Author Topic: IBKR - Interactive Brokers  (Read 76966 times)

Philip Morris IV

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Re: IBKR - Interactive Brokers
« Reply #390 on: April 19, 2017, 12:53:00 PM »
I am not sure your size, but IB basically has a monopoly on RIA businesses under about 10-15m, so out of the gate a lot of people are selecting IB, but I don't know how long these people stick around.

+1

Until their account RIA business reaches $15000001 in size probably  :P

We joke but this is very difficult to model.  For RIAs, changing custodians is a huge PITA because every client account has to be closed, re-opened and transferred, and at the risk of attrition.  You could say there is a high switching cost involved and most RIAs generally do not switch custodians unless they feel especially compelled.  (While RIAs can certainly use multiple custodians, for small advisers you can assume they will only use one to meet minimum AUM requirements.)

I like this name overall but strongly feel IB needs to up their game in this space for me to be comfortable buying.  The minimum AUM requirements for most other custodians (Schwab, Fidelity, TD etc.) are around the $10-15 million mark as noted - not especially high for this business - and advisers breaking away from wirehouses will overwhelmingly meet those requirements and go with the more well-known custodians.  As well, most RIAs passthrough the ticket charges onto clients and therefore are not very cost-conscious, so the key to competing in this space is advisory software, service and brand name - all of which they appear to be trailing peers on.  It is an attractive market since RIAs are effectively a cost-free salesforce for accounts and assets, so this should be a serious area of focus for them, but it doesn't appear to be.

Travis Wiedower

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Re: IBKR - Interactive Brokers
« Reply #391 on: April 19, 2017, 02:53:11 PM »
Petterfy mentioned this video on the call. Thought it was interesting
http://video.cnbc.com/gallery/?video=3000608157&play=1

Thanks for posting, I couldn't find the interview. He does a better job of explaining it there than on the call. Interesting stuff.

We joke but this is very difficult to model.  For RIAs, changing custodians is a huge PITA because every client account has to be closed, re-opened and transferred, and at the risk of attrition.  You could say there is a high switching cost involved and most RIAs generally do not switch custodians unless they feel especially compelled.  (While RIAs can certainly use multiple custodians, for small advisers you can assume they will only use one to meet minimum AUM requirements.)

RIAs should be extremely sticky customers. I only have 11 accounts and it pains me just to think about what that process would entail. Hedge fund clients are also sticky, but obviously switching is easier for them (a little over 50% of hedge funds only use one prime broker by the way). I met with a manager several months ago (mid-ten figure AUM hedge fund) who switched from IB to a mini-prime and he said it was a pretty meaningful disruption to his business for a couple weeks. He also admitted he's getting worse pricing now (which should probably be a concern for his clients but whatever).
My investing blog: Egregiously Cheap

Spekulatius

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Re: IBKR - Interactive Brokers
« Reply #392 on: April 19, 2017, 04:01:37 PM »
Petterfy mentioned this video on the call. Thought it was interesting
http://video.cnbc.com/gallery/?video=3000608157&play=1

Thanks for posting, I couldn't find the interview. He does a better job of explaining it there than on the call. Interesting stuff.

We joke but this is very difficult to model.  For RIAs, changing custodians is a huge PITA because every client account has to be closed, re-opened and transferred, and at the risk of attrition.  You could say there is a high switching cost involved and most RIAs generally do not switch custodians unless they feel especially compelled.  (While RIAs can certainly use multiple custodians, for small advisers you can assume they will only use one to meet minimum AUM requirements.)

RIAs should be extremely sticky customers. I only have 11 accounts and it pains me just to think about what that process would entail. Hedge fund clients are also sticky, but obviously switching is easier for them (a little over 50% of hedge funds only use one prime broker by the way). I met with a manager several months ago (mid-ten figure AUM hedge fund) who switched from IB to a mini-prime and he said it was a pretty meaningful disruption to his business for a couple weeks. He also admitted he's getting worse pricing now (which should probably be a concern for his clients but whatever).

It would be interesting to know why he switched?

