TD Ameritrade Holding Corp. announced Monday it is forking out $4 billion to purchase Scottrade Financial Services Inc.and Scottrade Bank – creating a behemoth firm with $950 billion in assets and 10 million funded accounts.

TD Ameritrade (see our review) is known as a discount broker appealing to investors with fewer assets and Scottrade (see our review) has a similar niche among the investing world.

It appears that the pressures facing the industry hit Scottrade and in an email to StockBrokers.com, Scottrade founder and CEO Roger Riney acknowledged that times have gotten tough for the nimble broker.

“Over the years, the question has come up about taking the firm public or selling. My answer was always “no,” because we were happy being independent. That being said, the environment has become more challenging than ever and we’ve faced some of our own internal pressures,” Riney wrote in an email.

The pressure has mounted, he added. “As the years have gone by, it has become apparent that scale is more important than ever. It seemed like the right time to think about a change,” Riney wrote. “After a thorough process, we realized that TD Ameritrade would be the best partner for our associates and clients. Together, we will be well-positioned to compete in today’s rapidly evolving financial services industry.”

There are two parts to this deal. TD Bank Group is purchasing Scottrade Bank for $1.3 billion and TD Ameritrade is purchasing Scottrade Financial Services for $2.7 billion. The deal is expected to close Sept. 30, 2017.

There are numerous unanswered questions but executives at Scottrade are trying to ease clients’ worries. In a letter posted on Scottrade’s website, Riney told clients that nothing will change for at least 9 to 12 months.

It appears Riney’s role will be limited in the newly created firm and he will assume a seat on TD Ameritrade’s board of directors. Riney has been battling myeloma, a form of blood cancer. He announced in November 2015 that he was facing treatments for the disease.

Scottrade spokesman Shea Leordeanu echoed the comments that Scottrade clients won’t face any changes for nearly a year.

“Today it’s business as usual until the transaction closes,” Leordeanu writes in an email. “We will operate as two separate and independent companies. That means that Rodger continues to be our CEO in the same capacity. His treatment was successful and he is feeling very good.”

In his letter to clients, Riney explained he’s confident clients will get improved industry-leading mobile apps, professional-grad trading platforms, expanded futures and forex options as well as bolstered education.

“For now, nothing changes and no action is needed on your part. It will take 9-12 months for the transactions to close and until then, we will be operating as separate and independent companies. That means it is business as usual at Scottrade. You will continue to use our trading platforms, work with your local branch team, and use your Scottrade Bank accounts just as you always have,” he writes in the letter to clients.
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Publications and sources also suspect that Scottrade will cut its workforce dramatically. For instance, TD Ameritrade has touted that it expects the deal will result in $450 million in combined annual synergies and an additional $300 million in savings over the long-term.

It is unclear how many job losses will occur as a result of this merger, but The St. Louis Post-Dispatch reported that it appears St. Louis will lose hundreds of jobs.

TD spokeswoman Kim Hillyer didn’t comment on how many jobs would be lost but said the firm’s call center will likely staff 500 to 1,000 associates within a few years.

“Any employees that do not remain with us following the integration will be treated very fairly and generously,” she wrote.

The St. Louis Post-Dispatch reported that the call center currently employs about 1,800 staffers.

It appears that the deal is a result of steep costs facing the industry as well as a trend toward index investing – which has been facing the industry for years.

This consolidation is further proof that that firms are struggling with costs, says Jeff Spears, CEO at Sanctuary Wealth Services, an advisory firm that manages more than $1.3 billion in assets.

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“The issue for the Scottrade’s of the world is they need scale,” Spears says. “This is more than just passive investing taking over. This is the cost structure that Roger Riney mentioned. It’s a double whammy.”

For instance, compliance costs are steep for firms such as Scottrade, Spears adds.

“The reality is that you used to make money on trading because you had an information advantage and now that’s gone,” Spears adds.

Hillyer confirmed in an email that the TD Ameritrade brand would emerge and the Scottrade brand would fade away likely by 2018.

She says the firm is excited to offer Scottrade’s more than 3.1 million clients account access to broader trading including additional platforms and mobile apps.  The two firms are like-minded and that will make the transition easier, she adds.

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“When we look at the Scottrade client base we see a lot of similarities to our own client base before we joined forces with thinkorswim in 2009 and think there’s a lot of potential for growth via trading as well as asset gathering and increasing our client share of wallet,” Hillyer says.

The pricing for online trading is still undecided, she says. But she added her firm will be evaluating pricing and other aspects of Scottrade’s client experience.

“Scottrade has done an exceptional job with respect to building a great client experience. They consistently rank high for client satisfaction, and we believe there are many things we can learn from them as we look to enhance the broader TD Ameritrade experience. We’ll consider everything, and as we make decisions that stand to impact clients and their accounts, we’ll communicate with them directly,” she adds.

Scottrade has about 500 branches with more than 1,000 staffers. TD Ameritrade will merge its brand locations in overlapping areas leaving the larger combined firm with 450 branch locations.

Her firm also intends to maintain a strong presence in St. Louis where Scottrade is headquartered.

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