Exclusive In-Depth Interview With TD Ameritrade Holding Corp. CEO Fred Tomczyk

Motley Fool contributor Jason Hall recently spoke at length with Fred Tomczyk, CEO of TD Ameritrade. Their conversation covered everything from Tomczyk's retirement later this year, to his thoughts on the man replacing him, to several key things about TD Ameritrade that investors should know.

If you're interested in understanding more about TD Ameritrade from the man who's spent much of the past decade running the company, keep reading.

Tomczyk on his retirement later this year

Jason Hall: Let'sjump right into this here.I thinksome of the big things going on right now,one thing in the investment community that we'redefinitely interested in hearing about, is your impending retirement. You've done anadmirable job of leading the company. You talked about where things were through the financial crisis,and here we are with a recovery that's still moving forward. Thethings that have happened and the growth that's taken place at TD Ameritrade during your time as CEO ... things have really gone well. You're still a young guy. Why retire now?

Lon-time TD Ameritrade CEO Fred Tomczyk. Image source: TD Ameritrade.

Fred Tomczyk:I mean, "young" is arelative term. I became a CEO when I was pretty young. This is my second stint at it. I became a CEO when I was 41. I ran a life insurer up in Canada, then we wound up selling it. I then transitioned and spent 10 years with Toronto-Dominion Bank[which owns 41% of TD Ameritrade], and then I've spent the last 10 years with Ameritrade. I've been at a very senior level for a long time.

I also have a view that organizations do best when they have leaders that are the right leader for different situations. As it turns out,not that I knew it coming in, butI turned out to be the right personfor the situation that TD Ameritrade found itself in coming through the crisis. I doparticularly wellin those environments. That's a greatenvironment for needing change. We've had a lot of change here.

I'm of the view that, after you've put in seven to 10 years -- andI know there's exceptions to every rule -- but I think you have to sort of reflect and say, basically, is it the right time for you to move on and bring in a new leader to take the company where it needs to go for the next seven to 10 years? I came to the conclusion that it was the right time for the company for me to move on and to bring in someone of Tim's caliber to take it to the next level.

And also, just, personally, I've been working and traveling a lot of years, so, a lot of nights away from home, for quite a while. So it's a time for bit more time with my family, and a bit more of my time.Hall: Makes sense. So, kind of a two-sided thing here. From a professional perspective, where you think TD Ameritrade is in the phase of where it is, you've leveraged your strengths, I think you're saying, of being an agent of change and building that growth organization, and it's time to move into a different phase for the company. And then, from a selfish perspective, for yourself,time for you to move on to the next stage of your life?Tomczyk:I think that's fair. The company still has tremendous growth in front of it. But I think it's going to move to a second phase here. I thinka lot of the strategies we put in place nine or 10 years ago, thestrategy is not going to change, but the way you go about it, I think you should go to another place right now. We startedpositioning the company for that, and I think Tim isparticularly well suited to lead that next phase.

Tomczyk's thoughts on his replacement, current TD Ameritrade President Tim Hockey

Hall: Interesting. Let's talk a little bit about Tim, and the whole relationship with Toronto-Dominion. You came over from TD,if I remember correctly. Right?Tomczyk:That's right.Hall: TD owns maybe a little bit more than 40% of the company. It seems like it's been a good relationship. TD's anincredibly strong bank, very well capitalized. Thequestion that I have and thata lot of investors have is, you have a new CEO; that'salways a concern. Obviously,you can't say everything about what will happen in the future; nobody really knows. But, the question is, Tim Hockey is at TD Ameritrade now. He's been there about a year?Tomczyk:No, he's been here for three and a half months.Hall: Oh,that's right, he just came overat the beginning of the year. He will have been there forless than a year when he takes over this fall.Tomczyk:That's right.

Tim Hockey, who will replace Tomczyk as CEO later this year. Image source: TD Bank.

Hall: The question is,how much of a relationship and experience did he havedealing with TD Ameritrade when he was at Toronto-Dominion before? Do you think that'll play any factor in his success as a CEO? Or is it just time for somebody with a little bit of a different perspective to come in, based on where TD Ameritrade is in this next phase you're talking about of its growth?Tomczyk:I'll answer that in two ways. No. 1 is,he has not really beenclosely associated with TD Ameritrade through his time at TD [Bank], prior to joining us. Having said that,he certainly was aware of what we laid out as the strategy, how we did what we did.

