Interactive Brokers - all eggs in one basket?

Investing / Brokers
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Great summary!

Thanks for bringing things back to focus.

So, thank you for your re-focus. Alas, I think there are no simple answers (to this, or in life).

My personal conclusion is mainly different due to fees, which perhaps become more important with Net Asset Value (NAV).

Specific to using IBKR and Swissquote (SQ) and having a rather large NAV, and, possibly, a few decades of background with end users and companies getting hacked, I’ll offer a different, very personal, perspective.

I am with two brokers, am mostly undiversified (amongst brokers), aiming to diversify over the next few years, likely to concentrate again on one broker, depending on fees.

TL;DR: it’s complicated.

Sausage making, for those interested in more details:

  • I’m currently with SQ with 98.5% and with IBKR with 1.5% of my pillar 1 securities.
    I am gradually moving to IBKR as all new cash generated at SQ is transferred to IBKR (and invested there).

  • I will probably* let existing assets sit in custody with SQ.

  • I in general like the appeal of spreading risk.

    I thus also like spreading risk amongst two (or more) brokers, even as I think most (all?) threat models proposed in this thread are completely overblown, conflating counter party risk with personal fraud risk, mixing brokers and banks, Swiss versus not Swiss, etc etc).

    YMMV, of course.

  • at a certain point fees** may force your, or rather: my hand (at least in the comparison of SQ vs. IBKR and a large enough NAV):

    If the total fees from your two brokers are in the order of a few hundred francs, I’ll lean towards using two brokers. Who cares about a few hundred francs for the augmented risk mitigation of having two brokers instead of one?
    However, if those fees amount to tens of thousands of francs versus a few hundred francs, I’ll take my chance with just IBKR and maybe monitor IBKR a little more closely as a business.

* As long as SQ grants me special conditions on the custody fee.

I’m at SQ’s maximum “standard” tier of CHF 200 per year but would pay an additional well above CHF 1k if they enforced their officially advertised custoday fee on me (“For assets above CHF 1 million, a fee of 0.0075% per quarter will be added to cover external safekeeping fees.” — they charged the additional fee to me initially when it was introduced, but I told them I’d move out if they wouldn’t reverse it, which they did, promptly).
Should they decide to charge me their official rates, I’ll buy a bunch of flat fee trades, sell everything at SQ, and move the cash to IBKR to repurchase my portfolio.
I’d really rather spend 1k CHF per year on myself than on SQ “to cover external safekeeping fees.”

** I am really mainly*** motivated by the fees: re-investing my expeced next 10 years of cash flow at SQ would cost me tens of thousands of dollars. Re-investing the same amount cash flow at IBKR will cost me a few hundred bucks.****

*** Other reasons would fall into the category of SQ having the feel of, excuse my language, an amateur broker to me:

  • SQ’s FX conditions are ridiculous.
  • SQ regularly messes up corporate actions (like simple dividend payouts) and sometimes takes multiple months [sic!] to correct them, occasionally with the year-end or tax submittal deadlines in between those multiple months … fun times ensue when filing taxes and having to provide the correct records.
  • SQ’s option trading fees just doubled for the cheapest tier earlier this year, with minimum fees plus ticket size, and minimal fees being absurdly high (like CHF 5) for selling or buying a Put.
    From a very far outside look, it seems like some executive at SQ noticed that option trading exploded in the markets in the last year or two (for retail investors) and decided to milk SQ customers on this, because, you know, it’s a trend with retail investors?
  • this might trigger some of the “personal relationships” and “Swissness” aficionados out there, but in my time at SQ I have not received any special treatment (apart from my custody fee treatment, mentioned above and personally negotiated) despite being in or near the “private client” NAV league at other banks.
    • convert several hundred k USD into CHF, no problemo, online interface only even after inquiring the help desk
    • send several hundred k CHF to another bank? Provide your second factor. Done. No phone call, no extra notification, no nothing.
  • their web interface? I grew up to web interfaces in the 90’s, but, hey, … things can evolve? You don’t have to force people to use a Java client like IBKR’s, you can also offer a modern web interface (like IBKR), or more recently, a native client like IBKR?*****
  • actually, less about the look and feel of their web interface, but about response time in times of volatility:
    • I tried buying VOO, as liquid an asset as it gets, during COVID lows. No fill. Or wait times of several hours.
      Ok, maybe extreme times and no comparison available to me at the time.
    • I tried buying WAL during the local banking crisis about a year ago. No fill. Fill at about 50% above the lows where I placed the original order.
      I was able to compare because I had access to a Bloomberg terminal by then: Swissquote seemingly just sat on things, orders were filled by other brokers when I placed mine, things were just stuck in the order flow with SQ …
    • on multiple occasions I tried selling Puts at SQ when, say, security X tanked 15 or 20% at market open. Bloomberg allows me to see open interest and positioning in real time, and my pricing for selling the Put does not show up despite my competitive price tag. My order doesn’t get filled, or it gets filled hours later, after price has moved a ton.

