Trust customer base and branch network. So, we've looked at that, and I used to work up there, and so that's an idea and a concept and a model that we're exporting to the U.S. together.

If you look into your crystal ball, what do you see for the economy?

All the early indicators of the economy - starting to get its feet under it and starting to get its own momentum - are starting to show up. Whether it's what I have spoken about here or bank lending, you're starting to see signs of the economy getting its own legs. For the first time in a long time the early indicators are starting to turn positive.

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