He's been a bit of a student and aninterested observer of TD Ameritrade for quite a while. He's verytechnology-literate; he lovesnew technologies. He's seen what we've done,how we changed our business model, but from a distance,as opposed to close up. But I've known Tim for 20 years. He used to work for me. I was his mentor when he was younger.I know him pretty well; I know what his skill sets are. He had a very big job at TD.

But, you know, as I said it was the right time for a change; I think he was at the rightpoint in his career for a change, given his strong technology orientation, and, he's a veryanalytical guy, andgiven where we are right now, which is, I think we're going through another wave of technology revolution or evolution in business in general. And I think basically,his intellectual curiosity, with ushaving invested a fair bit intodata analytics and personalization, and moving down that journey, he's particularly well suited, with a combination of thetechnology and analytical horsepower and curiosity, to take the [company] to the next level.Hall: Interesting.I think one of the things you touched on there was the technology side. We'lltalk a little bit about thatwith a couple of questions that I have for you later. Obviously, when you look at the entire discount brokerage industry,technology has been a key driver there. I know it'ssomething you guys have used as a differentiator, witha great platform that users love that's certainly created value. So that's great to hear, that that's a good skill set for Tim, that he gets technology and he understands that value.I think, one thing I want to mention, too, company culture is hugely important. Typically, companies that have a history of long-term success, a big part of that is having that culture. If I follow you correctly, while Tim may not have spent a lot of time working at TD Ameritrade between the time he started a few months ago and the time he takes over, he has a history with you. So there's probably some value, in terms of continuing that culture, because I'm sure he should understand what you will have built, and that legacy that you will have established in terms of the company culture.Tomczyk:That wasvery important in the selection process. As we went through this with the board, the board was very clear, they liked the strategy and they liked the culture of the organization. They wanted somebody who had either grown up and lived in it for the last nine or 10 yearsunder my leadership, orsomebody who I knew very well,who would understand that culture. Looking back at Tim and my history, we were two of the people who helped articulate the TD culture. Our culture is similar but different at TD. There's a lot of similarities, but there are differences, because we're in a different business and a different market. We're more nimble, and innovation-oriented, than the big banks. Andthat's an important part of our culture. But the culture itself, the core of that,Tim will be very familiar with it. It feelsvery comfortable to him, and he'salready acknowledged that.Hall: Right. And at this point, there aren't any plans,I haven't seen anything announced, in terms of any other changes with otherexecutives leading the company at this time. It's actually going to be the same core group of people, right?Tomczyk:Yeah, I think so, I think that's where his head's at.I don't speak for him, but I think that's true.I think this would happen whether it was him or me. He does have to make a few organizational adjustments, just given where we're at, and where we need to focus our time for the next five or 10 years. But he'll make those decisions in due course.Hall: Absolutely,that would be the same whether he was coming in as the new CEO or not. Changes are inevitable. Change is anecessity a lot of times. That's understood.Tomczyk:As I said,you have to continue to evolveas an organization. You can't stay stuck in a rut.I believe that quite strongly.

Potential impact of new retirement account rules

Hall: Absolutely, agreed 100%. Let'stalk a little bit about the fiduciary rule. For those listening, the short version is,the Department of Labor has announced new rules that affect the [investing] advisory industry when it comes to, specifically, retirement accounts. I think,inevitably, this will play some overall role in the industry of lowering revenues andpotentially should allow for better returns, andalmost certainly lower expenses for the average retirement saver. On the earnings call, you said there would beopportunities for the company with the new rule. Can youelaborate a little bit on that, and give a little more color on how you thinkTD Ameritrade will be different from your competitors when it comes to this new rule?Tomczyk:First off,I should preface this by saying the Department of Labor rule is 1,000-plus pages and open to a lot of interpretation. I think, right now, in many respects,there are still more questions than answers. Having said that, our early reading of it all, to some degree, you're right. I think in terms of the broader wealth-management industry, whether that's asset managers or brokers or private banks or what not, when it comes to IRAs in particular, I think this is a big change. Perhaps, some would argue, the biggest change in 40 years, since it's a regulation of commissions. It is a big change, and I don't want to diminish that. I think it's a much bigger change for people like full-service brokers, or independent broker-dealers, or people like that,people who operate commission sales forces that are paid based on revenue, ordifferentiated by product, or those types of things. They have big changes to make. Certainly, the target of the rule is to take away some conflicts of interest and reduce the cost of investing.

I think some people in the industry will say that's going to harm the small investor,because they won't be able to service them economically.But I think, for the online brokerage community,particularly for people who run abusiness model like TD Ameritrade, that's a sweet spot for us. We run a business model that caneffectively serve that market at the lower cost. If you think about it,we basically already are, essentially, a discounter of sorts at the root of theindustry, our segment of theoverall wealth-management industry.

