Interactive Brokers Group (IBKR) is following other RIA custodians by eliminating commissions it charges financial advisors to trade U.S. stocks and ETFs on behalf of investors.
At their request, small RIAs will be given access to the company’s IBKR Lite platform, a simpler, commission-free version of its trading platform, the company told RIA Intel. It did not share how it defined a small RIA.
Some clients and wealth management firms stand to save significantly if they no longer must pay to trade stocks and ETFs. And if the savings aren’t enough to make a material difference, the act itself is important, as clients are becoming more fee-conscious.
Still, Interactive Brokers believes RIAs that custody with it are better off sticking with the IBKR Pro platform.
Any RIA that qualifies will be given the chance to switch between the two versions and test to see which is best for them.
After IBKR Lite was unveiled earlier this month to retail investors, Evan Rapoport, the founder and CEO of SMArtX Advisory Solutions, which offers managed accounts and a turnkey asset management platform, reached out to Interactive Brokers to ask if the cost-saving would extend to RIAs. An email between him and an Interactive Brokers employee suggested that IBKR Lite might “never” be offered to advisors.
At the time, Steve Sanders, an executive vice president of marketing and product development at Interactive Brokers, told RIA Intel that “never” was not a word management would use but indicated there was no imminent plan to eliminate commissions for its RIAs.
Plans or not, just four weeks later Interactive Brokers is following Charles Schwab, TD Ameritrade, and Fidelity Investments in eliminating trading fees for RIAs.
An argument can be made, however, that Interactive Brokers had the spotlight stolen from it. The company launched IBKR Lite the week before Schwab upstaged it by slashing commissions, which triggered the rapid fee eliminating at other brokerages.
And Altruist, a new digital, commission-free custodian for RIAs that includes much of the software an RIA would need, has been praised by advisors for its savings potential. But Interactive Brokers has long offered support and services to RIAs for free.
Interactive Brokers’ advisor portal and account management platform has a built-in customer relationship management system (CRM), something most other advisors must pay for themselves. It take prides in how easy it has made account opening and other advisor tasks. “We tend to automate everything. We’re really a technology company in the brokerage business,” Sanders said.
The custodian’s platform also recently added a system to build and manage model portfolios and has always had its own reporting system, which includes consolidated views of assets for clients and advisors that Sanders described as “certainly superior” to similar tools from competitors like Mint or Personal Capital.
Interactive Brokers also builds websites for RIAs for free and provides complimentary compliance support to firms that partner with it so long as they custody with the firm. RIAs typically bear all these costs.
To be sure, Interactive Brokers’ custody business with private wealth managers is puny compared to Schwab and others. About 4,580 RIAs use IBKR Pro and have total assets custodied of about $25 billion. Schwab custodies more than $1.5 trillion in assets for over 7,500 RIAs.
But Sanders, who started Interactive Brokers’ RIA custody business and considers it “near and dear” to him, is quick to remind observers there are commissions charged to investors and advisors beyond those formerly for stocks and ETFs. The markups on bonds, poorer trading execution, and anemic yields on client cash at some competitors are some things he finds head-shaking.
In the long run, he argues that Interactive Brokers is well-positioned to compete against giant competitors. It has made a business out of helping smaller advisors establish their own RIAs.
“At first, nobody wanted to listen to us and probably the thing that helped us the most was the increased capital requirements that caused the very large RIA custodians to discriminate and not want to take on the smaller advisors,” he said.
“It’s just been wonderful to see these small advisors become big advisors over the years.”