Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
Comments
fairestvalue
ikourtid
Also former HFT / market maker here (UBS, GETCO), and also the developer who wrote Wealthfront's direct indexing with tax loss harvesting 10 years ago.
I had that same skepticism before I built it. Using a Bloomberg terminal back then, my conclusion was that the weighted spread for the S&P 500 was 3.2 bps, vs. 0.6 bps for SPY.And this was > 10 years ago, so I'd think by now it would be even tigher. The ratio may have changed, but who cares? It's like saying that rice got more expensive at the supermarket - it's already so cheap that it doesn't matter.
With tax loss harvesting specifically, each order typically has a threshold, so that you only trade when the projected tax benefit is a large multiple of the transaction cost.
Also, I'm sure this is obvious to you if you work in market making, but for others reading this: the spread costs aren't additive (re: 'every. single. stock'). If you have 500 stocks, each with 2 bps round-trip spread cost, but each is at e.g. 1 / 500 = 20 bps, then the weighted spread for the entire basket is 2 * 500 * 1 / 500 = 2 bps. It's not 2 * 500 = 1000 bps. The main question then is - how much tighter are spreads for ETFs than for the average stock? And, since bigger stocks (AAPL, NVDA etc.) will have tighter spreads than smaller index constituents, the weighted average will be even lower.
Here's my blog post:
https://eng.wealthfront.com/2014/03/04/marketside-chats-4-co...
ikourtid
Follow-up to my (most upvoted, it seems) post.
ETF expense ratios are only the headline cost. There's also a hidden cost you never see.
An index (and, therefore, any fund that tracks it) has a methodology that results in additions/deletions/index changes being announced to the market ahead of time. Usually that's quarterly, but also sometimes annually.
For an index addition announcement, you can imagine that the price will go up beforehand, since market participants (all except the actual ETF) will buy the stock in anticipation of the extra demand of that stock being in a widely held index. [This is actually more complex, and doesn't always work in that direction, but that's beyond the scope of this comment].
Now, the ETF doesn't care about this. They get graded on how closely they track the index. So they will buy the index addition on the closing auction of the day of the index reconstitution. Sure, they'll get a worse price (on average) than if they had bought 2 weeks ago, but who cares? They don't, and their clients don't (partly because they don't know).
This effect is even more pronounced in certain indexes where this dislocation would be larger, e.g. those with more turnover, infrequent rebalances, etc.
Just drop "what is the drag on returns due to index reconstitution in the Russell 1000 index?" in ChatGPT. Admittedly that's one of the worst offenders, and this is not scientific, but ChatGPT says 0.2% to 0.3% annually. That's already more than the 0.17% average mentioned in the original posting.
[Source: I worked on the trading floor in the program trading desk of a bulge bracket bank that actively traded these index reconstitutions.]
jjmaxwell4
Yes we've thought about them a fair bit.
We believe that in most ETFs right now the transaction costs are largely factored into either the expense ratio or the ETF bid-ask spread, exactly due to the redemption mechanism you discussed. See section titled Spread of the Underlying Securities in an ETF Basket in the following PDF and the following quote:
"If a market maker has to obtain a portion of the ETF constituents on the secondary market to then deliver into the fund as part of the basket process, the cost of acquiring those names should be reflected in the ETFs bid/ask spread — as costs are traditionally passed through to the end customer."
https://www.ssga.com/library-content/pdfs/etf/au/spdr-au-etf...
Also we take estimated spread costs into account when running our portfolio optimization. A higher bid-ask spread as measured by past 1 month NBBO p50 spread generally gets penalized in our portfolio optimization all else being equal, although this depends slightly on what optimization setting you've chosen on Double.
fairestvalue
Except, in practice (not "traditionally"), the cost of a sophisticated market maker to acquire these constituents is usually much less than if you or I were to trade on the market in our brokerage account. SPY's spread is only 2 pennies wide (3 bps), for example.
westurner
I just found this while researching for my other comment in this thread; re: "Fund of Funds Investment Agreements",
Would Rule 12d1-4 (2020) apply to holding funds versus holding individual stocks and/or ETFs? What about the 75-5-10 rule for mutual funds?
From https://www.klgates.com/SEC-Adopts-New-Rule-12d1-4-Overhauli... :
> Rule 12d1-4 will prohibit an acquiring fund and its “advisory group” from controlling, individually or in the aggregate, an acquired fund, except for an acquiring fund: (1) in the same fund group as the acquired fund; or (2) with a sub-adviser that also acts as adviser to the acquired fund. [4] Rule 12d1-4 requires an acquiring fund to aggregate its investment in an acquired fund with the investment of the acquiring fund’s advisory group to assess control
i-cjw
Surprised to see so many current and ex HFT/MM folks in the comments yet no mention of the fact that you don't have to cross spread to get filled. If you're lifting the far touch 100% of the time then, sure, you're going to pay the full spread - but no-one with half a brain cell does that. Unless you really think you have intraday alpha in the name (and in this case they most certainly do not) then you'll camp out on the near side or down the book and cross much less than half the time. Add into that the liquidity rebates and life just got a whole lot cheaper.
dlubarov
Wouldn't fees generally be more significant if holding over a significant time period? Like VOO's 17 bps would mean ~2% over 30 years. Not sure what the weighted average spread of broad index funds looks like, but I would have thought it's far lower.
I guess rebalancing also creates an ongoing spread-based cost, but it seems like that should be far more minor, at least for broad index funds with low-single-digit turnover.
darkerside
There's also time value of money. Paying upfront like this means that money can't be invested (by you), and you lose out on the money plus the return.
dlubarov
Wouldn't that be for fixed-dollar fees? I think here all the costs we're talking about are percentages.
I.e. ignoring taxes, the amount I theoretically expect to exit with should look like
entry_cost * (return_rate * fee_rate)^T * exit_cost
So I think this comes down to whether T is large enough for that exponentiation to dominate the half-spreads.
late2part
What value does "Ummm" provide in your response?
igor47
It's an incasualator. It causes the response to read as more casual/conversational, and less pedantic. But I guess you wouldn't know anything about that ;-P
ada1981
I’d like an answer to this question as well.
ada1981
Can someone honestly explain the downvotes for agreeing with a commenter that I’d like to understand how they handle the spread issue?
munk-a
Likely due to the guidelines[1]
> Comments should get more thoughtful and substantive, not less, as a topic gets more divisive.
your comment didn't add anything of value to the thread. Upvoting will cause the thread to float higher in the overall discussion and increase the visibility (and thus chance of a response).
Just as a note - your reply comment and even this comment itself is also against guidelines due to being a comment on the comment system and off-topic for the article - but I wanted to make sure you were familiar with the system.
ada1981
I appreciate that.
The parent had skipped over responding and I wanted to voice that I too would be curious to know the answer.
Are you saying the best and only option is upvoting?
JoshTriplett
You're coming into a market where most providers make much more money, and you're undercutting and selling for $1/month. $1/month is below even most cheap B2C services, and many customers are likely to want a product like this to manage a large number of assets.
With what other product, service, arbitrage, float, or other mechanism do you intend to make more substantial amounts of money? Knowing what this is would help potential users trust you more. "Ah, that model makes sense" is a more comfortable reaction than "I'm skeptical that this will continue to exist as a going concern that meets anyone's expectations".
dmurray
I'd also like to know that! I have some ideas, from less shady to more:
- Payment for order flow
- Interest on sweep accounts
- Upsell to more profitable products (first party ads)
- Payment for order flow, but structure your orders so the spread is really attractive to market makers (unfortunately you might be doing this unintentionally)
- Third party ads
- Sell your customers' data
There's also the possibility of not doing any of these, losing money in the name of customer acquisition, then selling to someone who will monetize it better.
I find it a bit rude to ask a company their exact business plan, even on Launch HN, but maybe I could ask - are there any of these monetization strategies you disdain and would specifically rule out? And if you do have one or more of these in mind, is the $1 really important, or is that a marketing trick where people wouldn't trust you if it was free?
fisherjeff
I’d think some combination of all of the above, but would love to know how valuable the order flow is from an indexer – it’s gotta be worth way less than from, e.g., Robinhood right?
dmurray
I'm not sure that's true.
The market-wide spread for SPY is smaller than the implied spread from all the 500+ components. If you request your market maker for individual prices on the components (or 470 of the components plus 30 stocks substituted for tax loss harvesting purposes), they have an obligation under NMS to quote at least as tight as the individual components, but that could still be wider than they would on the index.
If you have a perfectly competitive market, you can go to all the market makers, and their spread will approach what they would have quoted on SPY. But if it's not perfectly competitive, and you ask your preferred market maker to quote a wider price and split the difference (via a cash payment to you) versus what she would have quoted on SPY, you can both make a few pennies for every share traded.
vpribish
Also collect and keep the stock lending fees
didibus
My first thought as well. I feel there's a catch I'm not seeing, someone tells me I'm going to get ETF returns for only 12$ a year, no year over year percentage cost of any of it? Seems like this can only work up to a point where their subsidized investment last.
So I need to know how do they plan to sustain that, and will it come at my expense?
hn_throwaway_99
I saw the "Your Money is Secure" section, but after things like the Synapse fiasco, I would like to get confirmation from you.
It says my money would be SIPC insured, which means if anything goes missing (obviously not through loss of equity value, but through missing funds or a ledger bug), I get my money back, up to the SIPC limit, right? I just want to ensure this isn't the same situation with fintechs that say your money is "FDIC insured", but that only protects you if the bank fails, not if the fintech goes bankrupt.
I'm just really, really wary of new fintech products to save like .3% on fees when I hear all these horror stories of people trusting fintech startups with their money any then losing 95% of their deposits like the Yotta customers.
jjmaxwell4
If Double goes out of business, your assets are safe and held in your name at Apex Clearing. They have processes in place for these scenarios to help you access and transfer those assets.
SIPC protection covers against a brokerage firm failing, which in our case is Apex Clearing. We are not currently a brokerage so SIPC would not apply if Double goes bankrupt.
hn_throwaway_99
> SIPC protection covers against a brokerage firm failing, which in our case is Apex Clearing. We are not currently a brokerage so SIPC would not apply if Double goes bankrupt.
I thank you for being upfront and honest about this. The tough spot you'll find yourself in, then, is that if any money goes missing between you and Apex, customers are completely SOL. This is not a theoretical risk, this is exactly what happened in the Yotta/Synapse fiasco. Even if I trust that you guys are much better technologists than Synapse, would I be willing to take that risk for a teeny, teeny reduction in fees compared to an index ETF? Sorry, not for me.
EDIT: Wanted to put an edit up here so that it doesn't get lost. Thanks for your response below - for me, that was the critical information I needed, that I can directly verify that my SIPC-insured funds are held by the SIPC-insured entity. That was indeed not the case with Yotta/Synapse (and, indeed, most fintechs who keep customer funds in an FBO account at a partner bank), so I really appreciate the clarification. FWIW, I think it might be worth it to add a small blurb in the "SIPC Insured" section saying that your insured funds can be verified at any time.
Kudos, you guys have thought through a good deal of the important details, and sufficiently assuaged my concerns.
jjmaxwell4
I'd argue the specifics are quite a bit different than Yotta/Synapse.
We do not hold any funds ourselves. You connect your bank and ach/wire money to an Apex bank account. You can verify your holdings via apex anytime (see: https://help.double.finance/en/articles/10262406-how-can-i-v...)
yottathrow
Yotta does not hold any funds themselves. You connect your bank and ach/wire money into an Evolve bank account.
The problem is that unbeknownst to users, Evolve had no record of what belonged to which user—it all came via Synapse on behalf of Yotta. And when Synapse went bankrupt, everyone pointed fingers about where the money is and who it belongs to.
morgante
https://help.double.finance/en/articles/10262406-how-can-i-v... makes a big difference, since it sounds like Apex does have their own ledger of accounts, independent of Double.
Evolve not having their own ledge was exactly the problem.
Terretta
OTOH, some users seem able to talk to Apex about their shares that had been via an "app", and are still frustrated… with Apex:
> My own personal experience with Apex - I transferred measly GME positions out of Stash app (Apex) to Fidelity in June. My Apex/Stash account is still locked from this transfer. My CS requests have been escalated to the broker (Apex) repeatedly. Finally today, Apex confirmed they will unlock my account in 4 business days. That’s 34-36 calendar days after share transfer. All this DD is much smarter than me, but even in little ways these big explanations offer a simple reason for these shenanigans. I have NEVER had my account locked for share transfer past the confirmed transfer date for any other position. They had the gall to tell me today that they needed to speak with Fidelity directly to confirm receipt and Fidelity “received” my shares 3 weeks ago, which was 3 weeks after I initiated it. Why all the runaround?
datavirtue
Surprisingly common for fintechs to be ledgerless. They will always end up with one if they last long enough.
hn_throwaway_99
Will reply directly to your comment, as I started the concern in this thread, and I think it's important to point out that the situation is materially different based on what jjmaxwell4 has responded.
With Evolve, money was just pooled into an "FBO" ("for benefit of") account, and not ledgered directly to individual users. This is apparently not the case with Apex since you can verify your balance with them directly. They report your balance, so if any money goes missing, you should have an insurable case with them directly.
datavirtue
Yep. The bank has to require reconciliation of the accounts that are active in the FBO. Oddly enough, there is zero standardization in banking regulations and recon is an afterthought and rarely done. Doubly so if you are talking B2B.
