There are a bunch of investors who are always searching for a cost effective broker platform. Through these platform they wish to handle the majority of their transactions.
I think cost is one aspect but there are other considerations
- Think in terms of whether the broker will continue to be in business
- If you have a problem with the platform, or your trade, are they responsive
- The variety of products they allow you to trade
- How easy will it be for you to transfer your money in to start and transfer the money out
- How intuitive is the interface
One of my friend told me that Interactive Brokers (IBKR) are in the midst of setting up their Singapore office. They are probably in the process of getting the necessary license through MAS to operate in Singapore.
My friend did a check in ACRA (that is diligent of him) and it seems they really did setup this year.
The Benefits of Interactive Brokers
The biggest deal about having an overseas broker having a local office is perhaps that it gives both sides an opportunity to build trust with each other.
The older investors would feel uneasy having their net worth in anything other than CDP, or the traditional brokers such as Vickers, Kay Hian and GK Goh.
The younger investors do not know what the big deal about this. They probably assume some of worries of the older investors would not happen to them. They are more accepting about this.
The more savvy local investors are familiar or at least have heard of IBKR. In my Dimensional Fund Advisers article, I pitted the cost for the Roboadvisers, the banks and my current company against do it yourself investing with a IBKR broker.
Comparing the cost stack for various ways to invest in low cost funds
Their commission for the fixed tier, which is 0.05% subject to the minimum of US$5 is pretty hard to beat.
In recent years, the local brokers such as iFAST, POEMS, Kim Eng, and like, have started to offer pre-paid accounts. These are accounts where you keep your shares with the broker. They become your custodian. You are able to get 0.08% to 0.12% per transaction commissions.
We should not be comparing against transaction cost of 0.25%, which is what offer by traditional brokers (full disclosure: I am still paying at such obscenely not cheap charges)
The appeal of IBKR is the whole package:
- It is a listed US Company. Actually, it may be a company you wish to invest in
- The way I think about it, people outside of US are looking for a platform that is cost effective enough to invest through. Turns out the savvy folks out of US, whether is Europe, Hong Kong or Singapore uses IBKR
- If your account size is US$100,000, there are no custodian charges. If you have less it is $10 per month unless you make certain trades. As you make some trades, it gets deducted from this $10. To me this is not a problem even if your amount is small. Eventually, if you follow my wealthy formula, it is likely you will have US$100,000. Your $120/yr is just going to spread over the future years
- The commission is low as previously stated
- They allow you to invest in a lot of markets
- Thus those who wishes to buy UCITS Exchange Traded Funds (ETF) that is relatively low cost, listed in London Stock Exchange are able to do so at very low cost
- With different broker platforms, you tend to incur some cost when you convert between SGD to USD, GBP or HKD. This is typically in the 0.50% range more or less. What I understand is the slippage in this is very very low
- Many have complained that their platform is not intuitive. To me this is perhaps just trying to get used to. I heard they are able to compute your portfolio overall return and let you review these numbers. I think that is a benefit of housing all your net wealth in one platform
- Currently, Singaporeans can FAST transfer their money in. You can Google around to see the process
A lot of advantages, very little disadvantages. The main one from what I understand, as Singaporeans, you cannot trade Singapore stocks through IBKR. Overseas investors can (very ironic)
My friend have list out some of the advantages he sees as a private investor:
- It is easier to manage your account through a local office in Raffles Place area
- It gives greater confidence in Singapore based users
- May be easier for Independent Financial Advisers to set up and manage B2B enterprise accounts with IB
- Put pressure on local brokers. So this may result in things cheaper for everyone
I like the B2B angle. A lot of the current B2B business is undertaken by IFAST. IBKR have their institutional side of the business.
It remains to be seen whether they prefer to focus on the B2B or B2C portion of things. I think there might be very little alternative to IFAST. The rest of the B2B platform, from what I heard, were not able to deliver as good of a service than IFAST.
With some competition, we might be able to enjoy better rates. Of course, we may benefit when local brokers scramble to try and offer what IBKR is able to.
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