So we're in a very good position, leveraging technology basically to be a low-cost operator in that market, and can deliver a lot of value, at a reasonable cost, to investors. We've been doing that throughout our history. But do we have to make some adjustments? Yes, we'll have to make some adjustments. But I think on a basis relative to others in the industry, us and many of our peer competitors in the online brokerage business, we're in a good position to make those adjustments and to capitalize on it. We don't pay high sales commissions to our salespeople in our branches. They're not incentivized differently by different product types. We don't have proprietary products. We try to minimize conflicts of interest; we're an open-architecture philosophy. So, from many respects, I think we're in a very good position to fill a void that may be left at the lower end of the market that others may vacate or find very difficult to service economically.Hall: One way a friend of mine in the industry described it to me was, a lot of the full-service brokerages out there are going to be finding themselves in the same position as the buggy-whip manufacturers of the early 1900s. There's justnot going to be any demand for what they do,because their business model is going to be so diminished,in terms of how they make money today, versushow they'll be able to make money in the future.Tomczyk:Thatargument has been made for years. Certainly, we've benefited,because we're basically a disruptor of that model, at the retail level, basically, based on trading commission and cost and true technology, versus through salespeople. Secondly, we attack at the producer level, where we talk about the person in the wirehouse moving off and becoming an independent registered investment advisor who does act in the best interest of the investor under the 1940 Act with a Level B compensation model. So I think that's been going on for a long time. I think it's beenaccelerated at the lower end of the market. Most of those firms have migrated to only wanting to deal with $1 million-plus parts of the market. That'sperfect for people like us. We'll take all that business for the sub-$1 million market. Yes, there's a lot of assets in the plus-$1 million market, but it's a very small percentage of the market. So it leaves us in a very good position, with a very big market to go after.

On how the company assesses business performance

Hall: Right.I think,especially, when the transactional part of your business is relatively important,that certainly makes sense.

OK, so, just a couple more general questions for you. These are a few things you'veprobably answered a million times,but we want to make sure we really put this out there foranyone interested in investing in the company, to really understand how the company assess things.

How doesyour management team assess business performance,both in the short term and long term?Tomczyk:First, the way we run TD Ameritrade is, we're all paid on the same bonus model. It's about 60% on earnings per share in the year, versus the target. But the other 40% is what we call our "CEO goals." What that is, basically, it reflects ourstrategy. Are we making progress on thestrategic themes we've set as anorganization, that we'veagreed to as a management team, and we've agreed with our board?

So that would be all-around asset gathering. We track that, and we have metrics for that relative to our peers. Secondly, it'll be about our share in the trading markets. We track that. Third will be about growing investment products revenue streams, for longer-termdiversification of our revenue and continuously a migration, and to also providing advice in the right way, in thefiduciary kind of way. Those are the three broad, strategic themes that we basically track, focus the organization on from top to bottom. And those are all things that, we believe, over time, fuel the earnings power of the organization. It may or may not impact earnings as much in the short term, but they will matter over a three- to five-year time frame. We focus theorganization more on building ourearnings power than just short-term earnings. Second, we look athow we're performing for our stakeholders. We look attotal shareholder return over a one-, three-, and five-year period. Secondly, we'll look at our associates and associate engagement survey. We've been in the Towers Watsonbest-in-class benchmark for the last four or five years, which I'm quite proud of. So people are clearly engaged here and feel good about what they're doing, and the environment and the culture. Then, lastly, we do look at our net advocate score, which is how we're faring for our customers and our clients, how they feel about the organization, and whether they'd recommend it to others. Then, we have one other bucket, which is our key strategic products projects that will likely span three years that we want to focus the organization on, that we consider important in terms of building capabilities or shoring up a weakness that we see in our infrastructure. So basically,it's a model that basically focuses the organization onbuilding long-term valueand worrying less about quarterly earnings.Hall: Got it. I think one thing I want to point out about what you just described -- first of all, the first section you talked about, in terms of the way you measure businessperformance in terms of earnings,looking at asset growth and things that are building your long-term core of the business, those are things thatmanagement regularly talks about andemphasizes on your earnings calls. It'spretty clearly aligned withwhat you're focusing on internally, and what you're reporting to Wall Street.

But it's also very good to hear you talking about ways that you're measuring what your employees see and feel and their level of engagement, also looking at your customers, as well. There's definitely four different things you have to look at -- business performance, management, your employees, and your customers. All four of the legs of that table are pretty important.Tomczyk:That's right.