Reconciliation costs a lot of money. They typically just watch the balance and and bark at the fintech for more money when it runs out. There are people at every bank calling partners every day demanding wires for overdrawn FBO accounts. Buyer beware.
TuringNYC
>> If Double goes out of business, your assets are safe and held in your name at Apex Clearing. They have processes in place for these scenarios to help you access and transfer those assets. >> SIPC protection covers against a brokerage firm failing, which in our case is Apex Clearing. We are not currently a brokerage so SIPC would not apply if Double goes bankrupt.
Dear @jjmaxwell4 -- I'm not really worried about your service given you're a layer atop Apex, however, this is a very common conversation happening right now on many forums -- could you clarify a bit more, how one would "get comfortable" with a new product?
I'm assuming the list is something like this, but that is an non-expert guess:
- Is the institution i'm interacting with regulated (in your case, Yes, Double is regulated by The SEC)
- Who holds my funds, and are they regulated (in your case, the funds are held by Apex Clearing, and if I understand correctly, Apex is a broker dealer regulated by The SEC)
- Are the funds held in my name or pooled in with other money? (in your case, I think the funds are held by Apex only in my name)
I think one of the problems with the Yotta/Synapse/Evolve collapse is -- its unclear how one even evaluates their level of risk.
It is also unclear how one validates SIPC coverage, like could I go to SIPC and enter an account number and validate the funds are actually covered somewhere across the layers?
Would be great for someone who knows this area to comment.
makrmark
Appreciate diving into the details!
You can sign up directly with Apex (completely separate login) and view your holdings in your name in their web portal, along with all documents that Double sends you on your account activity. The process requires a bit of verification so I've written up a help article here on how to get set up: https://help.double.finance/en/articles/10262406-how-can-i-v...
xur17
Just wanted to comment and say that I'm happy you / Apex offer this. My concern (similar to others in this thread) is that Double might say they are depositing the money into Apex, but it's possible they actually are not, and being able to verify this myself is crucial.
AznHisoka
Ditto. I would really love to know if theres a site where you could enter the ID of a company and tell me if SPIC really backs them up..
johnnyo
How are the SIPC premiums being paid?
Let’s say I invest $250k with you. From my research it appears the SIPC premiums on that amount would be more than $12/year.
How does that work?
bboygravity
Search keywords: Apex clearing and trade 385.
They're basically criminals. A guarantee by Apex is worthless IMO.
eagleinparadise
Alright, I did the google search based on your incendiary comment and whatever you're trying to suggest does not seem to be the case.
pg 79: https://democrats-financialservices.house.gov/uploadedfiles/...
"Apex provides these same clearing services to many other introducing brokers, including Ally Invest, Betterment Securities, M1 Finance, Marcus by Goldman Sachs & Co., SoFi Securities, Stash Capital, Tastyworks Inc., TradeZero America Inc, and hundreds more"
voidmain0001
There are some Reddit threads about this - https://old.reddit.com/r/Superstonk/comments/1dz57am/trade_3...
Take them with a grain of salt.
fancyswimtime
we gettin a fan made doco on it, https://www.youtube.com/watch?v=opDJq1fnoRM
bachmeier
> I'm just really, really wary of new fintech products to save like .3% on fees when I hear all these horror stories of people trusting fintech startups with their money any then losing 95% of their deposits like the Yotta customers.
That's immediately the scenario that comes to mind when I see any of these offerings (this one might be perfectly legit, but the reality is that I have no way to know). Then I remember George Costanza exploiting a loophole to save money by seeing a holistic healer: https://www.youtube.com/watch?v=8uVSKgMpnuo
runako
This from the site feels reassuring: "Your funds are held in your name at Apex Clearing, one of the largest US Custodians holding over $114B in funds."
The "in your name" part is specifically what I was looking for.
hn_throwaway_99
Yeah, FWIW I think their disclosures look good, but I want some explicit reassurance. I want to ensure "in your name" is not the same thing as "for benefit of".
The thing that actually gives me the most reassurance is that they say definitively that they are a Registered Investment Advisor. In the Synapse situation, all the regulatory agencies were essentially saying "not my problem" because Synapse itself wasn't covered under any explicit regulatory regime. That doesn't seem to be the case here, but I'd feel better if the founders said something along the lines of "This is how we're different from Synapse..."
jjmaxwell4
The account is opened in your name and your securities are held in your name at Apex Clearing. Apex has more than 19M brokerage accounts opened.
We are Registered Investment Advisor (RIA) regulated by the SEC.
e1g
If you want to hold people's serious money and not play money, understand that priority #1 is not growth or expense ratios - it's risk mitigation. Swiss banks are notoriously expensive and have terrible investment products that hold trillions because of their obsession with protecting capital.
As a startup, you must figure out how to convince ordinary people to change their family safety net. Full transparency, audits by a known firm, and an entire brochure/mini-site explaining every significant fintech failure, showing how my money would remain safe if that scenario happened again.
murderfs
> Swiss banks are notoriously expensive and have terrible investment products that hold trillions because of their obsession with protecting capital.
What? Their second largest bank, Credit Suisse, imploded only last year. They hold trillions because of their nominal neutrality (though their cooperation with western sanctions against Russians appears to be hurting this significantly) and banking secrecy laws that serve as shelter for proceeds for all sorts of crimes.
e1g
Typically, when referring to “Swiss banks” people in the industry refer to the likes of Pictet/Lombard/Baer. Credit Suisse was closer to Bank of America than a Swiss bank.
Nomenculture aside, depositors did not lose a single cent in that implosion, and it went smoother than the SVB one.
tippytippytango
Fintech needs a lot more regulation if people are having to worrying about this kind of nuance to engage with the business.
drewbitt
I lost thousands of dollars with Snyapse's collapse, and there's still no update on getting any money back. It is a real concern, and something many are pushing on to regulate + rule over, but so far there's no bite.
don_neufeld
Yup.
Zero interest until there is a very clear answer here.
stavros
Zero interest, just like my bank account.
arcticbull
I get like 4% at my bank. Sounds like you need a new bank! I'd suggest starting with Nerdwallet. [1]
deathanatos
This is always the answer that gets posted. AIUI, though, the decent-interest-rate accounts are only available from online-only banks, and as recently as last year, I was required to visit a branch (…3, as it was…) in order to conduct some transactions, largely due to credit cards having a daily limit.
(I also sort of loathe the idea of needing to continually update a bunch of ACH information every year while I chase whatever bank is currently trying to draw customers with a temporarily decent rate.)
(And honestly the whole thing is kinda stupid every time I hit it. Businesses tend to give you shocked-pikachu-face when you can't use a CC due to the limit — like you've got to know these exist? And my limit is standard, as they go. And daily limits are trivially circumvented: you just spread the transaction across multiple payments spread out over time. In business, this hack^W method is called a "payment plan".)
dmoy
Fidelity can get you a better rate with their treasury money market, which works for Bill pay / etc.
They have branches in most major US cities I think.
neilv
https://www.fidelity.com/spend-save/fidelity-cash-management...
(Note that SPAXX was up to about 5% 7-day yield within the last few months, IIRC, but currently 4.25%.)
camel_Snake
seconding. Recently transitioned to fidelity's cash management account and have done a cash advance on the debit card at a local, non-affiliated bank with 0 fees involved.
Checks the boxes for me, personally.
dmoy
You don't even need to use the official CMA, just a regular old brokerage account ticks basically all the boxes (debit card, checks, bill pay, etc)
But yea there's a CMA too
ostensibly the CMA offers better atm reimbursement, but then the brokerage debit card also does, so that's weird.
The major difference:
sweep in CMA is FDIC, the brokerage is SIPC (but held in treasuries). The underlying thing (US government ) is the same, but FDIC has way better turnaround. But because it's FDIC on the underlying bank (Fidelity has no banking charter), it's not clear to me how much benefit that even is.
FDIC turnaround is faster, but only for failure of the underlying bank, not fidelity. If fidelity fails, you'll still have some SIPC latency to resolve things, instead of single-business-day FDIC awesomeness.
yellottyellott
i do two tiers of banks. direct deposit into a chase checking account. i pay down everything from here. then i transfer what’s left (minus $500) to an ally savings/invest account. lets me use ATMs and branch services with chase while having a higher savings rate with ally. if i need to pull a wad of cash out, i generally know more than a couple days ahead of time for a transfer to clear. if i wanted i could chase savings account interest rates and move from ally to somewhere else, but what a hassle. 0.5% on 100k is $500, and not worth it to me. ally’s rates are generally fine imo for me not to worry about it.
i’ve only ever hit debit card limits when trying to buy like a car. if you’re hitting cc limits, i dunno, maybe you have more liquid cash where smaller interest rate increases are worth the squeeze.
edit: ok i totally forgot i moved the bulk of my ally savings into an ally invest account holding a vanguard money market fund bc the rate was higher. this is a little less work than opening an account with another bank at least. the rate was 5.4 and is now 4.5. ally savings account is at 3.8. cds, ibonds, money market funds, these are all vehicles i never used prior to covid but have since. chasing it all around is annoying, but i only take stock maybe every 6 months. there’s diminishing returns here since everything past the efund gets invested in an index fund anyway.
Terretta
> the decent-interest-rate accounts are only available from online-only banks
One does need to look around, whether for national or local, and for instance not all local credit unions which can get close to the rate you would pay on a mortgage advertise on the web.
matwood
Open a brokerage account and buy SGOV with your cash savings. Done.
arcticbull
IBKR just pays you like 4-5% on idle cash, so do a few other brokerages. Don't even have to buy anything.
matwood
Sure, but you’re back to moving to a brokerage who gives a good rate. If someone doesn’t already have a brokerage then IBKR is a fine choice. SGOV works with any brokerage and is mostly state tax free as a nice bonus.
arcticbull
Ah gotcha.
blibble
at least with the bank you get your capital back
more than can be said for those that trusted another YC fintech (synapse)
FactKnower69
>I'm just really, really wary of new fintech products to save like .3% on fees
off by an order of magnitude, you're saving 0.03% on fees
pkkkzip
in the long run its negative because order flows are sold to hedge funds who ultimately trade against the masses.
I'm also not sure I would trust any fintech startup from YC after Yotta and Coinbase.
Matter of fact, I increasingly find YC rewards unscrupulous and morally cavalier founders and products that does more harm to society than good.
i find myself increasingly growing wary of YC affiliated founders not to mention the obvious CCP money involved.
Cataleya
[flagged]
chasebank
IIRC, FDIC only covers the deposits if the underlying bank fails, not the fintec layer built on top of it. Please correct me if I’m wrong.
hn_throwaway_99
That's literally exactly what I wrote in my comment.
chasebank
Either coffee hadn't kicked in yet or an edit on the parent? Not sure but I definitely missed it. Probably the coffee.
jacobr1
So how does it work now with bank fraud or technical issues? Ignore the fintech layer for a moment, just consider a bank like Chase or Wells Fargo. If their mobile app causes an erroneous transfer, or the backend removes money from your account or maybe doesn't give you the expected interest amount your saving account due to a bug ... what is the recourse? For a reputable company, even if their support is a hassle, they'll probably make you whole eventually. But presume they don't address the issue or repeatedly have widespread issues, what then? Do banking regulators step in? Does the public just need to rely on torts and threat of a suit or bad press?
schmidtleonard
One time a bank tried to stop me from moving my money to a new bank. It was reasonable for security to be high, of course, but not prohibitively so. After an in-person visit and a 30 day waiting period they "rejected my request," no reason given, no response to my request for a reason given, and told me to try again in 90 days.
Someone on HN suggested getting the comptroller involved. I think I found a state office called the comptroller, but it might have been the federal one? In any case, the moment they showed up in a conference call the bank transferred me to someone important, stopped fooling around, and made the transfer happen. The person at the comptroller office never got past the asking questions stage, but the bank's behavior changed immediately in a way that suggested they recognized the smell of authority. So that's my keyword suggestion: comptroller.
freeone3000
The consumer finance protection bureau is your best bet. Banking regulators will also get involved for patterns of conduct, but this can take years.
JumpCrisscross
> consumer finance protection bureau is your best bet
Usually not. Your best bets are your state banking regulator and AG. After that, the FDIC and Fed.
dboreham
Isn't that getting deleted after January?
freeone3000
Elections have consequences.
shmatt
This would explain only $10M in AUM within 3 months. Id guess just the commenters on this thread hold 10x that in etfs and funds
If a big bank launched this it would have $1B in AUM within less than an hour
TuringNYC
>> If a big bank launched this it would have $1B in AUM within less than an hour
I love the M1 product (and while I am not a Double customer, I love the value proposition). Note that ShareBuilder (eventually Capital One), FolioFN have tried and didnt get traction.
Fidelity has "Fidelity Basket Portfolios" and I'm assuming they have no traction -- the product is broken 3 of 5 days of the week, and almost nothing works. I could file a dozen Jira SEV-1 bug tickets "Fidelity Basket Portfolios" is so bad.
Chase has a basket product but it is barely surfaced on their OneVest menus.
ddgddg
much hate here; but mostly it is transparent jealousy arising from frustration about the great global money game being unfair and many educated and deserving ppl having no hope of ever making it off the bottom rung.
