Interactive Brokers Group, the deep discount brokerage with a reputation for catering to active traders, is quietly building up a significant RIA custody business.
Since rolling out its custody service a decade ago, Interactive now serves 3,550 “professional” advisors, said Steve Sanders, executive vice president of product development and marketing. Professionals include both investment advisors and commodity trading advisors, who together handle about $14.5 billion in client assets.
The firm also clears for 183 broker-dealers in which the relationship with Interactive is disclosed to the clients (those relationships total $7.4 billion in assets), and another 157 B-Ds in which the relationships are not disclosed and the B-D acts as a white label firm for the service (those relationships total $6.1 billion).
The company’s professional assets under management are up 41 percent year over year for the year ended February, while fully disclosed brokerage assets are up 56 percent and non-disclosed balances are up 148 percent, according to Sanders.
Those growth rates on the custody and clearing side beat the firm’s still-respectable 38 percent growth in its individual investors business.
The RIA growth comes from U.S. advisors, and the broker-dealer expansion is coming from overseas, Sanders says, where local firms don’t have a lot of alternatives other than Interactive’s global platform that offers access to 120 different markets.
Interactive heavily promotes its universal global account, in which investors and advisors can trade multiple vehicles in multiple currencies from a single account.
And of course, there are the super-cheap transaction fees that have always attracted clients. The firm charges about one dollar for the average retail stock or option trade, which scales up slightly for larger orders, so the average cost per trade among the firm’s clients (both retail and institutional) comes to $2.36, Sanders says.
In addition to the cheap trades, Interactive touts its automated “smart” order-routing system for best execution, and it says its margin financing rates are significantly cheaper than those of competitors.
For advisors, the Interactive platform has historically appealed to those who run actively managed tactical portfolios and options strategies. But over the past few years, the firm has added more buy-and-hold advisor clients, especially from overseas, Sanders says.