On investor demographics

Hall: Let'stalk briefly about demographics a little bit. We're getting to a point now where you have the millennials, thelargest segment of the population, they're finally bigger than the boomers. How do you really trackdifferent metrics and data foreach of the different demographicsubsets? Do you use thosedifferent categoriesin the way you decide how you'refocusing on growing the business?Tomczyk:Not as much asyou might think. We do havesegments that we target from a marketingperspective. But we more segment based on need, and what clients may need or want atdifferent points in their life. So thatsomewhat correlates to what you might call millennials, and those types of things. But we focus more on need, because it's a more actionable item that we can present something compelling around. Our sweet spot, like we talked about earlier, is what we call the mass market. It's part of a market that I think the online broker business is focused on. We're very much focused on it. It's an area that we'rein a unique position to be able to service and market to that part of the market,on an economic basis.

Millennials open one-third of TD Ameritrade's new accounts.

When it gets to millennials,we do a lot of things in the schools. We have something called TDA University, where we put our platform in the classroom at a number of universities. I think, I can't remember now, it's over 200 or 300 universities across the United States. So,when they're teaching risk management or portfolio management or investing and those types of things,they're actually using our technology. Then,hopefully, when the students come out and they decide what they want to use, they'll go back to the platform thatthey know and used during their university tenure. We also givefree education. We have easy and no-fee IRAs. We very muchrecognize that millennials are "mobile-first." So we'vefocused on mobile for a long time.

There's four things driving change in the way business gets done -- there's mobile, social media, data and analytics, and cloud computing. Those are the four underpinnings of what's driving change across every business. So wevery much focus on those technologies, which is matching where the millennials will be, with respect to mobile and social media. And I think our proposition fits well with millennials. Just to give you one data point, one-third of our new accounts today come from millennials. So we think we compete pretty well in that market. You have to go at it differently,recognize andupdate your business differently.Hall: I know, on the latest call,if I recall correctly, mobile tradingis still growing like wildfire for you guys. Is it a 30% growth, somewhere in that area, that you announced last quarter?Tomczyk:Yeah.Hall: Do you guys,I don't know if you report it publicly or not, do you internally track how much of your trading is coming based on demographics, so you can make sure you're marketing more effectively?Tomczyk:We don't track itby demographic as much as, we do track the device and which platform they're using, and those types of things. Yeah, no question, when you go to a millennial, it's going to be more mobile, and much more, social media is important to them.Hall: Have you found that millennials are more price-sensitive in terms of commissions?Tomczyk:Yes and no. They are more price-sensitive, but when you think about it on a broader basis, whether it's $9.99 or $8.95 is not as important to them. It's really the package you offer them -- $9.99, relative to what they could get from otherproviders outside of our space, that's anattractive deal. But if youlook more and more at what's going on in the industry, we'recompeting less on price right now. It's more onpromotion and value-added tools and content. We'vedefinitely shifted. It's all been verycompetitive on promotion, butat the same time, I think bringing them the value-added tools, so they know how to invest, they educate themselves, they have good technology, good screeners, good analysis, whether in technical or fundamental research, and they learn the basics of investing --that's more important than the price.

Price isn't everything. If you'reinvesting in the wrong stuff at discount prices,that's not a good thing.I think the most important thingto keep in mind ishaving a process to invest, amethodical way that gives youincreased odds of success.

On TD Ameritrade's different revenue streams

Hall: Great. Let's talk about your fee-based revenue streams. What are the long-term goals and assumptions for those fee-based revenue streams?

Tomczyk:That's been anarea that we've been focused onsince I came in. It used to be 2% of our revenue, and it's now 10% to 11% of our revenue. And we've grown that revenue stream by about 20% to 21% a year for the last five years. So we clearly focused on it and have grown it very nicely. I think we're at a point where what we've done hasworked well for us, but we knowneed to make more changes.I think Tim is well aware of and is focused on it right now. We're now over $300 million a year.

I think our goal now has to be,how do we get that, for the next five or 10 years, to $1 billion, and amoresignificant component of our revenue stream? Andwhen we think about it, while we do very well on the trading side, we're well known for that, we do think we have the best technology andthe best platform for it, and we'll continue to focus on that and grow it; however, when you think about a world where we're growing this revenue stream to, let's say, $1 billion. You continue to gather assets and interest rates normalize, where the asset-based revenues make up a much biggerpercentage of our overall revenueis really the longer-term objective here, while not killing our trading business.