As a client that has just a few 100k with them, I feel IB has advantages, but also serious drawbacks. There is not one broker, that meets all my demands, but Fidelity and IB probably come closest.

If Fidelity makes their international trading  and more competitive and allow trading for dark stocks again or IB fixes their reporting and their punitive commissions for lower priced shares, I could envision myself to move completely to either one.
To be a realist, one has to believe in miracles.

sae85400

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Re: IBKR - Interactive Brokers
« Reply #393 on: April 20, 2017, 08:02:10 AM »
Being in the RIA space and using IB, formerly used TD:

1. Custodian have begun to compete with RIAs for clients(Schwab, TDA and Fidelity mostly)
2. Investment mixture matters: A lot breakaway advisors use Funds or ETFs that are free to trade on the other platforms
3. Peformance reporting, soft dollars, client referral: 3 big issues for RIAs. I have a friend who hates TD, but they refer him close to $10mm AUM per year, so he won't risk leaving.

roark33

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Re: IBKR - Interactive Brokers
« Reply #394 on: April 20, 2017, 09:27:20 AM »
I don't understand, they are referral sources, but they also compete with the RIA?  I know the competing part, but don't understand the referral source part.

Philip Morris IV

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Re: IBKR - Interactive Brokers
« Reply #395 on: April 20, 2017, 11:56:37 AM »
Yeah I can't recall ever hearing of a discount broker-custodian referring clients to an RIA.  With thousands of RIAs on their platform, how would they choose?  Maybe if a client asks TD customer service and is in the same local area, but I can't imagine that happening often, and $10M AUM/year is not insubstantial to receive via referral.

sae85400

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« Last Edit: April 20, 2017, 05:43:34 PM by sae85400 »

cmlber

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Re: IBKR - Interactive Brokers
« Reply #397 on: April 20, 2017, 07:13:22 PM »
Yeah I can't recall ever hearing of a discount broker-custodian referring clients to an RIA.  With thousands of RIAs on their platform, how would they choose?  Maybe if a client asks TD customer service and is in the same local area, but I can't imagine that happening often, and $10M AUM/year is not insubstantial to receive via referral.

Schwab February 2015 Investor Day:

<A - Bernard J. Clark>: So, we've had, I would say, loosely three generations of a referral program that you were describing. This is where someone in the retail network, someone in the branch has a need that seemingly we're not meeting at that point in time or they want some additional sophistication. They want maybe an advisor. They get referred to two advisors or three advisors. The advisors then determine with the client whether there is a good match there for them to become a client of the advisors. We call it our Schwab Advisor Network. And in fact, last year, we put $5 billion into we put more into it, $5 billion closed into that network, and we have over $50 billion in total now within the Schwab Advisor Network. So, it's incredibly important.

abyli

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Re: IBKR - Interactive Brokers
« Reply #398 on: April 21, 2017, 06:43:44 AM »
IB changed the market data bundle. Anyone knows which one should we subscribe now? Thanks.

flesh

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Re: IBKR - Interactive Brokers
« Reply #399 on: April 21, 2017, 11:25:55 AM »
After reading a wsj article this morning about what happens when cap gains taxes are reduced it made me think this would benefit IB's trading volume.

Essentially, when cap gains taxes are lowered, naturally you'd have increased selling of long term holdings increasing trading volume plus bringing in more tax rev to the gov.

Longer term, one would think that there would be more churn in general. IG, if cap gains rates are zero, holding periods should shorten. Therefore, if rates go from say 20% to 15% or a 25% reduction in any related cases, there should be some degree of shortening of holding periods resulting in more trade volume sustain-ably, or as long as rates are held at the newly lowered rate.

Long term, I suppose there would be less total tax revenue generated, however, if you're Trump, likely thinking in 4 year time horizons, it's a no braina. You'd get more tax revenue and fulfill the lower tax promise championed by his side. Perhaps, you're buddies would be happy as well. Considering the other side left Trump with few levers to pull, they've been pulled already, it seems unlikely he would miss this opportunity to assuredly bring in more tax revenue while optically lowering tax rates. From what I can surmise, this will likely happen quite quickly.