But jjmaxwell4 don't let any of that distract you
1. This problem (solid, simple, inexpensive) direct indexing is totally real 2. Congrats on identifying this and getting going on it 3. All your best customers are almost certainly not posting on reddit. Again don't let it distract you. This is a great idea 4. Pricing
While you don't want to price on AUM, 1$ is going nowhere fast, and as someone who is jazzed to be an early customer, I would really appreciate it if I could pay more than 1$ (along with everyone else out there) to ensure that the lights stay on and you don't feel pressure to sell to a trash retail bank who will just pepper me with lame cross-sells
giantg2
Some might say this already exists with stuff like VOO. When you're averaging 10-15bp, that should be a good deal. Concerns like you raise about keeping the lights on, change of ownership, or other's concerns about sub optimal execution are real. I'd pay $1K on $1M for the piece of mind.
mritchie712
same here, $1 makes me wonder how you'll stay alive.
I don't want to wonder.
giantg2
Makes me wonder how me as a customer will get fucked when things change in the future. Because you know the institutions they do business with won't accept getting fucked. It usually ends up on the customer. There is no end of financial providers with examples - start ups and established. The only real difference is the big guys get bailed out.
htrp
growth at a loss and ever increasing vc funding....
think it'll be difficult for them to be around 3 years from now (in their current form)
jjmaxwell4
Appreciate the kind words and feedback.
Qworg
What's the value of the borrow fees they can take?
Workaccount2
I mean, $12/yr is not a lot, but if the platform is geared for long term investing and not trading, I'd imagine that in any given month 95%+ of accounts are doing nothing but sitting static and handing over $1.
UncleMeat
Even if there are no trading costs, 12/y gets you one modest developer salary for every 10,000 customers.
How big is the addressable market here?
gdudeman
Wealthfront has struggled to grow with a 0.25% fee - so $25 annually for every $10,000 deposited.
Marketing and operations account for a lot!
koolba
$1/mo x 12 months x 10,000 customers = $120,000
But that will not pay a modest developer salary. The corporate side of FICA is 7.62%. Also add in health insurance, a retirement plan, office space, a computer for the developer ... and that's just the human side. There's all the corporate costs (e.g., servers) and regulatory filings.
The only play I can see with something like this is to ride it out and hope some established player buys you out for the tech.
UncleMeat
Sure, we can quibble. If they are intending on paying competitive bay area salaries they'll be paying much more. Or maybe they can build the bulk of their engineering team in Warsaw or whatever and pay less.
I picked a number on the lower side to be generous. Whether this pays for one developer, half a developer, or a quarter of a developer doesn't fundamentally change the big problem: you need a lot of users to cover even a small team and the total addressable market here is small.
aeyes
They still have to rebalance all the time.
ac29
Most indexes are capitalization weighted, so they don't ever need to be rebalanced.
dayone1
1) are you going to sell your trade flow to Citadel / market makers like Robinhood and your competitors do? That's the dirty secret way of making money that you seem to have completely excluded. The reality is that adds up to substantial "invisible" fees that the investor has no transparency over because you sell your trade flows to them and they make a higher than normal spread. And the whole "doesn't matter if we sell your trade flows, the rules require you to get best execution" is a farce and everyone in the industry knows this - otherwise there is no reason why Citadel or Virtu would bid billions of dollars to just buy the trade flow.
2) Are you going to rebate your borrow fees back to investors? This is the other dirty secret way of making money. Many people don't realize that you can earn lending fees by lending your shares out for people looking to short stocks, and those add up to substantial amounts over time for a scaled asset manager. Do you keep this instead of rebating it fully back to your customers?
3) If the answer is no, you don't sell trade flows and yes, you will rebate your borrow fees, can you make a lifetime commitment that you won't go back on your word? Many people who start in this industry say they won't sell trade flows and then after they reach scale they change the footnotes and agreements and starting selling trade flows.
wrsh07
Pfof is woefully misunderstood
In general, citadel wants to pay to trade with retail investors because it knows it isn't going to face adverse selection. So it will give them tighter bid/ask ratios (this is better for the customer) than they would get if they were trading in the open market, citadel isn't going to get hosed by one of them (because there's no adverse selection)
It's win win win
taway789aaa6
> PFOF and excessive off-exchange trading persist because so many trading platforms rely on the revenue it generates, essentially productizing their clients. Defenders of PFOF have claimed that retail brokers who route to high-speed traders (in exchange for PFOF) provide better price execution for investors and that it’s a net positive, despite creating an inherent misalignment between these platforms and their customers, and despite public evidence to the contrary. Leaning on the flawed argument that they categorically provide retail customers with best price execution quality, there is little by way of self-regulation to foment change or prevent applications designed to optimize transaction volume (i.e. speculation and day trading) and risky activity (i.e. margin and options trading). Further, their ability to claim best execution is part of the flaw of the system, as even within the current structure better outcomes are possible on an order-by-order, and aggregated basis.
https://advocacy.urvin.finance/advocacy/we-the-investors-pfo...
Not a win win.
gruez
>and despite public evidence to the contrary
Sounds serious, I wonder what it is...
>"410 The author deleted this Medium story".
doesn't look promising. The rest of the paragraph fails to state any concrete harm, instead focusing on abstract issues like "misalignment between these platforms and their customers", and "little by way of self-regulation ".
Anon1096
There is nothing in that statement that actually shows negative effects of PFOF.
> creating an inherent misalignment between these platforms and their customers
is just speculative harm, and as to the other part about preventing risky trading - this is literally what Robinhood et al customers want!
Meanwhile PFOF actually does have proven benefits in that it reduces spread for retail investors.
Ntrails
> Meanwhile PFOF actually does have proven benefits in that it reduces spread for retail investors.
To be fair, some of that is because its existence changes the pool of people trading on lit and thus increases spreads there. There are systemic effects that are a function of pfof that make it look better, and ofc there are a wide range of actors of varying quality...
highwaylights
This.
It seems very much like that bogus stat that HR departments were peddling 20 years ago about how they only hire the top X% of people because they reject (100-X)% applicants - it tells you nothing about the quality in the gap.
These systems don't have to actively attempt to front-run you or pro-actively make bad trades, they can just optimize for deal flow, which is enough to cause the customer to get a sub-optimal price.
freeone3000
You’re getting a price as good or better than if you had routed it through the backing exchange directly. National Bid or Best Offer continues to be the rule.
wrsh07
I think you're only highlighting my point that it's woefully misunderstood
The fact that 70k people signed a statement making a bunch of strong but vapid claims is umm telling
Let's take a longer money stuff excerpt:
>>> Some retail brokerages seem to make a lot of their money from payment for order flow. Others make less. Some big retail brokerages do not accept any payment for order flow at all: They still use this system (routing their orders to market makers), but they take 100% of the value in the form of price improvement for their customers instead of payments for themselves. Intuitively, you might think that the brokerages that get a lot of PFOF would get worse price improvement.
But, nope! Here is Bill Alpert in Barron’s:
Critics of retail brokers like Robinhood Markets condemn those companies for routing customers’ orders to market makers like Citadel Securities in exchange for payments. ...
The suspicion is that greater payments to brokers must be offset by less favorable execution prices. But that isn’t what a new study finds.
In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price.
But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing. Interactive Brokers ranked last in the execution pricing of the professors’ orders.
That's from https://news.bloomberglaw.com/mergers-and-acquisitions/matt-...
Excerpted Barron's: https://www.barrons.com/articles/payment-for-order-flow-sec-...
Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239
throwacomment
Yes, PFOF is woefully misunderstood but its very much not win win win.
The reason its bad is because its anti-competive and gives them information that no-one else has access to.
By trading against you, Citadel prevents any other potential market maker from trading with you. With less competition, the spread widens and even after price improvement, you're paying more.
PFOF also tells them who they are trading against but anyone else who just sees a quote doesn't know that.
Generally, things are very zero sum so wins all around are very unlikely. But some thinking is needed to track where the value loss and gains are.
wrsh07
Please see my other comment that provides links to a study that shows: yes you get the best price from a broker using pfof
Your argument seems reasonable but isn't borne out empirically
throwacomment
I'm not talking about you getting a worse price today.
Suppose in some other industry, some monopolist consistently sells goods at a loss to drive out all the competition. In the last moments when they are doing this, yes its cheaper for you to buy from the monopolist at that moment. But after everyone is driven out of the market, you'll be paying more. Even though the monopolist is still the cheapest amongst all options.
I'm saying you're already in the "after" scenario here. You're saying that you can save a few cents with PFOF when you cross that 50 cents spread and yes that's true. But I'm saying that spread should be 25 cents and no-one is offering that because they've been driven out.
Now that I think about it, the more immediate consequence to you is that some of your order will not fill because PFOF exists, rather than you getting a worst price. Say you put a bid to buy at 100. And then I come along and want to sell at 100. Normally, you'd get to buy from me. But because my order is PFOF'd, Citadel decides that buying from me at 101 is a good deal so they do. This happens a few time with different sellers then you get fed up and/or the market moves. So you raise your bid to 150. Citadel sells to you at 149. You saved 1 off that 150 but lost out 49 from the trade you'd have gotten from me without PFOF.
wrsh07
This example is apples to oranges
Imagine you are a market maker: you offer 2 APIs. The first, you allow anyone to trade on. The second, you only allow traders who are doing less than 100k in volume per day (and don't allow users to have multiple accounts)
Which API are you able to offer tighter bid/ask spreads on? Why?
That's the point. Pfof is saying: the second API is so valuable to me that I'm willing to pay to obtain customers. In the worst case, there will always be the open-to-all API.
Your second example continues to show the lack of understanding. You're saying: without the market segmentation, somehow I have a wider bid ask. That's not right at all. The entity that gets bad spreads is going to be the entity that would take advantage of good spreads. That's the whole point. Maybe there's a point that vanguard ends up getting worse execution because it gets lumped in with the rest of the market, but the counterargument to that is essentially just volume: is the retail market big enough that if you didn't segment them onto a better spread that the overall market would end up with better pricing. The answer: maybe! In some things! Is that really what the people who hate pfof want though?
My understanding is that people who hate pfof are actually the ones benefiting the most from it. (ie because unsophisticated investors get better execution)
throwacomment
PFOF does two things and you're only focusing on half of it.
1. It segments the counterparty they trade with.
2. They get dibs on new orders arriving.
You're only talking about 1. I'm talking about 2.
1 is also bad because this segmentation also gives them inforamtion no-one else can get. But the chain of reasoning to concretely show why its bad (for someone getting their orders PFOF'd) is less obvious and longer.
> Imagine you are a market maker: you offer 2 APIs.
This is so wildly different from how market works. You'll have to clarify what you mean. If the only way to trade is through the API, then you'll offer infinite spread on both. If normal markets exist alongside, then I don't bother using either.
wrsh07
I'm not sure what to say. Your arguments are extremely hypothetical and there's no evidence of the claimed badness today.
I don't find them convincing - why is it bad that someone paying for exclusive access to data gets exclusive access to that data? There are so many exclusive data vendors in financial markets, this one seems relatively low value
wbl
Dude, I want the market to see I'm a moron! I'm not buying BH because I've observed private jets between Omaha and Washington but because I'm saving after having been paid.
throwacomment
Then find a way to tell everyone this in the open, not just Citadel. Then anyone else is free to trade against you. There can even be a micro-auction to get you the best price among all counterparties that want to trade with you. There's already auction mechanisms at some exchanges so I'm thinking attaching a voluntary "this order came from Robinhood" tag to your order shouldn't be too hard?
lldb
It is not a win. In a recent study, Robinhood with Citadel has the worst price improvement (execution quality) of any brokerage on the market. I’ve personally observed this - Robinhood might “improve” by 1/10 of a cent from NBBO while Fidelity is frequently closer to the mid.
loeg
How is that not a win? Robinhood customers still got better execution than NBBO. If you don't like Robinhood getting a tiny kickback here, you're free to go to another brokerage.
wrsh07
This is just noting that different brokers give different performance
That doesn't really have anything to do with pfof (TD Ameritrade gives better execution and receives pfof)
loeg
Presumably a market maker would pay (PFOF) slightly more to deliver slightly worse execution (keeping the spread).
wrsh07
Sure that sounds plausible but it's literally not what happens in practice (see the other comment I linked that discusses research on this very thing)
loeg
Yeah, I've seen the Levine column on it.
wrsh07
Here's the money stuff excerpt: https://marginalrevolution.com/marginalrevolution/2021/02/th...
> I feel like most of what I read about payment for order flow is insane? Otherwise normal people will start out mainstream explainer articles by saying, like, “Robinhood sells your order to Citadel so Citadel can front-run it.” No! First of all, it is illegal to front-run your order, and the Securities and Exchange Commission does, you know, keep an eye on this stuff. Second, the wholesaler is ordinarily filling your order at a price that is better than what’s available in the public market, so “front-running”—going out and buying on the stock exchange and then turning around and selling to you at a profit—doesn’t work. Third, because retail orders are generally uninformative, the wholesaler is not rubbing its hands together being like “bwahahaha now I know that Matt Levine is buying GameStop, it will definitely go up, I must buy a ton of it before he gets any!” The whole story is widely accepted but also completely transparent nonsense.