Ourtrading business will continue to grow, but ourtrading business is more a low-single-digit growth business, whereas this particular revenue stream can be a 20%-plus growth revenue stream over longer periods of time. Now, it does depend on the market. It will have its moments where it's not that strong. But I think over time, if you believe the equity markets in the long term will run up, and you can grow and gather assets in that space at a good clip, you can have a nice, high teen, low-20s percent of growth rates.Hall:So in short, you think the [asset] business can getsignificantly larger than it is today, and that it cancontinue to grow at a faster rate than theentirety of TD Ameritrade -- than the consolidated business?Tomczyk:Yeah, that'sexactly right. When we get to where rates normalize and we continue to gather assets, because, our asset-based revenue is 70% of our revenue.

Interest rates helped offset weak margin and loan balances

Hall:Let's talk about where things are with the interest rate spread-based income. Obviously,today, interest rates are stillessentially historically low. We saw a 25-basis-point bumpin December, and I know the most recent quarter [TD Ameritrade's interest-rate income] waskind of a mixed bag. You got somebenefit, but that benefit was more making up for lower balances,if I understand correctly, on some of your marginaccounts and things like that. Could you give a little color, short term and long term, on spread-based revenue; what's going on there?Tomczyk:Yeah. We did the benefit of the Fed fund increase, when we backtracked. We got that. In fact, the Fed fundincrease and the strong tradingorganic growth drove record net revenues. Our pre-taxincome was up 15% year over year. So we felt pretty good about that.

But I think where the market got confused was, ouroverall net interest margin came down.I think that's where a bit ofconfusion lies. What happened was, our two highest-earning asset categories are margin loans and securities lending. And the two are connected. And what happened was, during the quarter inJanuary and February, we had,the market came off 10% to 11%, and people thenbasically moved out of the marketand lowered their leverage. So margin levels dropped by $1 billion to $1.5 billion. So, when your highest-earning assets balances contract, and basically your highest-yielding assets came down and offset the growth in the Fed funds pickup. The second thing is the securities lending, which is a function of margin loans, but also on the IPO market, and the IPO markethas been very weak in the first quarter. So it came down a fair bit. So it really was a case of the market pulling in, and our two highest-earning assets balances kind of came in on us, although theyields were still very good. So you just have a mix problem, because cash balances were up nicely, I think 11% to 12% year over year, but that's one of our lower-interest-earning assets. So it really wasvery much a mix problem thatreflected the market environment.

This will work itself out. The markets came back in March and are holding so far in April. ButI think investors are still fairly cautious. We're backtalking about records, butI think people are stillpretty tentative, they remember last August, andremember January and February right now. So they'rereally waiting to see where the market goes.

Hall: Makes sense. So, really,it just boiled down to a matter oftiming with the market activityand the volatility,corresponded and affected your mix,at the same time that the rate was going up. So you saw some benefit. Inother words, your net income margin probably could have been even thinner if it weren't for that small increase we saw in December.Tomczyk:That's right.

Businesses and leaders Tomzcyk admires

Hall: Thatdefinitely makes sense. Let'sswitch over. One of the things thatwe love tolearn about when we talk to management is, when you think aboutyour competitors out there,whom do you respect or admire? What CEO or executive atone of your competitors do you reallyrespect or admire what they're doing?Tomczyk:I'll answer this in two ways. First one is,because I do have a view that,I try to run TD Ameritrade like a tech companyor an online company, butI manage the risk and the balance sheet like afinancial institution. So that ispart of the uniqueness of our business model. So I'll answer it in two ways.

First off,inside the online-broker space,I think, clearly,I've watched, for years, way before Istarted at TD Ameritrade,I've always been an admirer ofCharles Schwab.I think he's been atremendous innovator over the years. He's built agreat organization. He has a longtrack record ofinnovation. It's not like they haven't made mistakes along the way, but they've learned and adapted from that.But every once in a while, they hit a home run.

