Interactivebrokers

Barry_Bear

Looks very good value, free even. Is it?
Fees and charges look like:
Minimum balance requirement is >$2,000 or GBP equivalent for a margin account.
No platform fees or account management fees if total assets held is >$100k or GBP equivalent.
No transaction fees on lots of funds (including Vanguard). Other funds/ETFs transaction fees 4.95 EUR.

So if you buy and hold $100k+ GBP equivalent in Vanguard funds there would be no fees at all. Can anyone confirm if this really is the case?

maxsteam

There are entry fees and on-going annual fees for all funds. You should aim to pay less than, say, 5% and 1% respectively.

Sometimes the fund manager will give the broker or financial adviser a share of the "normal" entry fee which lets the broker say that they are not charging you anything.

Another cost will be the cost to change currencies. There are fees with all investments but some fees are better hidden than others.

Anything called a "margin account" is likely to steer you towards derivatives or other high risk instruments where you risk losing more than your initial investment.

My personal preference, which I know a lot of people will disagree with, is towards UK markets as I feel they are better regulated than US markets.

Barry_Bear

maxsteam said:

There are entry fees and on-going annual fees for all funds. You should aim to pay less than, say, 5% and 1% respectively.

Sometimes the fund manager will give the broker or financial adviser a share of the "normal" entry fee which lets the broker say that they are not charging you anything.

Another cost will be the cost to change currencies. There are fees with all investments but some fees are better hidden than others.

Anything called a "margin account" is likely to steer you towards derivatives or other high risk instruments where you risk losing more than your initial investment.

My personal preference, which I know a lot of people will disagree with, is towards UK markets as I feel they are better regulated than US markets.

Thanks but this doesn't really answer my question about whether if you simply buy and hold $100k+ (or GBP equivalent) in Vanguard funds there would be no IB platform account fees at all. 

"There are entry fees and on-going annual fees for all funds." But the fund manager fee isn't a platform fee and would surely apply on other platforms too. I never buy funds or ETFs with entry and exit fees. But if you are warning IB charge some "fund fees" I wouldn't pay on AJ Bell, HL etc please explain.

"the cost to change currencies." Yes, fair point, but I won't be holding anything but GBP.

"a margin account is likely to steer you towards derivatives or other high risk instruments" No they won't steer me anywhere - I prefer Vanguard index funds and similar and IB offer all the funds I want.

So original question: if you buy and hold $100k+ or GBP equivalent in Vanguard funds there would be no fees levied directly by IB at all. Can anyone confirm if this really is the case?

maxsteam

Barry_Bear said:

So original question: if you buy and hold $100k+ or GBP equivalent in Vanguard funds there would be no fees levied directly by IB at all. Can anyone confirm if this really is the case?

It should be possible to go on the website and see the numbers that would let you calculate how much you would lose if you bought the fund then sold it before any price movement. This won't tell you who gets the fees (I know that this issue clearly matters to you) but it should help you to calculate what the entry fees are.

underground99

Barry_Bear said:

So original question: if you buy and hold $100k+ or GBP equivalent in Vanguard funds there would be no fees levied directly by IB at all. Can anyone confirm if this really is the case?

I don't have an account but from the published information, if the specific fund you want is on the list of commission free funds, then there is no commission for buying or selling it. Only the funds they offer which are not on that list would attract the fund dealing charge.

If your account balance is over $100k you wouldn't need to pay the monthly account minimum fees; they are only applied to smaller accounts to top up the commissions to the minimum monthly level.

If you are literally only going to buy GBP equivalent of $100k of the fund and hold it, there would be a risk that when they look at it at the end of the month, the movement in the fund's value or GBP/USD exchange rate has caused the account value to be below the $100k, and you would need to pay the fee for not meeting the account minimum. 

So the costs from IB would only really be the fee to transfer money to you when you eventually want to take the proceeds back to your own bank account, which are pretty nominal.

maxsteam said:
It should be possible to go on the website and see the numbers that would let you calculate how much you would lose if you bought the fund then sold it before any price movement. This won't tell you who gets the fees (I know that this issue clearly matters to you) but it should help you to calculate what the entry fees are.

Vanguard UK's open ended funds (mutual funds in IB's US-centric terminology) are daily priced, and are single-priced rather than having a separate subscription and redemption price.

As such, you can't see exactly what price you will pay at the next dealing point, and due to it being a daily priced system, you would not literally subscribe and redeem on the same day before any market movement could occur. But you know that if you were buying a GBP fund with GBP cash and the daily price on redemption day is the same as the daily price on subscription day was, you will get the same amount of money out as you put in.

Vanguard used to have pre-set dilution levies on some funds to protect investors in funds where the underlying markets have high transaction costs from the impact of large net subscriptions. This would be akin to an entry fee. But they changed the model a few years ago to use 'swing pricing' in line with most of their OEIC competitors.

For their ETFs which trade on an exchange there is of course a bid-offer spread, but Barry_Bear is presumably not talking about those; IB would charge dealing commission like they would for any share or ETF trade on the stock exchange - whereas what he was looking at was the open ended 'commission free' funds.

maxsteam

underground99 said:

As such, you can't see exactly what price you will pay at the next dealing point, and due to it being a daily priced system, you would not literally subscribe and redeem on the same day before any market movement could occur. But you know that if you were buying a GBP fund with GBP cash and the daily price on redemption day is the same as the daily price on subscription day was, you will get the same amount of money out as you put in.

So someone who was selling tomorrow would get the same price as someone who was buying tomorrow?

underground99

maxsteam said:

underground99 said:

As such, you can't see exactly what price you will pay at the next dealing point, and due to it being a daily priced system, you would not literally subscribe and redeem on the same day before any market movement could occur. But you know that if you were buying a GBP fund with GBP cash and the daily price on redemption day is the same as the daily price on subscription day was, you will get the same amount of money out as you put in.

So someone who was selling tomorrow would get the same price as someone who was buying tomorrow?

Yes, there is a single subscription and redemption price for a given day. That's the amount you pay to buy a new unit or receive when redeeming an existing one.