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TD Ameritrade’s Lower Ad Spending in Fiscal 3Q16 Led to Higher Margins

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Operating expenses

TD Ameritrade’s (AMTD) major expenses include compensation and benefits, advertising and market development, clearing and servicing, and professional services. The company incurred total operating expenses of $490 million in fiscal 3Q16.

TD Ameritrade’s expenses fell by $13 million in fiscal 3Q16 compared to fiscal 2Q16, and they rose by $21 million compared to fiscal 3Q15. The decline over fiscal 2Q16 was mainly due to lower advertising spending, partially offset by higher professional services.

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The company’s advertising expenditure declined to $58 million in fiscal 3Q16 compared to $81 million in fiscal 2Q16. Historically, TD Ameritrade has incurred higher ad spending in its fourth quarter via various campaign strategies. TD Ameritrade’s total operating expenses are expected to rise in the range of 2%–6% in fiscal 2016.

Here’s how a few of TD Ameritrade’s peers in the brokerage industry did in terms of their operating margins:

  • Interactive Brokers Group (IBKR): 45.4%
  • E*TRADE (ETFC): 31.0%
  • Charles Schwab (SCHW): 34.4%

Together, these companies form 1.3% of the Financial Select Sector SPDR ETF (XLF).

Compensation to trend high

The cost of TD Ameritrade’s employee compensation and benefits rose by $1 million due to performance payouts in fiscal 3Q16. The company expects its advertising costs to fall in the next few quarters. The added headcount could help the company to further raise its customer base and, consequently, its revenue.

The company’s CFO, Steve Boyle noted, “We remain disciplined on expenses, and we returned nearly $140 million in capital to our shareholders through cash dividends and share repurchases. It was a good quarter, and our core business remains well positioned for the future.”

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