So I think I'm definitely an admirer of Charles Schwab.I think he'sbuilt a great organization,and he's done it allmore organically. He's not really been a great acquirer over that. So any time you see somebody has done that over as long as he's done that, your hat has to be off to them, you have to give them a certain amount of respect and admiration.And I've learned a lot from watching them over 25 years. I'vealways admired them, wellbefore I joined TD Ameritrade. So I think,inside our industry, that's where my head would be at. I think,the other side to me is,because of the way I feel how we run it,I'm a big admirer of some of the tech companies, whether you want to call it the [Amazon.coms], theGoogles, theApples. I would putBlackRock in that category,if you think inside financial services. They'reorganizations that are very clearwhat are business is. They knowwhat they do; they're very focused. If you look at them, they basically keep theorganization focused on alimited number of things, and they drive hard and focus very hard. They also tend to have people who look at where the sector trends are, and are not afraid to invest into thoseand adapt theirbusiness model. When you think about BlackRock basically had the courage as a big, active investment management shop, to go out and buy iShares -- a disruptor of their business model. But, they had the courage to go up and pay out for that and say that's where the world's going.I'm sure some of the people thought they bought the enemy. But they had the courage to go do that, and make it work. When you look at Apple, if you read Steve Jobs' book, incredible focus. He really brought technology to the masses. He'snot the only one who did, butif you read his book,the hardest part was alwaysgetting the organization. It was one income statement,all-for-one, one-for-all kind of model. But he focused on three things and wouldn't let it be more than three things. I think, you look at Amazon,data and analytics, and online retailing, a lot of what we've done, and I've been trying to build the capabilities around, I thinkAmazon has been a great online retailer of products. So I think when you look at those firms, they've beenvery focused, they'velooked at the trends, they builtcapabilities, thought about the long term, and they'renot afraid to innovate and go with the trends and focus their organizations where they need to go.Hall: I think a key thread ofalmost all the companies,and the people who built those companies that you talked about is, you look at a lot of long-term success. But you also look at companies that are, today,very different from what they looked like 15 or 20 years ago or even farther back. That's a definite common theme there. I think,you talk about where TD Ameritrade is, andit sounds like you want to make sure that your company is in that same position to be able to adapt for whatever the future looks like. So that's a pretty powerful list of companies and names you've given.Tomczyk:Yeah,I think you have to take that long-term perspective as a CEO. When I first came in, we had a lot of hedge funds in our stock. And we basically changed all that. We have a lot of long-term investors, people who have a three to five [year] or longer-term time horizon,because they realized, that's the way we're running the company, andthat's what they want to invest in. One of the best things I ever heard, and I heard it from Marc Benioff fromSalesforce.com,that I think it's particularly relevant to organizations, is, you always overestimate what you can accomplish in one year. You'llnever get done inone year what you reallythought you could. But you alwaysunderestimate what you can accomplish over 10 years, if you put your mind to it.Hall: That's a powerful statement. Any other keybusiness considerations that you would like to emphasize to theanalyst community? Specifically things that areoften overlooked?Tomczyk:I think analysts understand us pretty well. We've had astrong growth orientation, we've alsoleveraged lean methodologies, which is aToyota model that we've put in, to help us be moreeffective and more efficient in what we do andhow we do it.

Keep in mind that theorganization that I inherited was built through acquisition. So whenever you get those types of organizations, basically, you know you have a lot of, you plug something in and move on to the next deal. You have a lot of inherent inefficiencies in your processes and what you do and how you do it. And surfacing those,leveraging your front-line people, thepeople doing the work every day,has worked very well for us and given us a lot of room to free up resources and focus on ourallocation of resources inareas that are driving the growth.Hall: I think one of the challenges a lot of companies deal with, whether they've grown throughacquisition or organic growth, isrelentlessly focusing on that balance betweendriving costs down while alsomaking sure there are enough resources tocontinue driving growth. It's a tough balance, but it'ssomething that I think managements do have to be relentless about.Tomczyk:That's right. Particularly when you're running it like a tech company or an onlinecompany. You have tocontinually focus on lowering your cost to the client, and at the same timecontinuing to innovate and invest. It'ssomething you have to build into thebusiness model that you run. And theother thing I would add is, I think, the relationship with TD has beenbeneficial to both parties. And it's been a key part of our leveraging of the way we manage our cashmanagement with TD has been a keydifferentiator for us,at least over my tenure.Hall: Providesa certain level of stabilityfor the organization, you think?Tomczyk:It does that, but basically, we run a model that's very capital efficient. So, we don't use a lot of capital, so we basically wind up, on top of it all, running a model that's very much an agency broker, with low capital intensity. Our earnings are largely all free cash flow, so we can return a lot to our shareholders, which our shareholders like as well.

The article Exclusive In-Depth Interview With TD Ameritrade Holding Corp. CEO Fred Tomczyk originally appeared on Fool.com.

Jason Hall owns shares of Amazon.com and Apple. The Motley Fool owns shares of and recommends Amazon.com, Apple, Salesforce.com, and TD Ameritrade. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.