**** In some cases I am even re-imbursed (instead of paying a fee) by IBKR when my trades provide much desired liquidity to the market maker.

***** I’m a little conflicted here. Their “native” client feels like an “almost Windows” Java Client, at least to me. A lot more intuitive, though, I’ll give them that.

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297

Good on you, and congratulations on achieving this. I hope you will be able to keep it up.

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298

Fair enough :smiley: I’m “undiversified” on the broker level, as well, for now. I read a bit in this thread and the other one focusing on security at IB and wonder about 2 things I didn’t see adressed.

Based on that, that’s well into 8-digits territory. Do you actually still care about those fees by then? You do mention you do, yet don’t in the footnote. Where or how do you draw the line?

Out of curiosity, when it comes to cyber security, you did comment on that topic in the other thread: Do big banks or brokers actually develop their MFA devices or apps themselves and is there any difference? I mean technical, I guess the regulatory side is not too different. Or is it rather some specialized companies, so it’s eventually the same level of security?
I just imagine IB has a lot more in-house experience and resources then the Swiss online brokers, or traditional banks.
And if someone gets hold of your 100 character strong password and access to MFA device for one broker, what’s stopping them from impersonating your voice on the phone or also login to your 2nd or 3rd broker?

It’s probably coming back to “no simple answer”, but I would be interested in your take.

299

Thanks for sharing your experience. And I agree with you, if costs start adding up, people’s perspectives also change

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300

Wonderful thread and discussion. From what I understand, the cheapest place to buy and sell is IB.

The cheapest place to hold is IB or other brokers for no custody fee (or small fixed fee like PF? etc.) AUM based custody fee brokers turn more expensive as portfolio size increases.

A middle of the path option seems to use IB to buy and periodically move chunks to other brokers to hold assets there. Best suited are assets with low dividend or no dividend distribution (accumulating UCITS), and those that one intends to not sell for a long time. The goal is to minimise custody + trading costs at these brokers.

Here is a post from 5 years ago. May need some updates for current costs.

For those who use the above or Degiro or the many (no-custody fee) German broker, how have your experience been transferring from IB and holding assets there : both US domiciled ETFs and UCITS.

Which CH/EU brokers are definitely ‘Qualified Intermediaries’? I.e fill in W8-BEN so that WHT loss of US domiciled ETFs can be brought down to 0.

PS: there is a new accumulating UCITS funds Xtrackers MSCI World ex USA UCITS ETF (IE0006WW1TQ4) with TER of 0.15% only. Something better suited for holding in an alternative broker to IB, while holding stuff like VTI , etc in IB.

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301

IB to PF is pretty straighforward (US securities, but except similar for non US). Reverse seems a bit more painful (have to send them a form), but I also expect it to work.

Note that the PF fee is a quaterly trading credit.

PF/SQ should be fine with DA-1 reporting. (iirc according to them they don’t need an explicit W8-BEN, since they know you’re swiss resident, but you can still send them the form), though I can’t confirm yet it works as expected since I haven’t received my 2023 return back.

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Please let us know if you are able to get the full 15% back. I’m interested also in moving some positions over from IBKR for positions where I do not plan to add any funding anymore like PM for example and some UK-positions where I get the dividend in as a corporate action being a stock dividend.

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Nah, you’d already pay an additional CHF 1000 custody fee for a NAV of 3’330’000 (=1000/(4*0.0075%)).

It’s a gut feel line for me.

I’m (mostly) fine paying a flat CHF 200 fee per year for SQ’s custody. That’s a flat 2k in 10 years. I get a second broker for that fee and in case IBKR goes belly up, I’ll still have a steady cash flow coming from SQ until my assets at IBKR are moved to a new broker.

I’m not fine paying an additional (and growing) 1k+ per year at SQ. That’s an additional (at least) 10k in 10 years.

10k is a nice sum. Even if I was worth 8 figures. 10k could

  • be two first class return trips with Swiss from Zurich to, say, San Francisco
  • turn into maybe 13k if I instead invest 1000 every year
  • be a my personal contribution to Marc Bürki’s (Swissquote CEO) 1 million plus salary

I prefer options 1 and 2 to option 3. :wink:

I have no recent experience* with this (except for B2B), but I’d be willing to bet that it’s mostly the usual set of 3rd party experts that design and develop MFA solutions (in Switzerland Crealogix is a big player) — and I’d even claim that this is probably a good thing since typically you won’t find the hottest IT talent at banks (no offense, there’s exceptions, of course).
At best, operations of these solutions is done in house, though it’s often moved off shore.

