Scottrade CEO's secret sauce: Cheap & good

By Jack Reerink

ST LOUIS (Reuters) - Cheap and good. It's been a winning formula for Rodger Riney, the founder and chief executive of brokerage Scottrade. And he's not about to change it.

"Don't overprice yourself. It's a lot easier to start a business by being a value provider as opposed to having premium prices," said Riney, a down-to-earth St. Louis native who set up the privately held firm in 1980 in Scottsdale, Arizona.

Topping Riney's current to-do list is using his 505-branch network to roll out a retail bank this summer with full services like loans. His oldest son has already been dispatched to the banking service center.

"We did have the meltdown to teach us a few things about banking. It's very beneficial to be a little later to the party," soft-spoken Riney said in an interview on Tuesday, adding that the bank already holds $8 billion from brokerage customers.

Riney's other priorities are similar to what his rivals are plotting: to crank up services for financial advisers and to prepare for trading over mobile phones.

What sets Riney's firm apart from Charles Schwab <SCHW.N>, Fidelity, TD Ameritrade <AMTD.O> and E*Trade Financial <ETFC.O>, are its 505 branches, typically store fronts in shopping malls. The reason is that more than half of Scottrade customers like to use the offices to ask questions.

Branch expansion will slow to a trickle this year, from annual growth of 15 percent, until it becomes clear what the retail bank needs, said Riney.

There's one exception: Hong Kong. Building on a network of about 30 branches that cater exclusively to Chinese-Americans, Riney is setting up a processing center there to power growth from customers in Taiwan and China trading U.S. stocks.


Riney got his start at Midwest brokerage Edward Jones in the late 1960s, updating stock prices on a board. After a decade, he figured most people could do research for themselves, and set out to create a do-it-yourself brokerage. He was quick to jump on the Internet trading boom in the late 1990s, and led industry trading fees downward.

Price wars currently are unlikely, Riney said, adding he is in no mood to undercut his own $7-per-trade commission. He expects his 2.5 million customer base to expand at a clip of 5 percent, a long way from the "frothy" 1990s but still decent.

"Older, self-directed investors have tried online investing, so the easy accounts have been opened," Riney said. "But we see a good influx from the younger generation."

These folks will power mobile trading from just 1 percent of his business now, said Riney, who is in his mid-sixties.

"It's just their cup of tea: texting and phone stuff," Riney said. "We're all going to pulled into mobile: The speed has changed and the device capabilities have improved."

Scottrade currently does more trades than E*Trade's 177,000 a day but is "no bigger" than the $190 billion in client assets that E*Trade holds, he said after much wrangling.

Riney was apologetic about not sharing hard numbers, saying that's the advantage of being a private company. And that's just how he likes it.

"We have no intention of going public, now or ever, he says, adding he's not had a losing month since the late 1980s and has never laid off any of his 3,500 staff.


Most online brokers are chasing the adviser business, either directly or by creating units that cater to independent financial advisers for custody, trading and funds. The reasons: Ever-dropping commissions and tightening trading spreads.

"Discount houses are aware that trading commissions are not going to go up," said Benjamin "Tad" Edwards, a scion of the Edwards brokerage family who has set up his own shop.

While trading made up the brunt of the online brokerage business during the dotcom bubble, it's now down to less than one fifth at Schwab and less than half for others.

Riney has set up his own unit for adviser services to compete with Schwab, Fidelity and TD Ameritrade. Those three increased assets under custody by almost a fifth to a combined $1.3 trillion last year as independent advisors led industry growth. (For a graphic, click )

Riney's target is for the advisory services business to make up 30 to 40 percent of the total in five years, from 5 percent now. Part of the strategy is launching low-cost exchange traded funds.

The effort got off to a rough start when his ETFs suffered a mini "flash crash" and briefly traded for pennies. A market maker had punched in the wrong numbers.

"It was embarrassing," Riney said, adding he still does business with the market maker. "It's an honest mistake and you've got to be patient with people"

Patience is key, said Riney, describing himself as a "sit-and-hold" investor "burned" in options and commodities.

"We love active traders," he said. "But for the investor, the longer term you make it, the better your odds of success."

When he trades, Riney, who does not own a laptop and says he under-uses his BlackBerry," goes to Scottrade's web site: "Even I can figure that out."

(Reporting by Jack Reerink; editing by Tim Dobbyn)