) has been trying to attract retail investors with higher income by
providing solutions and services that can be customized to the
requirements of a particular investor. Initiatives aimed at
bringing in new investors with more money to spend could give the
company an edge over competitors like E-Trade (
), Charles Schwab (
) and Bank of America (
Ameritrade's biggest focus seems to be on making its registered
investment advisor (RIA) channel strong, so that more affluent
retail investors can get investment advice tailored to their
Can RIAs Provide a Lift for Ameritrade?
). And Ameritrade's recent launch of new Amerivest exchange-traded
fund (ETF) portfolios looks like an attempt to attract those
investors that have a bit of money to invest, but prefer not to pay
for individual investment advice.
Our price estimate for Ameritrade is $22.65
, roughly 5% above the stock's current market price.
What is Ameritrade Offering with the New Amerivest ETF
The newly launched Amerivest portfolios were added by Ameritrade
with assistance from Morningstar Associates, an independent,
third-party investment consulting firm. The 5 new portfolios (aptly
named Conservative, Stable, Balanced, Growth and Aggressive Growth)
capture an individual's investment goals and appetite for risk.
Each portfolio consists of a different mix of domestic (U.S.)
equities, international equities, fixed income investments,
alternative investments (real-estate and commodities) and cash.
Clearly, portfolios with higher expected returns would have higher
associated volatility and hence higher risk. And the investor is
free to pick the portfolio most suitable to his/her individual
But Will this Really Help Ameritrade?
Online brokerage firms have been competing fiercely on
commissions & fees, types of investment products offered,
research & advice for investors, and customer service. And due
to very little differentiation among the incumbents, each of them
has had to focus on new offerings to gain an edge over the
Given that nearly two-thirds of Ameritrade's customers are
retail investors, with institutional investors making up the
balance, the importance of retaining retail investors cannot be
To illustrate the impact to Ameritrade's stock value from adding
new retail investors, we estimate that if Ameritrade manages to
grow the number of active brokerage accounts at 7.5% annually (the
average growth rate over the last 3 years), it would have more than
13 million active accounts by the end of our forecast period. This
would represent an 8% upside to our $22.65 price estimate, pushing
our number above $24.50.
You can test this scenario, and others, by dragging the trend
line in the interactive chart above.
See our full analysis and $22.65 price estimate for