TD Ameritrade is one of the most interesting things to happen in our industry in the last few years. I was amazed that an Internet discount broker could also make big inroads in institutional wealth management. I didn’t think they would be successful until I heard about their acquisition of TD Waterhouse, who was the third largest custodian for independent wealth managers.

The recent acquisition of the First Trust DATALynx division looks like yet another great move, and should cement their #3 position behind Schwab and Fidelity. Everything seems to be going so well for them that I was surprised to read that there’s a growing push at the board level to sell the company.

From Financial Planning Magazine:

[T]wo hedge funds, Jana Partners and SAC Capital Advisors, which represent 8% of the company and which had been pushing for TD Ameritrade to go on the block, successfully forced the firm to remove two insiders from the board’s three-member Mergers and Acquisitions committee. The board members represented shareholders Toronto–Dominion Bank (with a 40% stake) and the Ricketts family (21%), both of which are reluctant to sell or merge. Two board members, Wilbur Prezzano and Robert Slezak, were replaced by two outside directors.

While that alone isn’t enough to put the firm seriously in play, it does, in the words of one analyst, “mean that the M&A committee may become a lot more aggressive about finding a deal.”

…Patrick O’Shaughnessy, an analyst at Morningstar, isn’t so sure. “A merger sounds good, but it’s easier said than done,” he says. “Schwab is not interested and E-Trade probably isn’t either, unless the price is right.” What’s more, he’s bearish on the stock. “As a standalone firm, it’s hard to see where they get growth from,” he says.

So it sounds like Ameritrade may be getting ready to pursue a merger, although the two obvious candidates probably aren’t candidates. This bodes poorly for TD Ameritrade’s reps. The TD Waterhouse and DATALynx advisors I know were *not* overjoyed to be acquired by Ameritrade. With the possibility of yet another acquisition in the near future, I expect many will be investigating other custodial options.

As if that wasn’t enough, Ameritrade is trying to pull some of the same antics that Schwab did years ago, trying to insert themselves into the advisor-client relationship:

[In the new advisor contract] advisors had to agree to be personally liable for financial damages in any dispute arising between the company and an investment client.

Called an Advisory Services Agreement, the contract—a first for many affiliates—said that as security for the payment of any transactions, including those resulting from advisors’ instructions on behalf of clients, advisors had to grant the company “a continuing security interest in, lien on and right to set-off against, all management fees now or in the future payable to advisors by clients or by the company.”

Rubbing salt in the wounds, the company made the new contract “self-executing” on April 30, when advisors would “become bound by the enclosed Existing Advisors’ Agreement by your use of our brokerage and/or custody services for you and/or your clients.”

Once the predictable public uproar started, they backed off and – one would assume – have since unexecuted their self-executing contract. They blamed it on their lawyers and are now working with their advisors on a less-one-sided contract. It will be interesting to see how this all shakes out.