RBC: Investor Shift Helping Discount Brokers

An increasing shift by clients to registered investment advisors from more costly, full-service brokerages could boost the fortunes of both Charles Schwab Corp SCHW and TD Ameritrade Holding Corp. AMTD, an analyst said Friday.

Citing that trend, RBC's Bulent Ozcan initiated coverage on both Schwab and Ameritrade with an Outperform rating and Market Perform ratings, respectively.

Ozcan also rated E*TRADE Financial Corp ETFC at Outperform in his coverage launch, and said that likely revisions to the Dodd-Frank Act could spur the company to boost assets above the current $50 billion ceiling where banks currently become classified as "systemically important."

Moreover, all three companies could benefit from potentially higher interest rates, Ozcan said.

Ozcan said clients will shift $64 billion in assets this year from full-service firms to registered investment advisors, where assets under management will total $3.4 trillion.

Schwab And Ameritrade

Schwab is already the largest custodian for independent RIAs, and Ozcan believes the trend could lead to strong balance sheet growth at TD Ameritrade, which is 41 percent held by Toronto-Dominion Bank TD.

Ozcan said Ameritrade may become acquired by its Toronto affiliate, and while its shares may outperform the market, he sees higher rewards elsewhere in the sector.

Schwab may see further benefits from the increasing popularity of exchange-traded funds, according to Ozcan, as well as from its so-called robo-advisor service, which automates the function of a financial consultant.

Related Link: Getting To Know Charles Shwab's New Robo-Pal

Ozcan put a target of $38 on Schwab.

E*Trade

At E*Trade, Ozcan assigned a $35 target and said its management may elect to abandon its $50 billion asset ceiling if expected revisions to the Dodd Frank financial regulations play out.

As interest rates rise, Ozcan said the temptation to surpass that limit will be too rich to resist.