1oooqooq
it's already public that frontrunning is perfectly legal if you can do it with large volume as to not show intent of frontrunning one single person.
slt2021
yeah, Citadel's annual $30,000,000,000 profit is not coming out of thin air or just from bid-ask spread. Customers are being taken for a ride definitely
nobodywillobsrv
Adverse selection goes both ways. If PFOF leads to adverse selection against your flow then it's not win-win. You might say you are willing to trade of adverse selection up to the cost of the fees, but then you are trading a known fixed fee for an unknown stochastic penalty. And also who sets the fees?
The entire thing is adversarial and it's really just a choice of game you choose to play.
WiSaGaN
It's not. Centralization of liquidity is better for everyone. HFT thrives on fragmentation of liquidity. HFT is not wrong, but fragmentation of liquidity is.
rjrdi38dbbdb
Nope. It's not better for known uninformed traders. If you mix them in with informed traders, market makers must widen spreads.
This is very obvious in institutional FX. Pure "retail" flow will get quoted much tighter spreads by banks and market makwrs than you'll see on any ECN. Yes, it can get skweded against predictable flow, but a true "noise" trader won't be affected by that and will definitely be better off with tailored liquidity.
WiSaGaN
You don’t have to trade with market makers.
rjrdi38dbbdb
So you're hoping get price improvement by crossing with other trader orders in the book?
Unless you have a good high frequency predictor and low latency order management (you don't), you're going to experience adverse selection. Either because you're taking resting orders that HFTs are smart enough to avoid or because your resting orders get run over by informed traders.
WiSaGaN
So you are saying HFT will avoid your market order in this case, while HFT will provide better price when they are the sole counter party in separate liquidity pool? HFT will always maximize profit. To have multiple venues you are just paying HFT as middle man to transfer liquidity from one to another, where you can trade directly with each other if everyone is on one venue, e.g. one centralized limit order book. Transfering liquidity is not HFT's fault, but saying paying for order flow is better for retail is just disinformation. Without evenly discussing the function of HFT, you will get disinformation that demonize HFT as well, and common people won't listen to you later.
rjrdi38dbbdb
> So you are saying HFT will avoid your market order in this case, while HFT will provide better price when they are the sole counter party in separate liquidity pool?
Yes, absolutely. The best feeds (tightest spreads) are only given to specific clients who are requested to trade exclusively with them. If they detect you splitting your orders up between venues, they'll worsen your feed. The feed they'll send to public lit ECNs will generally be their worst (widest spread).
sdwr
Ahh, this is the comment that cleared it up for me.
MM takes on risk, can offer tighter spread when not exploited (ex. HFT arbitrage)
Could theoretically take advantage by manipulating prices
But is already operating within the bounds of the existing public spread
neximo64
Distorted incentives
hn_throwaway_99
> If the answer is no, you don't sell trade flows and yes, you will rebate your borrow fees, can you make a lifetime commitment that you won't go back on your word?
To be honest, why would you even ask that? "Lifetime commitments" are ridiculous. It's simply not a promise that any founder or business owner could ever make. Businesses get sold, circumstances change, etc. It's better to just accept that as a risk factor and decide whether or not you'd be comfortable taking on that risk.
BobaFloutist
>Businesses get sold, circumstances change
Is there really no way to put a binding bylaw in incorporation papers that will survive a sale? Something like a land-use covenant, but for a corporation?
I'm not sure that's necessary for this particular case, but for something like private data exposure I've been playing with the idea that it's the only way to actually trust a company with your data.
hn_throwaway_99
In the US, not that I'm aware of. I suppose it would be possible to add a "poison pill" ("If we change this, we'll pay everyone $X dollars") to then just make it a normal contract, but again essentially no company would be willing to do that because it extremely limits their options. Also, "forever" is a lot shorter than people think, it's only as long as the powers-that-be are in a position to enforce a contractual position.
1oooqooq
nonsense. there's millions of ways.
one is to be upfront about it on every advertisement and service description... can't get any easier than this. and is as effective as the complicated canary shenanigans.
hn_throwaway_99
> one is to be upfront about it on every advertisement and service description
Did you even bother reading the thread? What happens when your company gets sold, and all the old promises are thrown out the window? This has happened many times before (just ask Palmer Lucky about Facebook logins for Oculus), and that is what people are asking is preventable, and your suggestion does nothing to solve that problem.
1oooqooq
the marketing will have to remove all promises, so customers can move out.
they get around this using platitudes, like "do no evil".
rcMgD2BwE72F
>Businesses get sold, circumstances change, etc.
More importantly, founders also lie about their intent.
It's easier to trust owners when they commit and are ready to go to court over their promises. Ever heard of Lavabit? https://en.wikipedia.org/wiki/Lavabit
It's never ridiculous to ask. What's ridiculous is for founders to make their customers believe they're ethical when they're not. Let's ask then, and you don't have too high expectations.
rancar2
1 and 2 are volume based hence 3 once the volume is there.
To the OP dayone1: What’s your concerns with 3 exactly? Double’s structure is innovating on the fee front like an extreme Vanguard 2.0, so overall the structure (even if 3 takes place like Vanguard) is still the best deal on the market for an individual.
wbl
The reason people pay for trade flow is the same reason they sit at the table of drunks when playing poker.
TeaBrain
It's more like paying for the privilege of operating a monopoly on poker tables, with the guarantee that the rake will be kept low, so that the operator is not competing with other entities for the customers' rake. A market maker's competition to collect the spread is with other market makers, just like a casino's main competition to collect the customer's rake would be a different casino.
wbl
Read Reg NMS before you opine on this. It's short!
TeaBrain
As long as the market maker is executing orders at the NBBO on their ATS, they shouldn't be in conflict with Reg NMS, even though they are the only operator with the ability to market make on their ATS. Paying for order flow allows market makers to avoid competition in capturing the spread at the NBBO, however small the spread may be, while also helping to guarantee liquidity to capture the spread on, by giving them the sole privilege to market make on those orders.
Returning to the earlier poker table analogy, I mentioned that the operator with a local monopoly on poker tables, would be required to keep their rake low to keep their local monopolistic privilege, as an analogy to how market makers also have to keep their spreads in line with the NBBO (due to Reg NMS), in order to keep their privilege of executing orders on an ATS.
dehrmann
It's slightly different. With poker, you play with drunks because they make mistakes. With order flow, you want trades from small fish who don't have any special knowledge so you market make and not be taken advantage of, yourself.
slt2021
Except that unlike in casino, in stock market a Designated Market Maker can go against the crowd and "wait it out" any negative downfall.
Lets say customers bought GME and GME shoot up. Citadel just waited out until the movement fizzled out. They were able to hold naked short position for prolonged period of time (basically printing fake shares) to artificially increase the float
rs999gti
> sell trade flows
This is the real reason for low/no broker fees. Don't believe any broker that says they will input orders without taking their cut otherwise they (automated or not) would not exist.
shred45
> they make a higher than normal spread
Is this known for sure? I thought the value of this order flow to them was the lack of adverse selection.
shmatt
I dont know the reasoning behind this comment, but YC isn't a charity. The investment was made with the hopes of making 100x return without customers paying fees. Obviously there are other cashflows in play
mguerville
Or the investment was made under the assumption the business model to gain traction isn't the same as the future one that generates cash flow. Plenty of company start with a free or cheap product then up their pricing once the value is proven and there's a percentage of their users that fears the switching costs
is_true
Maybe they are expecting for an exit from a company buying them and then raising fees
TuringNYC
>> are you going to sell your trade flow to Citadel / market makers like Robinhood and your competitors do?
Is that really a problem if you're still getting NBBO (https://en.wikipedia.org/wiki/National_best_bid_and_offer)
Could you explain the downside of selling order flow if you're getting no worse than the current NBBO?
ddulaney
For 1 — dude, please back off the “[the rules] are a farce”.
Citadel and friends pay to trade with you because they think you’re dumb and they can make money off you. They’re giving you or your broker a better deal because they think they’re smarter than you. That’s all it is. They’d rather trade with you than with the median person on the market. Because they think you’re dumb.
You’re welcome to be insulted by that. It’s an insulting thing. But it’s not some grand conspiracy.
shred45
Its not the median they are worried about, its the 99th percentile. They _dont_ want to trade with Optiver, 2 Sigma, etc, or some hedge fund thats working a massive trade.
Trading with a highly sophisticated counterparty can be very costly and undo the small profit they have made from thousands of other trades.
gruez
>Citadel and friends pay to trade with you because they think you’re dumb and they can make money off you. They’re giving you or your broker a better deal because they think they’re smarter than you. That’s all it is.
More to the point, just because they're smarter than you, doesn't mean you're taking a loss by trading with them. The public markets are shark tanks, and it's better for both sides to avoid it. Market makers can make money off the spread (eg. buying at $3.14 and selling at $3.16 and pocketing the difference) without the risk of getting run over by a hedge fund, and retail traders benefit through tighter spreads, which the market makers can offer because they know the typical retail trader isn't a shark.
chii
> because they know the typical retail trader isn't a shark.
so why don't the sharks use robinhood, which then they can do their shark thing there, but at a better price than before?
gruez
1. "sharks" in this case doesn't mean some guy trading out of his house with 6 monitors. They are institutional investors. They can't exactly open a robinhood account, which only serves actual people. Professional traders also value other niceties, like being able to trade on their desktops (rather than having to type in their orders on their phones), which is worth the 1-2 cents per share in potential savings.
2. It doesn't have to be 100% effective. For every day trader that's beating the market and running over market makers with $1M orders, there's a 100 that's losing everything in ill timed trades on meme stocks. As long as there's less sharks than the public markets, they'll come out ahead.
GenerWork
>Professional traders also value other niceties, like being able to trade on their desktops
In fairness to Robinhood, they did just release a desktop version[0].
gruez
I stand corrected, thanks!
n2d4
Robinhood doesn't want the sharks because that would cut into their monetization strategy. So they specifically don't build features that sharks would need, some just convenient (eg. trading interfaces), some very important (eg. tax statements).
taway789aaa6
The "farce" is that when a market maker like Citadel purchase your order flow, the orders are typically not routed to the lit market (e.g. NYSE, IEX, etc) but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security.
This breaks the whole idea of a "market" where every buy puts upward pressure on a price and sales put downward pressure. Thus, a "farce".
That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced.
Gotta love brokers that don't have your best interest in mind. Who needs best execution? /s
gruez
>but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security.
1. alternate trading systems are obligated to print their trades to the ticker, albeit at a slight delay compared to official exchanges
2. price is dictated by supply and demand, not the trade being publicly announced on exchanges. Trading volumes not being public probably has some non-zero effect on price discovery, but claiming that it has "no effect" is absurd.
shred45
Order flow in dark pools does impact the price of a security. The market maker will eventually need to trade out of that position. If there is aggregate buying pressure in the dark pool, they will adjust their quotes in both dark and lit markets.
taway789aaa6
> The market maker will eventually need to trade out of that position
This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements.
They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities.
So when exactly will that $60 billion of buy pressure hit the market?
gruez
>This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements.
1. source?
2. supposing this is true, what's their daily turnover? "60+ billion" sounds like a lot, but if that's their daily turnover that shouldn't be anything out of the ordinary.
Lionga
1. Just look at their financial statements they , nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker.
Not that others won't naked short also, it is just they do not do it openly.
gruez
>nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker.
That's... working as intended?
> market makers provide a required amount of liquidity to the security's market, and take the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders. In return, the specialist is granted various informational and trade execution advantages.
You can argue such a system is inegalitarian or whatever, but if you want a reliable provider of liquidity that won't instantly vanish when there's market turmoil (ie. when you need it the most), there has to be some mechanism to compensate market makers.
slt2021
Citadel is basically counterfeiting shares, just like the Fed is printing dollars.
its a scam and is a reason how Citadel makes $30,000,000,000 profit per year
gruez
>its a scam and is a reason how Citadel makes $30,000,000,000 profit per year
Where are you getting "$30,000,000,000" (billion) in profit? Wikipedia says they only made $6.3 billion in revenue in 2023. Moreover, they were in existence for 22 years. Even if they only started "counterfeiting shares" in 2021, $30B in profit per year (so $90B in the past 3 years) seems absurd for only $60B worth of "counterfeiting shares" on their balance sheets.
slt2021
Citadel gross trading profit totalled $28bn last year,
60B is a balance at a specific date 12/31/2022, they trim the balance by the EOY and harvest losses.
the average balance is much bigger and fluctuates heavily given market demand.
UPD: I stand corrected, the market making arm only made meager $5,000,000,000 for the 6 months, so more like 10,000,000,000/year, not 28
https://www.nasdaq.com/articles/citadel-and-jane-street-set-...
gruez
"Citadel Securities is a separate entity from the hedge fund Citadel LLC"
https://en.wikipedia.org/wiki/Citadel_Securities
The market maker boogeyman is Citadel Securities, not Citadel LLC.
taway789aaa6
Assuming that they have a proper firewall between the two and there are no conflicts of interest..
toast0
> They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities.
> So when exactly will that $60 billion of buy pressure hit the market?
Citadel needs to deliver the stock they sold on T+1 as of May 28, 2024. There's some allowance for failure to deliver, but the data is out there, if Citadel is routinely failing to deliver, you should be complaining about that, not about their financial statements.
