It’s a crazy time for custodial firms as investors — lacking sports to watch and sheltering at home from the coronavirus — plow into the markets. But can smaller players like Interactive Brokers innovate in ways that simultaneously draw both retail and RIA clients?
“Absolutely. Why not? For a smaller trading platform” like Interactive Brokers, “you’ve got to attract more advisors, and a larger marketplace [of products] is going to help you do that,” said tech consultant Craig Iskowitz, head of Ezra Group.
With more funds available, Interactive Brokers could draw more RIAs to its technology. “It’s worth a shot given their position and the disruption now going on in the marketplace,” Iskowitz explained.
Interactive Brokers rolled out a Mutual Fund Marketplace on Tuesday. The electronic broker had some 1.72 million daily average revenue trades in April, down from nearly 2 million in March but up over 120% from a year ago. It has over $30 billion in assets tied to RIAs and their accounts.
That news came just a week after the firm, which has worked with RIAs for some time, launched a new white-label wealth platform in partnership with TradingFront.
Interactive Brokers’ new fund lineup gives U.S. clients access to some 6,400 funds with no loads or loads waived and 4,300 funds with no transaction fees; other funds are available at $14.95 per trade. It works with 290 fund families worldwide.
Larger rival Charles Schwab, for instance, has about 7,350 no-load funds, and about 4,300 funds with no transaction fees; it works with over 710 fund families in the U.S.
“A lot of things in this business are a number game,” Iskowitz explained. “Maybe you have 10,000 funds or 25,000. Most investor assets are in the top 10% of funds, but this gets you press and can attract advisors.”
This is because platforms with lots of funds mean advisors don’t have to liquidate client holdings when they move assets from one custodian to another. “The funds can just stay in place,” he said.
Advisors also want platforms that make it easy to search for funds, Iskowitz added, along with options trading, a good interface and other features.
Wealth Platforms Galore
“Last week’s news was new and interesting,” said Iskowitz. “We hadn’t seen much from Interactive Brokers in the tech field and with platforms tied to [innovative] technology for RIAs.”
According to the consultant, there are at least 47 other wealth management platforms for RIAs that include everything from client onboarding to reporting to rebalancing.
“How can they all survive? I am not sure, but it seems like they are,” said Iskowitz. “It depends on their cash and how they can hold on to it.”
For Interactive Brokers, time will tell. “They are going into a space that is low margin,” he said.
Maybe the firm can pick up some RIA clients who don’t want to be part of the Charles Schwab-TD Ameritrade merger.
“Advisors need a lot, and the more you have to offer them, the more you are going to get their attraction,” Iskowitz explained. “Half of persuasion is getting attention.”