Returning money back to investors. Whats behind it and what it means for the Hedge Fund World the Investment Committee is ready to go. Halftime report starts right now. Good to have you with us. Our Investment Committee in front of you right there, joe terra nova and pete that jdiana becky quick reporting it could come as early as today, 5trillion did assets under management best day since 08 Charles Schwab for its best day since november of 2011 a lot to talk about here. The potential synergies are all about costs. If you think about it, Td Ameritrade has been this serial acquirer over the last couple of years and have been able to with scott trade have cost synergies and in terms of reduction of 60 to 70 i dont think youll have that type of Cost Reduction here with Charles Schwab i think it will be somewhere around 40 to 50 in terms of cost synergies but a strong dea for them specifically. Obviously very negative for etrade. I had talked about a couple of weeks back that etrade potentially would be the one that would be acquired. You did you mentioned that, i believe around the time we were talking about the race to zero in the commission. Right so this is very surprising this is what it means for the investor for the investor this is good news this is just a continue compression of fee fees will be lowered for the Asset Management industry and fees are going down for ri. S and fees are going down for online brokerage and thats the story. I dont see any Regulatory Risk like people are talking about. I just dont see it. If theres any small risk here, its the fact that t. D. Bank owns 40 of Td Ameritrade and they have a significant sweep business so 114 billion goes into sweep every night into td bank at 1. 5 what will be the banking arrangement with schwab Going Forward. Doc, somebody know about this thing back in the middle of october. It appears somebody did, scott. They werent buying Td Ameritrade nor were they buying etrade and i agree with joe thats the one i thought they would take out, etfc but instead it was ameritrade and they bought schwab calls. The day before earnings in schwab, they bought these calls aggressively, scott, and those calls were not the calls thaads expect they werent shortterm call, they were all the way out till tomorrow, till the 22nd of november whoever was buying those, it was not just an earnings play. We talk about that so frequently instead this was a play for perhaps news like this, they paid 25 cent, scott. Those calls were worth as much as 8 this morning thats 32 times your money on that investment. I did not have them, sadly. Should we be surprised, pete, as joe is mentioning that its Td Ameritrade and not etrade that is getting scooped if this deal i think it was a matter of one over the other i guess what id say is this, its an asset grab, right . Thats what everybody is up to right now, 5 trillion in assets when you put this combined entity together so why are they doing this advisory grab. Right, absolutely and the efficiencies that online already has advantages in certain efficiencies but the one area i think people probably arent recognizing yet, once this deal gets done and moves forward thats a lot of employee, right . Do you think theyll need all those employees . Thats no. Thats going to cost the cost to those people in terms of as workers is going to be brutal thats unfortunate but the reality is were talking about huge numbers, scott, when you combine these two names in terms of employees that youre going to cut. Maybe. For efficiency reason. If youre looking to build up your ria in Wealth Management business, more may be better more in terms of assets, i would agree. Its all about scale but i services. This is about services too, not discuss about getting a bigger number. There will be some services but, well, ill go out and a limb and tell you when you look at the number of employees were talking, theres probably going to be a cut of 30 after year one of this transaction. 10,000 job, scott. Are we surprised etrade is down the way it is i know they feel left out today, but you can only think, perhaps, megan that in a sea of consolidation, why wouldnt they be next . Well, thats possible and i think as we look at this part of the banking and financial sector, this is a race to the bottom when it comes to fees thats a great thing as joe pointed out for the consumer and not so much for margins of some of these companies and so its not terribly surprising we are seeing some of this consolidation, schwab led with the move to commission and leading with some of this consolidation in the industry. I think its possible we see further consolidation. I also think its possible that per joes suggestion that maybe they were an acquisition target that maybe there was some of that baked in and thats kind of explaining in terms of the multiple what were seeing. I was going to agree with megan completely we dont know what the deal was if there were even talks but if there were talks maybe the deal wasnt sweet enough for etrade to consider taking that deal the Td Ameritrade is much more of an asset grab to petes point than it is the transactional business they have transactional business, yes. They do over 500 million a year, i believe, in payments so that tells you how big it is but its much larger on the asset side than etrade so what kind of premium would you be willing to pay or say well let them sit out there and twist and acquire them at a much lower price later on. I think youll see compression also with the ria business, scott. In other words, we all remember when it was 1. 5 then 1. 25 and 0. 