Meanwhile, if Citadel wants to pay me fractional pennies more per share than a public exchange, and also my brokerage fractional pennies for the privilege, who am I to say no? Especially when the public exchange may charge me a fee to trade.
slt2021
they can keep failure to deliver forever until the market moves in their desired position to actually send orders to lit market.
they use derivatives and heavily recycle buy/sell shares to keep kicking the FTD can down the road for as long as the market returns to their desired position.
wbl
No they can't. They can keep a short position but that isn't failure to deliver.
slt2021
the T+1 timer can be easily reset every day, until the market price reverts back to the Citadel's modeled price at which it is profitable/least losses for them to send order to lit market
toast0
What are the mechanics of that?
Let's say I buy a share of F on Monday, my brokerage routes it to Citadel, because PFOF.
On Tuesday, I expect to get a share of F delivered at close of business, because T + 1.
If Citadel doesn't deliver on Tuesday, what happens?
Are you suggesting they would continue to not deliver the share I purchased for several days, by saying oh yeah, we'll get toast0 his shares tomorrow? That would be pretty upsetting, and I imagine I'd call my brokerage and ask them why they're dealing with Citadel if they never deliver shares on time.
slt2021
you will receive share in your name in a database, but physically it will be stored "in the street name" in the depositary house, of which there is only one.
plus even if there is only a single share authorized for stock exchange, there will be more than one in the float, due to synthetic shares: created when shares are borrowed and then reshorted, created to support derivative market (selling calls and buying puts). ALso borrow/rehypothecation mechanics is recursive, since shares are fungible, I can recursively re-borrow and re-short the same share, creating synthetic shares out of thin air, supported by nothing other than some bytes in the database somewhere, and not physical shares
wbl
The prime broker has a lot of money and will cover their customer blowing up in a net short position. They manage that with margin agreements. That isn't nothing.
snapcaster
If you actually don't understand why that citadel statement said that you should read up on how market makers work. Any given snapshot in time for them would have enormous quantities of securities on both sides because they have to hedge all of their activities to remain neutral to any price movements.
>So when exactly will that $60 billion of buy pressure hit the market?
it probably did shortly after the statement, coupled with a likely similarly sized "sell pressure". They're constantly buying and selling things that's how the business model works
jkulubya
Leaving aside the veracity of that figure, if they've sold $60B of shares they don't own then they must've sold shares they borrowed in some way, and that shows up in the demand/supply. Someone (or someones) in the market would know.
Lionga
As a market maker Citadel is allowed to do naked shorting.
jkulubya
A naked short on their own account would be illegal. A time-bound naked short to fulfill their role as market maker would be acceptable.
But even then, all trades are either eventually settled at some time t, or fail to settle, e.g. if the seller is not good for the shares. Any of these 2 events happening is reported outside of a single broker-dealer, i.e. public info. And to settle a trade, you will need the actual shares, that you've either bought or borrowed.
All this info, settlements, failures, stock buys & loans is visible to other parties in the market.
If your point is that the Citadel is breaking the law, and not reporting what they should, when they should, then that's a problem. But there would be so many other parties discovering it way before their annual financials are published.
taway789aaa6
Well we all know financial institutions never do anything illegal.
https://www.sec.gov/newsroom/press-releases/2023-192 https://www.sec.gov/newsroom/press-releases/2017-11
> But there would be so many other parties discovering it way before their annual financials are published.
Looking at Bernie Madoff I'm not sure this is really the case...
wbl
Bernie didn't trade. That's why no one has anything to report.
slt2021
they kick the can down the road every day, until the market price returns to what they desire and only then they send order to a lit market.
also heavy usage of synthetic shares and derivatives to hide naked shorts
jkulubya
Sure, but the problem isn’t that Citadel is expecting that the price will drop. The claim was that Citadel can take a short position without other parties in the market knowing, and finding out only from their annual financials.
That’s not true, because, amongst other reasons, everything you’ve listed (synthetic shares/derivatives/kicking the can down the road) can be seen by others in the market.
(Naked) Short all you want, there’s nothing wrong morally with betting in that direction. But it will be picked up.
shred45
I don't think this really tells you anything, and it also will impact the quotes they are making, even if they are holding the position for now.
BobbyJo
> That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced.
Have any pointers to info on this? I'm looking to buy into some ETFs but I've been unable to find much information on balancing (I'd like to selectively manage my exposure to some stocks that are heavy in indexes at the moment).
taway789aaa6
Schwab has a pretty good explainer: https://www.schwabassetmanagement.com/content/understanding-...
Ultimately the AP (authorized participant) is incentivized to make ETFs available because they get to use supply/demand imbalances as an arbitrage opportunity.
> The creation and redemption mechanisms help ETF shares to trade at a price close to the market value of their underlying assets. When ETF shares begin to trade at a price that is higher than the market value of their underlying assets (at a “premium”), APs may find it profitable to create ETF shares by buying the underlying securities and exchanging them for ETF shares, and then sell those shares into the market. Similarly, when ETF shares begin to trade at a price lower than the market value of their underlying assets (at a “discount”), APs may find it profitable to buy ETF shares in the secondary market and redeem them to the ETF in exchange for the underlying securities. These actions by APs, commonly described as “arbitrage opportunities,” help to keep the market-determined price of an ETF’s shares close to the market value of their underlying assets.
http://www.understandetfs.org/creation_redemption.html
My understanding is that volatility is good for ETF APs because there are more arbitrage opportunities.
nick3443
Be careful lending out your shares (for example on ibkr) you can lose your qualified dividend status.
throwacomment
Does anyone rebates 100% of the borrow fee or did that initially?
maest
PFOF is good for the customer.
sumanyusharma
I'm actually pretty interested in what you're building. Sure, Vanguard and Fidelity are well-established giants, but they've barely moved beyond standard ETFs for decades. Having the option to tweak weightings at a more granular level and do daily tax-loss harvesting at scale seems like a genuine step forward.
I also like that you're transparent about how you might eventually introduce additional revenue streams like margin lending or maybe even PFOF. Knowing that upfront is better than a sudden terms-of-service surprise down the road. Still, I'd hope you'll consider giving users some say over how their shares are handled — like opting out of lending — so your incentives stay aligned over the long run.
Congrats on hitting $10M AUM. I'm rooting for more low-fee alternatives that keep the user in the loop!
soared
Fidelity has innovated a ton and they have this exact product, though I don’t know the fees.
Fidelity is very much into new fintech ideas and products.. they were mining crypto very early on.
ac29
Fidelity has a few direct indexing products.
Here is one that is $5/month: https://www.fidelity.com/direct-indexing/customized-investin...
I'm curious if Double has any advantages over this offering other than price. While I'm not personally interested in direct indexing, if I was I would absolutely be willing to pay the extra $4/month to do it at Fidelity vs some unknown startup.
TuringNYC
>> Fidelity has innovated a ton and they have this exact product, though I don’t know the fees. >> Fidelity is very much into new fintech ideas and products..
Fidelity has a competitive product called Basket Portfolios and it is so buggy as to be almost unusable. The bugginess has existed for many months and they do not even seem to care.
sumanyusharma
Appreciate the info; I'll double-check Fidelity again!
_benj
Hi, and congrats on the launch!
I'm curious about how this service compares to, say, the offerings of zero expense mutual funds from Fidelity of Schwab? I guess there's a lot more variety since I don't think those brokers have 50+ indexes.
Have you found or might expect to find liquidity issues or spread costs with fractional shares? I imagine that if you have an account with, say, $3000 that is trying to implement S&P500, the portfolio will me mostly if not exclusively fractional shares.
About positioning, I don't think I'd be the target audience since I just buy and hold $SPY, $VOO, $IVV. If you could convince me that I could implement, say, S&P 500 and be cheaper, more tax effective than holding those ETFs, that would be something interesting!
divbzero
> If you could convince me that I could implement, say, S&P 500 and be cheaper, more tax effective than holding those ETFs, that would be something interesting!
The lowest-cost S&P 500 index fund currently has an expense ratio of 0.015%. Assuming similar performance (minimal tracking error) Double's fee of $12 per year would cost less for any portfolio over $80,000.
stocknoob
The zero fee total market funds are almost identical to S&P
https://portfolioslab.com/tools/stock-comparison/FZROX/SPY
Unless you have a very good reason, just go for the cheapest.
lxm
BKLC is 0.00%.
avree
Another large advantage of Fidelity, which is unclear if Double has, is that uninvested money can sit in SPAXX/equivalent and earn competitive growth.
redrove
I wish you had been more clear this is US only.
I had to sign up, verify my email, tried opening an investment account, had to untick I’m a US citizen/resident and only then did your platform let me know I’m not welcome as a client.
Oh and PS there’s no way to delete an account is there?
jjmaxwell4
Sorry about that - we will try and make this clearer. I am happy to delete your account for you. Please email us at support@double.finance.
rinz
Any plans to go beyond US? I am guessing it is a huge hassle though...
Hasz
One of the things you can easily do with your approach is to offer "soft shorting". Essentially, one of the biggest issues with normal short positions is that downside is basically unlimited. Plenty of shorts have been wiped out in this very, very long bull market. Soft shorting, imo, is just discluding a particular stock from your index. No insane downside, less active, but still a bet against a company.
I want the option for an index of SP500, minus exposure to $TICKER. You approach could very easily facilitate that with how you will buy.
This can be an "active" component of an otherwise heavy bet on indexing.
jjmaxwell4
Yes we allow this right now very easily, although we don't call it "soft shorting". You can remove or de-weight specific stocks or sectors quite easily.
Hasz
nice, idk exactly what to call it, but it's imo a much bigger value than a clear 0% vs 0.05% fee difference.
carbocation
FZROX gives me 0% fees, can be bought in my retirement accounts, and is attached to a company with something like $1 trillion AUM. The latter gives me faith that it will still be around next year. I appreciate that the 0% fee options are limited, but personally I’d rather deal with 0.03% fees than entrust my money to a small shop. Especially when the reason to do so is not some trading edge, but saving a small amount on fees. I think this is going to be the main barrier to getting people to sign up.
UncleMeat
Plus, index tracking error (which is ignored in the ad post) is going to be comparable to these fees anyway.
"Invest all your savings in our startup so after 30 years you'll have 1% more money in the absolute best case scenario" doesn't feel like a winning strategy.
jansen
Every shop is a small shop when it starts out. Maybe give these guys a break?
hn_throwaway_99
I appreciate the sentiment, and I agree, but this really matters. There have been so many stories of fintechs collapsing recently, where people were really just trying to make an extra few percentage points of yield, and then people lost all of their savings.
I also like to root for the little guy, but the trust barrier will be the largest hurdle I think that this company needs to overcome, and so it's fair to discuss it.
Invictus0
Please recall this is the website that discusses startups. It is absolutely not fair to use "you are not a big company" as a point of criticism
windexh8er
Every possible angle is "fair" when it's your money. To look the other way because it's being discussed on HN is madness. For folks that aren't aware of the fintech failures the point being reiterated makes a statement and if the OP / founder doesn't address the issues in the thread then it doesn't seem like I should have a ton of faith in their service.
koolba
It's absolutely fair when you're evaluating a potential fiduciary. I personally don't consider small regional banks secure beyond the FDIC limits for the same reason. But one of the "big guys" is fine as they're too big to fail.
Invictus0
> As part of the agreements with the United States Attorney’s Offices for the Central District of California and the Western District of North Carolina, the Commercial Litigation Branch of the Civil Division, and the Securities and Exchange Commission, Wells Fargo admitted that it collected millions of dollars in fees and interest to which the Company was not entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information, including customers’ means of identification.
https://www.justice.gov/opa/pr/wells-fargo-agrees-pay-3-bill...
> As a result of HSBC Bank USA’s AML failures, at least $881 million in drug trafficking proceeds – including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia – were laundered through HSBC Bank USA. HSBC Group admitted it did not inform HSBC Bank USA of significant AML deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.
https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-ba...
Madoff had $65B AUM.
You must be living under a rock (or a democrat) if you trust an institution just because it's large.
hn_throwaway_99
You're misunderstanding what the benefit of being large is, and what the risk of being small is.
I totally accept and understand that large businesses do all sorts of shady and nefarious things. What I don't expect them to do is lose all my money with no recourse. And that's not just the case because they're big, but the regulatory regimes are set up to deal with these known entities. The reason I've personally become wary of fintechs recently is because many of them want to "move fast and break things", and think they can offload all of the regulatory responsibilities to partner institutions. Like, if you're such a great fintech, why not open as an actual bank or as an actual broker dealer (note, I'm not saying that's the case here, as they are an RIA, but I don't know the protection that is entailed by that designation).
When you say "Madoff had $65B AUM", he also had like 10 employees, which is why he was able to hide the fraud for so long.
freeone3000
RIA doesn’t have a guarantee as such — it’s a license to sell you securities and, also, give you advice on which securities to buy. Such a person or company doesn’t even necessarily keep an account: it’s a financial advisor certification. But this is the “actual broker-dealer” certification you’re asking for.
They keep your account at Apex Clearing, which is a very very large company that is not going anywhere anytime soon.
So, the key bit here is: do you trust them on that? They’ve got SEC filings and it’s as above-board as any other fintech. And next, are you prepared to argue with Apex for your money when/if they fail? And is this worth it to you for the product offered?
hn_throwaway_99
OK, you roll the dice with your money then.
