Less active accounts can benefit from Interactive’s unique stock-yield enhancement program, which allows clients to share in rebates of stock-lending fees, Sanders says.
It is those types of competitive enhancements that make Interactive a legitimate alternative to the bigger RIA custodians, said Michael Freeburg, founder of Greenwich Wealth Management in Greenwich, Conn., who has used Interactive for about as long as the company has been in the custody business.
“Ten years ago, I’d say Interactive Brokers was not a fully integrated enough shop” to support advisors, said Freeburg, who splits his nearly $1 billion in assets between Interactive, Fidelity and Schwab. “They were more of a clearing firm for professional traders. … But over the last 10 years, they have really ramped it up and spent a lot of time and energy into making everything an advisor would need,” namely, by adding better reporting and account-management capabilities suitable for retail clients.
Freeburg figures that with actively managed accounts, advisors could save 30 to 50 basis points a year in trading costs at Interactive, and he says he can add another 30 to 35 basis points from stock-lending fees.
One thing Interactive lacks is banking capabilities, Freeburg adds. “So if a client has a need to do check writing through their account, [the firm] would not be a good solution at this point.”
Last November, Interactive rolled out a compliance consulting unit for advisors, Greenwich Advisor Compliance Services, to help new advisory firms get launched.
Sanders says the firm sees potential in the more than 11,000 yet unregistered “friends and family” advisors it supports. As these small investors-turning-advisors grow and have to get registered, the compliance unit for a “nominal fee” will handle the registration paperwork while the firm sets them up with a website and a CRM system, he says.
Advisors using Interactive now have a robo platform, Covestor, which was acquired in 2015 and offers actively managed portfolios at low fees. Additionally, Interactive Brokers offers an Investors Marketplace and a Hedge Fund Marketplace, where investors and advisors can find third-party money managers and CTAs.
Freeburg has gotten a few clients by listing on the marketplace, and has used both the robo and hedge fund market for his clients.
Interactive “makes sure the barriers [to entry and exit] are very attractive,” he said of the hedge fund market, “and that everyone has to play well together.”