75 . These are going down the same way the etfs like s p 500 etfs like gold ensax has one for 15 bips its the entire industry. Whats also interesting about in and etrade is out there Interactive Brokers are out there as well but now go back to td bank. Youll have a bank thats going to have 13 of this combined entity an interesting proposition if you think to yourself bank of america, Morgan Stanley, both have online brokerage offerings so i think youll see banks now more involved in the Wealth Management business, does etrade, does Interactive Brokers in that some sort of capacity etrade youll not getle advisory business but also somewhere down the road you have so phi coming. Sofi will be a major player and goes back to what megan says, great for the end use of the customer. Our next guest has thoughts about this ive seen him on twitter and he can expand on them now lets bring in josh brown, one of our very own. Josh, what do you make of this i thought pisani summed it up well this the earlier programs, that advisory and Wealth Management, thats where the money is, thats why a deal like this is happening. If youre not having any commission, you need to find your revenues from somewhere and you find your revenues by getting more customers what do you make of this story i think thats fair so im a customer of both schwab and td on the institutional side and they both do a great job so this is particularly meaningful to me how this thing shakes out but the good news is and i agree with pretty much all of the points that everyone on the desk made today, the good news is this does result in a net win for the adviser using these services as well as the end client and i dont know that i would term it as a race to the bottom what is actually really happening and the reason why etrade was not relevant and would not be acquired is this about Financial AdviserCustody Services where all the money is, thats where all the flows are going. The retail like buy and sell stock business died 20 years ago and no one told them so like this is really all about trillions of dollars that are on the adviser side and providing other services then. Now, the key to getting a commission is you have to replace that with Something Else and they have. Theres a phantom fee in the form of money market funds paying less than market rates and a lot of these Wealth Management accounts keep a large amount of money in cash and Cash Management is a Good Business if you can do it at scale so you need to acquire and thats why it makes sense that you see swb doing this because the bigger you are, the more you can make on cash sweet products and that is where their real profits are. Theyre not in buy this stock, sell that stock. S that a zero business for a long time now. Maybe there is a little bit of profit margin in options trading but straight up equity and etf trading is not a profit business Cash Management is and joe hit on that and i think pete hit on that and thats what i really think is happening here. You have talked about schwab in the past. Do you still own it . I dont own it. I had gotten out on the rebound after the Commission Free trading and i dont think i would buy it back and thats not to say that dont think theyre making a good move i do im just in other financials that i think are better positioned one further point that i think is really important, you know, when you think when you think about whats so great about fintac sofi was mentioned new companies coming up as custodians to advisers that are going to now say, okay, schwab, fidelity, pershing to a lesser extent sei now own this entire ria class of biz and maybe theyll be less competitive now that they have more market power so you have this next generation of custodians coming up and they will be more aggressive and this cycle will continue to play out so i think, again, the net benefici beneficiaries are the end clients and i welcome it. I mean, you wouldnt own etrade . No. Whats etrade well, i mean the likelihood you could make a case there will be so much consolidation they will get bought and now that its trading at an 8 1 3 discount in theyre not in any businesses that matter buy and sell stocks for retail clients. Thats a dead business theyre nowhere in custody there are now three players that matter its only fidelity, schwab if this goes through and persian and nobody else in brokerage matters so i know Interactive Brokers, people love it. I know etrade there are people who like it im not saying they are not good at it but they dont have the scale at it and are not growing no interest. I think its so interesting schwab was the first one to lower fees to zero Percent Commission and you had a table up on the screen before. They get 6 to 7 of their revenues from commissions whereas Td Ameritrade sold off hard on that news, also had to lower and get a huge amount of their 30 of their revenue from trading commissions and i think Going Forward, the price reaction from Charles Schwab on this news seems to be pretty positive, like the market is pricing in fairly low execution risk i do think there is some execution risk this is a pretty big deal, particularly for schwab which does not tend to do big deals like this. Josh, its joe. Fidelity, fidelity, schwab and pershing, these three firms before todays deal, 74 of all client assets in the ria Custody Business they already had 75 of client assets now youre going to have three companies that have 100 theyre going to do really, really well. What do you think this means for the traditional adviser community, the merrill lynch, Morgan Stanley do you think this places more pressure on them yeah and thats another secular trend that i think this accelerates because one of if youre at meryl lynch or Morgan Stanley, one of the main reasons you havent left to hang your own