More importantly, though, that's not what I'm saying. Getting over the consumer fear about their financial security absolutely has to be a primary priority of this company, and if they don't address it, then they have a shitty business plan.
chii
> Maybe give these guys a break?
why should anyone "give them a break"? Aint running a charity here - if they provide sufficient value for the risk, then they will get customers without having them to "give breaks".
short_sells_poo
I am going to give zero break to anyone who proposes to manage people's money. This is not the area where "move fast and break things" is an acceptable approach. You have to be on top of your game from day one, otherwise you need to stay away from people's life savings.
carbocation
I think you misunderstand me. I’m not telling them to give up or expressing hope that they don’t succeed. I’m identifying what I see as a major barrier to adoption. I’d be interested in a response that addresses those points.
tschwimmer
I mean, no. For many people the investments being handled may represent their life savings. It represents potentially decades of work. This isn't some SaaS where poor reliability means wasted time and maybe some money - the stakes are considerably higher.
ryandrake
I doubt they are expecting their customers to withdraw their life savings from Fidelity and hand it to them. I sure wouldn't. I could see maybe trying them out with, say, $20K of one's $2M savings. But, then at that level of investment, $1/mo becomes a significant fee. Not sure I understand who the market is.
mrbluecoat
Same, M1 gives me similar options and protections for a nominal fee: https://help.m1.com/en/articles/9331969-how-much-does-it-cos...
dehrmann
How does FZROX make money? Loss leader for Fidelity? Improved economies of scale?
throwaway2037
In theory, it should be possible to run a break-even fund, where your expenses are offset by lending shares in the stock borrow lend (SBL) market. I assume this is how some fund managers can offer 0% fees. I have no idea if this is sustainable long-term (decades). In a very competitive, liquid market like the US, I guess that weighted-average SBL rates on basket of S&P 500 stocks might be 5-10bps. Can any SBL traders here give us more accurate numbers?
Edit:
Also, they can sell their order flow to a market maker (HFT?), as it is non-toxic retail flow. That is basically how Robin Hood keeps fees so low.
chis
I believe it is a loss-leader. But these days companies get a pretty direct payout from people who accidentally hold cash in their investment account while on the way to buy ETFs
loeg
Loss leader. Fidelity and Schwab make a lot of money from Net Interest Margin on uninvested cash (or e.g. Fidelity's relatively high fee 0.42% money market funds).
beryilma
> We handle all the management, including rebalancing and tax-loss harvesting—proactively selling losing stocks to potentially save on taxes
- For a non-retirement portfolio, isn't rebalancing is a taxable event? Rebalancing by selling stocks and buying others is not the best approach. Isn't it better to rebalance by shifting the focus of new investments based on a strategy?
- I think it is misleading to present tax-loss harvesting as a way of saving on taxes. I don't know why people present it this way. In order to "save on taxes" you have to realize (i.e., sell stocks at) a loss first...
DeRock
This is the question I have too. The ability to create a "custom" ETF is highly desirable to me. I don't want to trade individual stocks, but instead would rather input some weightings on top of existing indexes (i.e buy less of stock A, more of stock B, etc.). However, my understanding of ETFs is that they are able to rebalance through "in-kind" creation/redemption in order to avoid creating a taxable event. I'm not sure how this is possible to scale to a custom one-off fund...
jjmaxwell4
You are correct the in-kind creation/redemption pushes any taxable gains/losses to the trading of the ETF by the holder, not the ETF itself.
But there are some benefits to doing what you refer to as a "custom one-off fund". Namely we can Tax Loss Harvest any losses and realize those to offset gains we realize in the name of rebalancing. The industry generally calls this direct indexing and wealth clients with $1M and above portfolios have been doing it for years.
We also provide the option of entering a "Buy & Hold" optimization for strategies, which would not rebalance your winners into losers and realizing any gains or losses, but your portfolio will drift over time if you choose this.
loeg
TLH is sort of a synthetic loss. You just sell and buy essentially equivalent funds to realize an unrealized but existing loss, lowering your cost basis. The amount of stock you own doesn't change at the TLH event. You get a (small) deduction against your taxable income at the cost of more capital gains in the (maybe distant, lower tax bracket) future.
oplav
If you participate in charitable donations and are able to itemize deductions, after a period of capital gains you can also donate the low basis shares and then rebuy the shares with cash immediately. This is effectively donating cash while stepping up the basis of the asset.
I’ve been doing this cycle for a bit now and while it doesn’t produce life changing savings, it does motivate me to donate more.
Donor advised funds make donating shares pretty easy to do.
loeg
Yes, that's true, and I do donate low basis shares. But it's a small portion of my overall portfolio. Big +1 to DAFs -- I use Vanguard Charitable.
taway789aaa6
> The Firm assesses fees monthly, in arrears. Fixed fees are $20/month, in arrears. Fees are debited directly from client accounts.
If the fee is $1/month, why does your form ADV state that fixed fees are $20/month? https://double-disclosures.s3.amazonaws.com/Double+Finance+A...
jjmaxwell4
This is an older version of our Form ADV - we're fixing this now. We've updated our ADV with the SEC but this link remains attached to our older one.
This is our current latest filed with the SEC:
https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_ia...
taway789aaa6
What led to the 95% decrease in fixed fees?
danielmarkbruce
>> Over a 30-year period on a $500k portfolio, the money lost to those fees would be $1.30M for the financial advisor and $244k for the average ETF and even $42,951 for the low fee VOO.
How do you calculate $42,951 for VOO? Seems too high on 500k, or at very best you are conflating FV and PV and comparing apples to oranges.
First year is going to be $150. Last year is going to be maybe 2^3 * 500k * 0.03 = $1200? I'm sure you are then FVing all those but even then it seems like you must be assuming pretty high returns. If that's what you are doing, surely calculate the FV compared to the FV of the portfolio (like $4 million or so). Or, do the PV of the fees which is going to be... $4500 or something.
paxys
The calculation is at https://double.finance/pricing
They are assuming an additional $2000 contributed per month and a 7% return.
chis
Handy calculator. Comparing to VTSAX (.04% expense ratio), they show a 1% difference. Not nothing, but hard to justify switching when you consider the downside risk of this company going out of business or selling in the next 30 years.
I think this is going to be a hard product to sell when your target market is exactly the sort of people who are well-informed enough to just buy vanguard mutual funds for a nearly identical result.
Not to sound like a total hater but I'm always so surprised that VCs are willing to invest in these companies that just seem obviously flawed based on common sense. Similar to that web browser startup Mighty.
Qworg
If you're a pure boglehead, sure - but if you want "index but" + tax harvesting, this seems good, no?
danielmarkbruce
100%.
The risk of them going out of business, fraud, changing strategy, being bought, vanguard fees going down even more, etc - it's not even close to being a sensible decision to move for what amounts to significantly less than 1% at the end.
danielmarkbruce
So, future value of fees against PV of portfolio, then with an additional $24k added every year for 30 years...
It's going to be difficult for them if right out of the gate they fudge numbers every time they talk about their company.
Is it that difficult to just shoot straight?
dang
I've added that to the text above. Thanks!
Glyptodon
Looking through the surface level details of Double, I quite like what I'm seeing.
That said, I use Schwab, Wealthfront, and M1 and am not entirely happy with any of them so I am probably a targeted type of customer.
I haven't lookeded too deeply (no idea if implementing things like HFEA style leveraged portfolios in an efficient way is possible, for example, or if there are non-index means of handling hold-till-maturity bonds), and probably will later.
That said, based on the comments here I'm curious:
1. I've always assumed % fees were related to the cost of risks being proportional to account AUM crossed with holding and transaction expenses. Fixed fees to me imply that you don't think any risks on your end are portfolio size or transaction size proportional. If this is really the case, why is this the case? (Or why am I wrong about the link?)
2. Lots of commentators seem interested in questions about how you loan holdings and if shareholders get cuts and if you accept payment for order flow. I'm less concerned with these exact things and more concerned with how the customer relationship is defined. Is there an equivalent to being a fiduciary when it comes to handling such things? Or would that force you to not permit as much self direction from account holders? Are the $1 payers for sure the customer or is there a second side to your market/business model?
charlie0
What is it you don't like about M1?
Glyptodon
I mostly like m1. But they don't have the broadest investment availability. Particularly for things like preferred shares and bonds.
I also think "index except" is a very nice feature they don't have.
fairity
There seems to already be significant competition in the low cost ETF space. For example, Schwab’s broad based s&p ETF (SCHB) has $34b AUM.
The fact that there exists a competitive market suggests that there’s a good reason expense ratios can’t drop much further than .03%. Presumably, once you reach a certain size, there are costs associated with managing a low cost etf strategy that the end investor actually wants to pay for.
What makes you think you can beat these market rates in a way that is truly accretive to investors? Put another way, what is Schwab wasting money on that you won’t?
I doubt Schwab is just being greedy with their .03% fee. It’s necessary to cover their costs.
ram_rar
As much as I love to use your product, the challenge from my perspective is why switch for 0.03% in fees? Especially when you compare it to likes of fidelity, vanguard , schwab. Those 3 are too big to fail. The point I am accentuating is, that just lowering the fees to 0 is not a compelling reason anymore, especially when the fees are soo low already, its race to the bottom.
jjmaxwell4
Fair point! We also let you build a pretty customized indexes, and migrate between positions easily over time. For example, you can diversify away from your employer or your employers sector, or over or under weight specific stocks you'd like.
simantel
Also, Fidelity already offers 0% expense ratio funds: https://www.fidelity.com/mutual-funds/investing-ideas/index-...
brokensegue
What if they offered negative expense funds
gdudeman
Services like this can be very, very difficult to leave.
Be aware that if you are doing direct tax indexing with tax loss harvesting, you are increasing your tax liability in the future.
If you invest in direct indexing here, you have three choices if they tack on fees or you are unhappy with their service: 1. Take a random assortment of 300+ stocks and watch your portfolio become unbalanced over time 2. Liquidate your portfolio and up worse off than you would have with an ETF 3. Stick with it and pay
If they go out of business, you are stuck with the random assortment.
recursive
Under 2, why would you end up worse off? I'm decidedly unsophisticated in this domain.
nicd
Because liquidating / selling your shares is a taxable event. If you purchased a simple ETF to begin with, your tax burden would have been lower.
gdudeman
Right, the whole point of these tricks is to compound a continuously larger amount. If you liquidate, you pay taxes (even more in one year with tax loss harvesting) and begin compounding from a lower starting point going forward.
koolba
How do you intend to make enough money to stay a going concern? Charging $1/mo adds up to peanuts and peanuts will not paying the salaries needed for running a highly regulated industry like this.
What are some examples for real world tax loss harvesting of this versus just rotating between things like VTI, SCHB, and ITOT?
I can’t imagine it’s going to be meaningfully more tax savings versus the monumental pain in the ass of dealing with hundreds of lots of many different stocks.
kccqzy
Retail brokerages earn most of their money from uninvested cash from their customers. An easy strategy is to force customers to keep a few percent of AUM as cash.
koolba
And savvy investors avoid those platforms or manually move their cash holdings into money market funds.
Requiring people hold some minimum cash amount is just charging a fee with more steps involved.
And even the larger offenders of that approach are in the crosshairs: https://news.bloomberglaw.com/securities-law/wall-street-gia...
loeg
It helps, but e.g. Fidelity's money market funds charge 0.31% higher fees (0.42%) than Vanguard's (0.11%).
kccqzy
Yeah I'm in the latter camp where I manually move to money market funds. I don't avoid these platforms because I treat the uninvested cash as a checking account: my bills are paid through this account. I feel better comparing it against a regular checking account that pays zero interest.
To be frank, I do not think it should require people to hold some minimum cash amount. Rather, the brokerage can require that buying securities with this reserve cash should be manual, and not automatic. That still gives savvy investors a way to do it manually.
elil17
I do think this is a great model for someone who wants to hold the S&P 500 (which many people do).
However, educated index investors typically hold a total market index fund. Double’s US small cap offering is severely under diversified and there is no international offering. 10 bps is absolutely worth it to get broader diversification and international exposure.
throwaway2037
> However, educated index investors typically hold a total market index fund.
Marsymars
> Has this outperformed the S&P 500 index in the last 30 years?
This isn’t a particular argument in favour of the S&P 500. Of course some subsets of a total market fund have outperformed the total market over whatever arbitrary time period you want to pick. In the exact same way, various subsets of the S&P 500 have outperformed the S&P 500 over the past 30 years.
jjmaxwell4
Complementing a Direct Index US 500 portfolio with Small Cap or International ETFs is very possible. You can exposure yourself to US Small Cap and International through ETFs - there is the related ETF expense ratio in that case.
elil17
Sure - but now that's looking like a lot more work and you're not saving much money. VT is 7 bps but VXUS is 8 and VB is 5. So if I want to use double just for my US large caps, I've got maybe 40% of my money there, 20% in VB, and 40% in VXUS. Then I wind up with a blended expense ratio of 4.2 + $1/month. Okay, I've saved about 2.8 bps, which is $28/year on $100,000.
In return I don't just have to do manual rebalancing - I have to move money in and out of a separate account every time I want to rebalance. I also have more tracking error.
I don't think that's something anyone is actually going to do for less than 3 bps. But of course if you are able to use Double as a one-stop-shop, then it's great.
