The brokerage business talks to this news service about how it serves wealth advisors in the US and further afield.

There’s been plenty of RIA merger and acquisition activity, and a steady stream of “breakaway” teams leaving large firms to set up on their own. And that means they need financial “plumbing” from new sources.

Dealing with the changes that all these moves cause means partnering with firms that can move fast, and that’s an important quality of Nasdaq-listed Interactive Brokers, one of its senior figures argues.

“We are a tech firm that happens to be in the brokerage business. The speed with which we have adapted has always been quick,” Steve Sanders, executive vice president, marketing, and product development at the firm, told this news service recently. 

Interactive Brokers’ custody business serves about 950 professional advisors with a total of about $43 billion in assets under management. This news service has interviewed it on how the firm fits into the wealth management space. 

The M&A side of the advisory world has kept the sector busy, adding to the work demands on firms such as IB when advisors have to review their systems. That said, M&A declined for the first time in a decade, dipping 5 per cent to 251 transactions, according to DeVoe & Company’s RIA Deal Book. (DeVoe competitor ECHELON Partners reported a decline of 6 per cent but recorded 80 more deals.)

Sanders, at the firm for 23 years, helped IB to construct a custody business, and said the firm is building a low-cost model for advisors to use. In the aftermath of 2008 and the financial crash, many advisors came out of banks to form their firms. IB also looks after broker-dealers, and other financial services models, he said.

“The RIA audience is very important to us,” Sanders said. IB provides services such as a portfolio management system and various portfolio management tools to provide a comprehensive platform of services to advisors at no additional charge. For example, RIAs can use the Order Allocation tool to buy a large amount of shares of stock and allocate it out to clients in one trade.” 

And, as advisors leave firms to join other RIAs, or build their own shops, IB helps to guide them through the process, Sanders said. “We have got a number of RIAs coming over."

“While we compete with the well-known custodians in the US, as RIAs face more pricing pressure, we believe they will consider the benefits of low-cost and automated platforms like ours, that help keep their overhead costs low while giving them the flexibility to run their businesses like they want,” he said.
 

One consequence of so much M&A activity is a need by advisors to consolidate client and portfolio systems into one place. By doing that, advisors can more easily use multiple custodians where necessary, Sanders continued.

An offering of IB, for example, is a universal account through which people can deposit a range of national currencies. “We tend to have advisors around the world…we deal with a number of RIAs where their clients cross national borders,” Sanders said.

Interactive Brokers cannot afford to sit still. The firm is upgrading its Trader Workstation platform, which is Java-based. 

“Our focus for 2024 is bringing the advanced tools from Trader Workstation to an HTML platform. Not every advisor wants the powerful desktop platform, and some prefer a simpler HTML application.” 

In May last year Interactive Brokers launched Custom Indexing for Registered Investment Advisors. This is a new direct indexing solution that enables RIAs to personalize client portfolios.

“Our platform gives advisors flexibility. They can trade a broad range of global products at low cost but also access tools to help them manage client assets like model mortfolios that offer over 70 diversified portfolios and the pre-trade allocations to allocate block trades to multiple accounts easily,” Sanders said.

The firm also sees financial education as part of its value proposition. For example, IBKR Campus, redesigned in 2023, was created to educate clients and the public. Investors can learn about trading, financial markets, and trading tools.

Besides RIAs, the business serves individual investors, hedge funds, proprietary trading groups, as well as introducing brokers.

While it is listed in the US, Interactive Brokers is a very international firm. Almost 70 per cent of its clients are outside the Americas, and it has serviced clients in Europe since 1995.