shingle is because you think youll lose service. So you say, you know what, im comfortable, all my stuff gets done here. My clients needs are met. We can do lending and do things that clients want us to do that are beyond just recommending mutual funds, schwab is becoming formidable in things like lending and if you do High Net WorthFinancial Advisory business at a wire house and now you look at the scale that schwab is amassing you have to say to yourself, you know what, that might be a better deal for me to start my own ria, custody my assets at schwab, there is nothing schwab cant do as a brokerage, a bank, an asset manager, a camp, et cetera, et cetera, that my current firm is doing like they can do everything i have to take that seriously as a competing way to run my business and i think thats a really good point, joe. To johns point before, though, does that not place added pressure on ria fees and you see significant compression there. So you dont see significant compression in ria fees. The story of the last ten years is that whoever is closer to the client wins. So all of that fee pressure has been on Asset Managers riis have maintained the percentage they charge clients but whats changed is they have leeched all of the costs out of the portfolio itself so one ten years ago might have an internal ratio of 125 basis points using actively managed funds now the adviser still charging 1 but the portfolio costs nine basis points so the client is winning but the adviser is not ceding margin but taking that margin away from Asset Management and keeping it for themself which quite frankly is like the law of the jungle everyone is looking out for number one might there be pressure on advisory fees Going Forward as a result of this, i just think there will be anyway as the industry consolidates. There will be firms that get big enough that say, you know what, were going to cut fees before the next guy and that will play out regardless im not sure if the custodians merging is going to be a big factor in that. We appreciate you calling in. Appreciate getting your thoughts thanks see you back here. Bye all right thats josh brown. Last point, no one has taken a look at an etrade today. Not at all. Not by me, john. No, i think they go under pressure a lot of pressure in the short term, scott. And maybe its somebody else im not saying schwab did this to hurt them again, we have no idea what the negotiations were. I think that its likely that youll see some others in the space, whether its fido, whether its fidelity, whether its Interactive Brokers, any of those potentially tying up with an een trade. If this was the big dance to happen maybe theyre the ones who got left out of the party. I think they are the ones that got left out of the party if there is further dancing to be have its Goldman Sachs or someone like that who needs to be participating in the Wealth Management conversation, stepping in, going to td and saying, id like to buy your 13 or 14 of this new schwab Td Ameritrade conglomerate. Lets take a turn and talk about macys off sessions low still getting hit. Profits beat estimate, revenues and comps missing the mark there. Macys also slashed its full year guidance. The ceo says q3 sales impacted by what he calls the late arrival of cold weather, continued soft International Tourism and weaker than expected performance in some of their lower tier malls pete, i turn to you. You had a long conversation about this yesterday you had macys calls still do. Theyre out till january and like i said yesterday, there are stocks you want to own and stocks you want to trade through the options. For instance, when you look at Something Like macys, the only reason i own them, there was unusual activity and bought 20 plus thousand of the calls and that was intriguing. Somebody is playing more than the earnings, otherwise why are they going out till january . What they are playing for are the short squeezes we see happen all the time with a 30 plus percent Short Interest rate in macys, yeah, today you see it down about 20 cents or whatever that is. Nothing huge at this point in time what if the next we will see some moment in time where the stock starts to move to the upside and then theres that clamoring for tock to cover a little bit when they do that thats when you get exaggerated most of the upside the only reason im in there i dont think they and nordstrom and some of the other names have made too many mistakes theyre too far behind and have got to figure out what theyre doing in terms of who is their audience these days. Thats the problem scott. They dont understand their own audience in my opinion especially with the changing world that were in where not everybody has to wear a sport coat and tie every single day to work, jiet thats something that they have not grasped their arms around, i dont think, whether its nordstroms or macys or any other highend retailers. Tjx is the thing. Thats what i think of when we see macys and kohls. Tjx has taken the business away from them. Macys has tried to recreate themselves theyve done a lot of things but you can argue they havent done the right things in terms of recreating some form of a strategy, so macys where it sits right now the real value is in the real estate it hold, herald square. Long story. Thats been around forever. Real estate play like kmart was. Macys biles will be a reit and i think tjx when youre looking at what macys and kohls problems have been, it has been to the benefit of tjx. Its even worse if thats the word you want to use when you have an environment where everybody who comes on this network from investor to ceo to money manager saying the consumer is great, the consumer is great