I'll absolutely be keeping an eye on them and would seriously consider moving my money over if they could track MSCI ACWI.
rafram
Your site touts that you're "Technologists, not bankers". People entrusting you with thousands of dollars of their savings might want some actual bankers involved in the operation. Something like "Security first" might get the point across without raising as many red flags.
toolz
As far as marketing goes, I'm not so sure that bankers hold more public trust than techies. It's basically every day a big bank is getting fined as the "cost of doing business" and often for things like laundering money etc.. There's probably a case to be made that techies do more to harm their trust, but probably not from multinational organizations.
rafram
I’m not sure either one sounds warm and cuddly, but a banker probably knows how to avoid misplacing my money more than a “technologist” does.
jjmaxwell4
Appreciate that and its good feedback.
otherjason
If your roboadvisor is buying the individual stocks that make up the index in my personal account for me, do you have data that compares the slippage (bid/ask spread) paid across all of these transactions versus a single purchase of very liquid ETFs like SPY?
jjmaxwell4
Great question. The bid-ask spreads of the ETF itself already take into account the bid-ask spreads of the underlying securities, since there exists an arbitrage opportunity via the ETF redemption mechanism.
I found this PDF from State Street quite informative on the topic. We are working on our own data here as well and aim to share that down the line.
https://www.ssga.com/library-content/pdfs/etf/au/spdr-au-etf...
short_sells_poo
You can likely purchase the stocks in the closing auction which should give you the official settlement price that ETFs get benchmarked on.
Stocks are not my area of expertise so I gloss over a lot of details... maybe and equity trading specialist can chime in?
agsqwe
How are you going to make money?
jjmaxwell4
We charge $1/month.
Longer term, we think there are additional revenue streams we can enable that are similar to existing broker-dealers like Robinhood, Fidelity and Schwab. That means things like cash float, margin lending, stock lending and payment for order flow. Currently we are not a broker-dealer.
taway789aaa6
Ah yes, the old "we'll buy stocks for you and then turn around and lend them out to short sellers that actively want you to lose money. Promise we care about you!"
I do not trust any institution that makes money off of lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
ac29
> lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
Sure, that is their goal. But, shorting equities is a tough game, because most years the market goes up. An investor who is broadly short the market would therefore lose money more often than not, and has to pay borrow fees on top of that.
If you hold shares that you think are going to go up, you absolutely should be willing to lend out your shares because it will enhance your return.
gruez
>I do not trust any institution that makes money off of lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
1. You realize that short sellers have to buy the stock back, which basically has the opposite effect? Unless you're planning to dump the stock in a few months, this isn't worth worrying about.
2. You know what's worse than short sellers driving down the price of your stocks? Corporate malfeasance going undetected and blowing up (eg. Enron), causing you to lose everything. Short sellers might get a lot of flak by profiting off people's losses, but they provide a useful service by exposing misconduct and putting a wet towel on irrational exuberance.
ramon156
Sorry if this sounds uninformed, but what is the alternative? Even the bank and pensions gamble with your money, its how they move. I wish it wasn't the case either
taway789aaa6
The alternative is to not fall for the "its basically free!" schtick.
If its free, then you're the product.
If its $1/month, then you're still probably the product. In the case of my investments, I do not want the firm that I invest with -- to whom I trust my assets -- to turn around and lend out my assets to other organizations that have no obligation to me to act in my best interest. Share lending is almost always to lend to short-sellers that are trying to decrease the price of the asset being borrowed.
> Even the bank and pensions gamble with your money, its how they move
I guess its not worth having an opinion that this is not a good thing then? Bring back Glass-Steagall to separate out banks and gamblers.
semiquaver
> separate out banks and gamblers.
dmoy
Vanguard doesn't make money off of short term lending.
They do it, but the proceeds go back to the individual funds (helps boost index tracking performance).
Fidelity and Schwab both take a cut. I forget beyond that, I guess IBKR does stuff.
toast0
Vanguard keeps sending me emails lately about enabling lending on my brokerage account[1]; although I only have classic mutual funds in there, which I don't think can be lent. I imagine their brokerage lending will include a cut for the brokerage, although maybe it will be closer to cost than at other brokerages. I don't really know where the Vanguard brokerage net revenue ends up.
[1] And frankly a lot of other 'opportunities' I'm not interested in, that seem outside the John Bogle model of Vanguard helping normal people invest in the public market at low cost. I don't want to invest in off market opportunities, thanks, and it makes me lower my opinion of the company that they push it.
dmoy
Most vanguard classical mutual funds are share classes of an underlying ETF, and can be lent.
Last I checked (which to be fair was like a year or so ago), vanguard didn't take a cut for securities lending. It does however boost the fund's performance
https://corporate.vanguard.com/content/corporatesite/us/en/c...
toast0
That page is from Vanguard the funds.
Vanguard the brokerage also has a share lending program, advertisement here https://investor.vanguard.com/campaign/earn-additional-incom...
> Vanguard Brokerage maintains an economic interest in Fully Paid Lending program loans and earns revenue in connection with such loans.
Vanguard the brokerage wants me to enable lending, but my mutual fund shares in Vanguard the brokerage can't be lent, because mutual funds are not lendable. If I converted it to an ETF, then the ETF could be lent, but I don't know how much interest there is in borrowing ETFs to short.
The underlying holdings in the mutual fund can be lent by Vanguard the funds. Vanguard says all the proceeds from lending (net of expenses) go to the funds. I think Schwab and Fidelity take a cut of lending proceeds on funds beyond their program expenses, but then they take a 'zero expense ratio'. It doesn't necessarily matter to me where specifically the Fund administrator takes their fees, it's the end of the day net investment value. And honestly, inertia is a big part of it, I have too much unrealized capital gains to really consider changing my stock funds, but I could be convinced to switch to a different brokerage.
chii
> Even the bank and pensions gamble with your money, its how they move. I wish it wasn't the case either
banks don't gamble with your deposit - that's illegal. They use your deposit as a form of security when they loan money out (it takes similar position as equity).
Pensions don't gamble, they buy investments which could have some risks (and it's calculated risks). These risks are such that they make a reasonable return for taking it, and therefore can service their obligations (as a pension fund).
recursive
So if the risk is calculated, it's not gambling? Lottery tickets publish their odds. And in that case, it's actually possible to be confident that the odds are correct. I don't understand.
chii
> Lottery tickets publish their odds.
"taking calculated risk" doesn't mean to calculate the risk. It means to look at whether the risk is worth taking, and only taking those that are worth.
Lottery is a bad risk - so it would be not wise to take lottery risk (as it's got a negative expectation of return).
jprafael
You can DRS (https://www.dtcc.com/asset-services/securities-processing/di...) your shares so that no one can lend them out from you. Some brokers have a setting (opt in or opt out) that disallows lending your shares (or that compensate you if they do).
taway789aaa6
This is the way.
short_sells_poo
The bigger issue is that it's basically just well hidden fees. You can add a decent amount of income to your portfolio by lending out the stocks to short sellers. Particularly in a market crash, the fees for borrowing stocks skyrocket (can easily be in high double digit %). Good firms allow you to lend out your stocks and give you the fees. Less good firms claim to give you a very cheap deal, but then basically shaft you by claiming these benefits for themselves.
If this business proposes to be profitable by harvesting the borrow fees, then them being cheap is really disingenuous because they give you with one hand and take from you with the other.
ddulaney
Presumably a combination of a flat-rate fee ($1/user/month) and payment for order flow.
PFOF is a big moneymaker for Robinhood, but you get paid the more your users trade so people doing buy-and-hold index funds probably earn you less that way.
If you can keep expenses super low maybe this can work. But my sense is that costs are pretty flat regardless of how many users you have, so this probably needs to get pretty big to finance itself.
thanksgiving
PFOF is so incredibly dirty that I can't believe it is legal. If you could explain it to all the voters without putting them to sleep, I am convinced most people would not support it. It may be legal but it is definitely unethical. That being said I can't see how else OP can payback YC without doing these shady things. At a dollar per user per month, even if every adult in the US joined, YC will probably shut down OP without a second thought if that was the only revenue possible.
> so people doing buy-and-hold index funds probably earn you less that way.
You will be constantly buying and selling because you need to rebalance your "index" every time the market moves... Once you go down this unethical rabbit hole, there are endless possibilities.
ddulaney
I’m not sure what the objections to PFOF are. Do you think you get worse execution than the public market?
If so, it’s easy to prove: compare the price you got to the public markets price at that time. I don’t think you’ll see a worse price.
You should be insulted that somebody is willing to pay for the privilege of trading with you. You can reasonably object to the amount of PFOF vs. price improvement. But it’s not unethical to say “we want your business so much we’ll pay for it”.
socks
their pricing page states
> We plan to make money by helping clients secure additional financial products like secured lines of credit, margin, and insurance, all in a fiduciary manner.
losvedir
I think direct indexing with TLH is a useful tool particularly when you are looking to diversity out of a large existing holding (say a bunch of RSUs or something from a public company you've worked at for a while). The direct indexing piece is nice because you can build "around" your existing holding, which you can't do with, say, VOO. And the TLH is nice because you have a lot of capital gains in your position to offset.
This is something you can do with, e.g. Fidelity's FidFolios, but those are paid for via an AUM fee.
Can you do the same here? That is choose an index, but seed it with some amount of shares that you already hold?
Another potential annoyance is filling out your tax return. Can you talk a bit about how that would work, with all the trades throughout the year you'll be doing?
I'd also love any more info you can provide on how exactly you do TLH. A factor model linear optimization problem is interesting! When I talked to my Fidelity advisor she pitched it as the pair-wise solution you mentioned, and gave an example of "sell Pepsi to buy Coke". But while the drinks are interchangeable, I'm not convinced the companies are! So I'm still a little hesitant on the idea of TLH at all.
jjmaxwell4
We can ACAT in existing positions to an Index yes, which would be "seeding" an index with shares you already own.
As for taxes, we provide a yearly summary for realized gains and losses that most tax professional can plug into their software.
And for TLH, yes for larger portfolios (above 20 tickers) we create a factor model of the portfolio using 4 factors - Momentum, Value, Quality and Min Volatility. When a stock is identified for TLH purposes, we will sell it and try and bring your overall portfolios factor exposure back in line. This provides for a much more flexible and robust way to do tax loss harvesting because not every stock has a relevant pair (for example a stock that just recently merged with another business might have no clear comparables)
dehrmann
> I think Robinhood has proved that you can build a strong business by getting rid of an industry wide cost
Pushing legacy(?) discount brokers to zero fee trades is their greatest contribution to the industry, but their business and success has been positioning investment products more like gambling. I don't have the data, but I suspect way more Robinhood users traded options than at Fidelity or Schwab.
short_sells_poo
I'm unsure how you are proposing to build a sustainable business with such low fees. Assuming you need say 5 full time employees to run something like this somewhat robustly, and back of the envelope your expenses are say 2 million a year (which doesn't afford you to pay anyone particularly well), you'll need a 160k users (!) and you are only breaking even. And you have no chance in hell to provide decent support for that many users in an area as gnarly as finance. You'll be facing a firehose of support requests all the time.
I'm sorry to sound negative, I really wish you all the best, but even from your post it looks like you had little to no idea what you are doing when you started this (you didn't know stock tickers are ephemeral?). And yet you are asking people to trust you with their money? With the only selling point being that you seem to be unsustainably cheap? What made you decide that you have the knowhow to do this well and safely?
Workaccount2
I think by going only after people looking for long term buy and hold, the overhead drops dramatically.
Dealing with traders is where all the nightmare stories come from.
shenoybr
For a large, highly liquid ETF like SPY, it’s easy to rapidly unwind a position at a very tight spread. How does Double’s approach—directly holding the individual underlying securities—compare in terms of market liquidity and transaction costs, especially if I need to quickly liquidate my portfolio or adjust my positions?
xxpor
Is that really a concern for anything in the S&P 500? The underlying concern is valid, but for this specific example it seems like a best case scenario for avoiding that problem.
ahstilde
I like the inclusion of a backtesting tool. However, I find it quite anemic.
I was hoping to see something like portfoliovisualizer to create strategies that I could then invest into. Especially as we're seeing stuff like momentum strategies and dual momentum strategies come into play.
I understand I can replicate SPY. Can I replicate MTUM? UPRO?
Also, MIDU is missing.
jjmaxwell4
Thanks - worked hard on the backtester despite it not being front and center product wise.
We currently have 50+ strategies. About 30 of these replicate popular ETFs. MTUM is one of them (https://double.finance/p/explore/124). Here are our 4 factor focused portfolios (https://double.finance/p/explore/factor-thesis). If there are more you want to see please let us know as we can most likely add them.
MIDU is unfortunately not eligible to be traded on a fractional basis by Apex. Main things missing are some new/low volume ETFs and ADRs (although we have some of them).
WiSaGaN
I don't really see the need to optimize on 0.03% fee of index ETF such as VOO or VTI. There are much more important things like liquidity, tracking error in whether a ETF is worth buying. Not paying reasonable fee on a service just guarantees some other nefarious ways to get back sooner or later.
parsimo2010
So a “typical” ETF costs me about 0.15% year, or around $150 for every $100k I have invested. While $12 per year would certainly save some money, it’s coffee money vs. life savings money. I think you’re going to have a hard time convincing me to move from offerings from companies like Barclays, Schwab, or Vanguard. Plus, zero fees doesn’t save me any money unless you can stay within 0.15% of the big index funds you’re going to be compared too. If you’re selling to harvest tax losses, I’ll bet there are some deviations at the fractions of a percent level that might erase all my savings.