That said, I really don’t think you’re a target, and as long as you apply common sense, you’ll be fine.
You don’t have to outrun the bear, just outrun the unfortunate victims that more easily fall pray to fraud.
The attackers will go after the easy targets first, and there will always be a good amount of those.

* My actual experience with this goes back about two decades.

Retail Banking Experience 1

  • large Swiss bank that was swallowed by another large bank about a year ago
  • MFA security** and in fact the entire front-end application was developed and maintained by a 3rd party. Only operations was done in-house.
  • (the entire backend was developed and run in house)

Retail Banking Experience 2

  • large Swiss private bank
  • first e-banking project of that bank, they flew in a team of about 100 consultants (Arthur Anderson (AA) of Enron fame — does anyone remember them?)
  • AA wrote the middle layer between the banking backend (mainframes) and chose RSA as the MFA mechanism to authenticate at the front end, but was unable to integrate their middle layer with the RSA authentication stack
  • Enter yours truly, young gun at the time, writes a Perl-based prototype add-on to an Apache reverse proxy in order to handle RSA authentication for the e-banking application
    For lack of an alternative by AA and launch deadline pressure, my prototype becomes The Thing™, gets security audited (again by a 3rd party) and handles authentication for that e-banking solution for many years to come.
    I have so many war stories on this … <insert Blade Runner I’ve-seen-things meme here>

B2B Banking Experience(s)

It’s mostly duct tape and chewing gum, even today, i.e.

  • scripts mostly initially written by 3rd parties talking to bank sftp servers, in advanced cases using key based SSH authentication, but the username/password combos still exist
  • applications talking to Bloomberg’s order interfaces via stunnel, an OSS establishing and providing a TLS secured channel
  • “messages” transported are as advanced as SWIFT Message Types (MT, standardized in the early 90s) or as low key as CSV

** State of the art at the time (no smartphones yet) was physical RSA tokens although one large bank (the remaining one) offered a custom device with personal smartcards for their clients. Pretty sure the custom device was also 3rd party developed and manufactured.
Oh, and in case you haven’t heard, RSA was also hacked a while back.

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305

Oh, I missed the «per quarter”. Confusing. I agree,though, even with the typical middle-class 7-digits (edit: I assume I can skip an smiley) , these fees sum up and are difficult to justify especially when it’s online vs. online.

Thanks a lot for your insights, I’ll read more about the topic and the industry. Personally, I’m not too concerned about it, it’s more out of interest.

I do remember the RSA tokens from my first jobs, but they disappeared some 10 years ago.
For me, IB is the last physical device standing for online services, everything is else is some app or SMS code.

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306

:rofl:

Touché!

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307

What are your finpension strategy? What do guys chose?
Has anyone made calculations where it is best to invest? Yuh, neon or finpension?

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Finpension invest – a new robo-advisor for non-3a ETF investments
308

Interactive Brokers :slight_smile:

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309

IBKR obviously, but after it Neon is still better then any other one no?

310

Why I don’t want to invest on IB:

So I have vanguard world VT. Every quarter you receive dividends.

I invest every few months for about 500CHF. The dividends you receive, you have to invest again for the Zinseszins effect.

Problem: when you don’t invest regularly, the dividends just stay in Ib as Cash.

Isn’t it better to use Neon or finpension, where you can set a Sparplan?

311

So you could invest right after you receive the dividends in March, June, September and December

Sparplan is also possible at IBKR by the way.

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It would depend on what you want to do. If you can define your needs, it can help in recommendation

For example -: do you want to buy a world ETF every month ? Or something else ?

I understand you don’t want IBKR because you are looking for a Swiss alternate perhaps

314

I didn’t want all eggs in one basket so had 2 brokers. But when 2020 crash came and I had margin, I put everything into IBKR to pool collateral.

Now that I don’t use margin any more, I guess I could transfer stuff back to another broker. Transferring a chunk could also prevent over-trading as I tend not to look at the other broker.

315

Update on securities transfer from IBRK to ZKB: it took less than a week, I am positively surprised.

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316

Folks, there has been a discussion not so long ago about direct share registration, see Registering US shares bought at IB on your own name
Would that not be a good option for safety. You can basically move out your US ETFs from the broker to the “registrar”. Has still no one tried this? I imagine that would be a lot cheaper. Probably a US bank account is needed for the dividends, not sure how this would work otherwise.