Friday, 24 July 2020

Things (for me) to consider before switching over to Interactive Brokers (IBKR)

IBKR officially launched its Singapore entity on 8 July 2020 and now allow Singaporeans to invest in SGX counters. One common complain about IBKR is the user-unfriendly UI. However, there are ways to customzie it and they also have various different interfaces such as the Client Portal and Web Based Interface which are more user friendly. The main reason I am apprehensive about opening an account is the USD 10 activity fee.

Tiered commission rates for commonly traded markets

Source: https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks2
The low commissions is something that definitely attracts people to the platform, along with access to most stock exchanges around the world. However, there are some things to note that may not be typical for most brokerages.


Activity Fee

IBKR charges an Activity Fee of 10 USD per calendar month for accounts below USD $100,000. This fee is reduced by any commission incurred over the month. If you spend 5 USD in commissions, you will get charged the remaining 5 USD as an activity fee. Changing currency also incurs a commission that will reduce the Activity Fee charged. A typical trade via DBS Vickers Cash Upfront or FSMOne costs me about $13 in commission, so it might not that bad.If you are 25 years old and under, this Activity Fee is reduced to 3 USD a month.
Tracked with GnuCash
Personally, I have been spending about 10 USD on commissions on most months over the past 2 years. 14 out of 24 months have been roughly 10 USD or more. Most of my trades were on SGX so the addition of SGX stocks is something worth considering for me. While I use tastyworks for US stocks; which offers commission-free stock trading; IBKR's tiered pricing of $0.35 minimum for US shares is still rather appealing.

Custodian Account

This is not unique to IBKR. The difference custodian accounts and CDP have been discussed a lot and Google search will give you a lot more in-depth results and explanations. Here my main considerations for preferring a CDP account.
  • Corporate Action 
    • If there are rights issue, scrip, currency election, having the shares in your CDP let you be in charge rather than at the mercy of your custodian account when it comes to choices or deadlines. The downside is that your forms get lost in the mail or you do not have time to attend to them.
    • Rights Issue, I will prefer to have my shares in CDP when applying for excess. I think that you can get more excess by having it under your CDP because of the decision of excess allocation. When rights issue happens, the shares/units are allocated to you by the company based on number of shares held. Custodians may have a lot of shares (eg 50,000,000) among all the shareholders and have to divide them differently. I have not proven this theory yet but I think this is what happens. I might try this for fun with the next rights issue with my CDP and custodian account to see if there's a difference, or if anyone has tested with different accounts, that would be nice to know.
  • Dividends can be credited your savings account
    •  This is convenient but not a very important factor. Most custodian accounts do not provide interest on your cash or at a lower rate than your bank account.
  • Attending AGMs
    • You don't have to request permission from your broker who may reject you as each custodian are supposedly given a fixed number of seats.
Still, I don't mind using custodian accounts except for REITs in order to take advantage of rights issues.

Interest on Cash Balances

IBKR does not offer any interest on your SGD cash balances at the moment and even negative rates for European currencies.

No Live Market Data

Depending on the market, you have to pay for live prices. Its currently 10 USD a month for US stocks and 13 SGD for SGX. This is not really a big deal since you can open another platform to monitor prices. I personally like to use the watchlists from Investing.com which also provides live prices for SGX, though rather limited in terms the columns that it shows. For US stocks, WeBull is not bad choice, their platform is rather nice and you use their web interface to trace live US stock prices.

Withdrawal Fee

IBKR offers one free withdrawal per calendar month and then charges 15 SGD for each subsequent withdrawal or depending on the currency that you withdraw.




Alternatives?


Tiger Brokers offers $2.88 commission per trade for SGX stocks (currently no minimum at 0.08% until 31 December 2020) and $1.99 USD or $0.01 USD per share. It is also a associate(?) under IBKR but the GeoInvesting report has me spooked which made me stop using it. They also have have been having some issues with NZ regulators. While I'm a sucker for cheap commissions, I rather be able to sleep well at night.

Tastyworks has free stock purchases for US stocks but has a USD 45 withdrawal fee and only access to US markets (except OTC). The rates you get are as good as the bank or remitting platform you use which must be in your name, meaning that Transferwise and similar platforms will not be able to be used to transfer funds.

For people with DBS Treasures or Standard Priority Banking, they have access to minimum commission free trading through their platforms.

Most other custodians have the standard $10 minimum commission. I mainly use FSMOne for ease of transferring but I do not like that they have dividend handling fees for US stocks and no access to more markets.



Final Thoughts

With the addition of SGX trading, I am definitely tempted to switch over to IBKR. Even without $100,000 USD, I seem to be hitting the minimum activity amount on most months. If I make 2 SGX trades a month, I am already 'saving' on my normal commissions. I hope I won't feel pressured to make trades just to avoid the activity fee as I do with attempting to hit the 'Investment' criteria for my DBS Multiplier account. Its also nice to have an 'all in one' account. Perhaps this might pressure other brokers to be more competitive, especially the custodians accounts.

I'm not about to liquidate my account right now and transfer everything over but it is tempting and worth considering for me.

If I missed anything that you feel is important, do let me know.

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