A new report from Forrester Research suggests that Ameritrade must focus on building its institutional online business if it hopes to grow.

Forrester analyst, Jaime Punishill, says that he doesn’t foresee much growth in the retail online business. Ameritrade acquired National Discount Brokers from Deutsche Bank for $157 million in stock last week. “With few discount brokerages left to acquire and a near-impossible transition to the midtier, future growth must come from its institutional business,” he says.

Punishill says that most of the other discount players aren’t good acquisition targets because they are either too expensive or too different culturally to make a good fit. For example, it rules out TD Waterhouse because it is majority-owned by TD, and has different core customers.

Forrester says that former Merrill Lynch executive Joe Moglia, now-CEO of Ameritrade, says that the NDB deal was great for Ameritrade because it: leverages its low-cost operations and will augment its efforts to attract segments it hasn 1t previously served. According to Moglia. “The merger will allow us to provide an offer with a better price that is more customized and has more choices than these segments are used to.”

It predicts that Ameritrade will struggle to attract mainstream investors away from rivals such as Waterhouse, Charles Schwab & Co., Fidelity Investments, and even E*TRADE, because they want firms with a physical presence, a broad choice of products, access to experienced representatives,
and advisory services – none of which can be added easily.

“While we donÕt believe that Ameritrade will find much growth from its retail operations, we think that its effort to take its low-cost infrastructure to the institutional marketplace affords the firm lots of room to expand. With many firms under pressure to lessen costs, and with scores of advisors angered by the retail-advisory efforts of current providers like Schwab, Forrester believes that AmeritradeÕs platform bolstered by MogliaÕs experience at Merrill Lynch will gain traction and win institutional clients.”