Move fast and break things works great for computer startups, but if you want me to move my life savings over I need more confidence that you’re going to be around in 40 years and still have my accounts intact. And if I’m not bringing my life savings over, then it’s not worth the effort, because investments at the $10k level don’t really save me money.
Good luck finding early adopters who have money to throw at investment schemes.
the_snooze
>Move fast and break things works great for computer startups, but if you want me to move my life savings over I need more confidence that you’re coming to be around in 40 years and still have my accounts intact.
That's exactly my opinion of this. It's fine to innovate, but when you're dealing something like life savings, long-term stability is the most important requirement that comes to mind. Anyone building an investment firm on VC money is immediately suspect, because VCs don't particularly care about long-term viability.
jrhizor
Yeah, it's a really tough sell.
Etheryte
The pricing page is not really useful and I would even go as far as to say it's misleading. You compare the returns of your service to an advisor that costs $2000 an hour. The overlap between people who pay two grand per hour to an advisor and the people who use a $1 monthly subscription investment service is an empty set. What would be much more interesting would be if you showed a comparison of your service offering vs a cheap ETF. For example, how do your fees for rebalancing, buying, selling, etc add up when tracking the equivalent of VOO for a year, as opposed to just buying VOO? Right now it looks like you're trying to hide this comparison and that sounds like it doesn't look good for you.
gdudeman
How do you expect to make enough money to have a venture-scale business? Wealthfront has struggled even with a 0.25% fee and Robinhood is successful because they have massive flow (not buy and hold), options, and other casino-like products.
dehrmann
How do you manage the bid-ask spread not eating into gains when rebalancing? And what portion of the an index fund's 0.1% expense ratio "pays" for that?
Also, how do you position yourself compared to Fidelity's Custom Investing product?
burkaman
I'd consider this if you had some kind of "green" fund that excludes oil companies and other polluters. I don't want to invest in the oil industry, but funds like that tend to have pretty high fees and expense ratios.
jjmaxwell4
You can do this quite easily with Double. If you pick the US 500, you and completely remove the Energy Sector.
We are working on getting some more ESG focused portfolios directly live but it's very very do-able right now.
foresto
> We are working on getting some more ESG focused portfolios directly live
Thank you for mentioning this. ESG funds are the first thing that came to mind when I saw your post.
vincefutr23
For the PFOF skeptics, there isn’t that much money in pfof on liquid large cap stocks.
For the founder, have you thought about doing away with the 1$ for friction reduction while you scale given how tough the switching decision can be?
For the founder, have you considered using ACAT in incentives as a differentiated acquisition tool?
For the founder, are their “moments” people often switch their brokerage you could target aggressively? Ie I imagine Johnny software, 28 , is a hard sell to sit down and port their holding over from fidelity to save a couple of BPS, but maybe people starting their first job? Setting up a retirement plan? What’s your target “moment”?
nolanhergert89
I suggest you take inspiration from your competitor's documentation on the topic.
The only potential upside for me is the benefit of tax-loss-harvesting, since I do my own investing and stay in standard ETF index funds. I thought TLH was only relevant for the $3K limit for income deductions, but after reading Frec's great pages [1] [2], I see that it makes a lot of sense when you have a large capital gain in your future like a house or a diversifying stock sale that you want to accumulate losses for. They also answer a number of topics mentioned in the comments here and others not mentioned.
There's a good chance I will end up investing with you, but only with new income. It's not worth liquidating my current capital gains! I can also ensure I don't have cross-account wash sales by keeping my other assets strictly in ETFs or just don't sell anything.
I too hope that you will last long enough to make money in the other ways you are planning. Good luck!
[1] https://frec.com/tax-loss-harvesting [2] https://frec.com/resources/blog/direct-indexing-handbook
modeless
I would need to know where your revenue comes from before I would consider putting money with you. Clearly $1/mo is not going to be the only revenue opportunity you go for. It's good that my assets are safe if you go under, but with direct indexing I'd be left with a giant mess of thousands of individual stock positions that would be very difficult to unwind manually.
I don't care that much about saving .03% over SCHB but tax loss harvesting sounds nice. It would also be cool to exclude certain stocks I dislike from my portfolio.
jjmaxwell4
We choose to lead with the expense ratio savings in this marketing push, but I really think the platform allows for the best investment account out there with tax loss harvesting built in, dollar cost averaging between positions and stock or sector customization.
esses
This looks amazing. It's pretty clear from the comments how much skepticism and misunderstanding there is with financial products and markets, but you appear to be on the right track. Hoping for your success and to divert some funds to your platform.
- When my former VP and I looked back on our fintech that went under we concluded we should have went with Apex instead of building our own brokerage backend years ago - As you have called out, Corporate Actions is one of the most annoying parts of dealing with the financial markets
shred45
Do you manage the portfolio of each customer individually? How closely will this match the target portfolio for smaller investment sizes? I see that there are minimum investment sizes. Do I need to buy at least one share of each member of the SP500 for instance?
How do transaction fees compare with expense ratios of, say, Vanguard? I see that you account for them in your backtest, but it would be helpful to represent that in terms of an expense ratio.
jjmaxwell4
We use fractional shares. But otherwise you are correct, our minimums are set to allow you to buy at least $5 of each member of the US 500.
We do not charge trade commissions. There are some SEC fees charged for trading across most major brokerages. The national best bid offer (NBBO) means you will get executed at the current best price for a given security across all exchanges.
shred45
Thanks, regarding transaction fees, I was referring to slippage (should have said transaction cost). This depends a lot on your customers rebalancing settings, but it would be good to be able to compare that directly to VOO.
jjmaxwell4
Yeah it's an interesting point. Due to the redemption mechanism of ETFs, my understanding is that an ETF's bid-ask spread is basically the weighted average of the bid ask spread of it's underlying holdings. Which to answer your questions means that buying the individual stocks within an ETF would result in approximately the same slippage as buying the ETF itself.
"Bid/ask spreads of the underlying securities directly impact the costs to market makers to trade ETFs" from this .pdf: https://www.ssga.com/library-content/pdfs/etf/au/spdr-au-etf...
ajoseps
This is definitely not true in practice except for maybe highly liquid ETFs and underliers
tananaev
Don't know if someone already mentioned this, but one of the main benefits of ETFs for me is portability. I can move them around to get sign up bonuses and other perks. For example, I got a 1% bonus recently just by moving my ETFs to Robinhood. Before that I got a 1% mortgage rate discount by moving ETFs to one the banks temporarily. That more than covers for the 0.04% expense ratio of the funds.
bityard
> the low fee trend pioneered by Robinhood
John Bogle would like a word
jjmaxwell4
Very fair! Bogle is the true OG and our inspiration
cjonas
I previously used wisebanyan which was a robo advisor with zero fees (their model was to charge more for add-ons like tax loss harvesting). Then they added small portfolio management fees... Then they sold to another institution and my fees are now inline with every other roboadvisor.
What would you say to someone who is skeptical about the long term viablity of your low fee promise?
TripleChecker
Congrats on the $10M in AUM. I do really like how simple the website is to understand and the pricing is quite attractive (assuming it stays at $1/mo).
A couple typos you might want to fix: https://triplechecker.com/s/840785/double.finance
xur17
One thing I've always wondered about products like this: how is the portability between platforms?
For example, if double.finance shuts down, are there other platforms that I can transfer my assets to inkind that will maintain the index fund tracking for me moving forward? I realize I can use ACATS to transfer the assets, but I want index tracking as well.
ac29
There are a number of companies offering direct indexing, but you'd need to research them individually to see how they supported transferring in assets in kind.
Ideally any direct indexing would be done in tax advantaged account so if you needed to liquidate your positions and start over from cash there are no tax implications. Otherwise, be prepared to eventually deal with hundreds of individual positions each composed of numerous tax lots.
xur17
> Ideally any direct indexing would be done in tax advantaged account
A lot of the benefit of direct indexing comes from the ability to tax loss harvest, which requires it not to be in a tax advantaged account.
ac29
Just keep in mind that tax loss harvesting is a tax deferral method. It reduces your current taxes by increasing your future taxes (which will be at an unknowable rate).
It is also only effective when an account is relatively young, or if new contributions are a substantial portion of the portfolio. As your portfolio matures, fewer and fewer positions will be at a loss, so there will be only very limited opportunities to loss harvest.
xur17
Definitely a good point, and one of the reasons I have historically avoided services that offer tax loss harvesting. They get you in the door with solid tax losses for the first few years, and then just as the tax losses start to dissappear, you realize you own 500 different securities, and switching anywhere else is basically impossible.
Double has low fees, so if there is also a way to port out and still maintain the tracking via another service, it starts to become interesting.
loeg
TLH works best during downturns. Pre-downturn contributions are harvestable. Once you have enough to cover your maximum tax claim ($3000/year) further losses just aren't useful. I generated a lifetime supply of capital losses from like 5 minutes of manual TLH in 2020.
uranium
TANSTAAFL
After spreads, tracking error, and overhead, it'll be really hard to beat a Vanguard index fund.
sockaddr
It's a red flag whenever I see an unclickable, unbrowsable, unverifiable "what people are saying" section. Even on the scammiest sites selling you trash on YouTube you'll see the same fake reviews. I immediately distrust places that do this.
jjmaxwell4
Interesting - how can we make this more believable? Link to their LinkedIns?
coldpie
I'm not super well versed in how investing stuff works, so sorry if I get some words wrong. This isn't a fund I'd be able to purchase from my existing brokerage/retirement accounts, right? I would have to actually give my real money to you (via "Apex Clearing," who I've also never heard of & doesn't even have a Wikipedia page) to hold & manage? Even in the best of times, it'd take quite some convincing for me to give a significant amount of money to a brand new company, and the reputation of recent finance startups is uhhhhhh not fantastic. How are you going to convince me you won't take my money to go buy some property in the Bahamas?
jjmaxwell4
You are correct in your understanding.
Apex Clearing's website is here: https://apexfintechsolutions.com/ They have 19M brokerage accounts and a lot of brands you've heard of got their start with Apex (Robinhood, Wealthfront)
We're US based and regulated a RIA by the SEC.
coldpie
I've never heard of Wealthfront, and I know Robinhood mostly for exploiting low-info customers & trying to make investing even more like gambling than it already is[1]. Pretty gross company to be keeping IMO.
[1] https://www.velaw.com/insights/game-over-robinhood-pays-7-5-...
Workaccount2
Investing is not the same as trading, which is what Robinhood primarily caters too.
Also Apex is a big name in the brokerage world. They are a business to business company though, so most consumers never would have heard of them.
coldpie
> Apex is a big name in the brokerage world
But not big enough to have a Wikipedia page? Are you sure they're not just a big name in the financial startup/casino/scam world?
esses
They have been around as a significant service provider for over a decade in a highly regulated industry. Ask anyone in the brokerage world and they will not care if there’s a Wikipedia entry. They are a huge player and have been for a while.
paxys
You should in fact be worried if they were a fund, because then you are giving them your money to manage. They are instead a brokerage, so they money you deposit will simply be used to buy shares. If they go under, you still own the shares.
recursive
Thanks to this comment, I was finally able to comprehend what "brokerage" actually means. Thanks.
mushufasa
If you are making money from payment for order flow (based on transactions) with a direct indexing strategy, you may be incentivized to encourage customers to rebalance more frequently than they might otherwise in order to accrue fees from those trade transactions. For example, daily rebalancing/tax loss harvesting sounds neat, but how it is implemented can vary -- you would be incentivized to trade client accounts 'trigger happy' whenever possible to maximize fees. I could see that leading to the $1-10k annual revenue per customer that people on this thread are confused about relative to the $1 flat account fee.
The potential negatives of this bias that I can see for customers:
- tax loss harvesting is more a craft than a science. The goal of investing is primarily to have gains! And no one can predict the future fully. So it's really hard to know if selling a large position at a loss is a good move -- if that position goes up next year you may have missed out (like selling NVIDIA 3 years ago in a dip -- you would have been following the TLH playbook but you would be kicking yourself now).
- If this is indeed your business model, this model only works for direct indexing portfolios with many stocks, so you will be biased to suggest portfolios with many companies instead of concentrated holdings, and biased against offering ETFs/funds.
Not the end of the world in terms of negatives. But I just wanted to mention that 'churning stocks for fees' is a business model I haven't seen discussed on this thread.
glitchc
Are you registered with the SEC as an investment fund?
Edit: Thanks, answered earlier in comments.
frakkingcylons
I'd be interested to see your rates for margin if you do decide to offer margin.
I don't use the margin to get more market exposure. I treat it as a lower APR credit card with a sizable credit limit. Interactive Brokers will charge me 6% instead of 20+% of a typical credit card. I don't use it much, but I like having it. I don't know if it makes business sense to offer lower margin rates than IBKR to retail customers, but I'd be interested. Before someone lectures me: I consider 10% of my holdings to be my "credit limit".
ikourtid
PAYMENT-FOR-ORDER-FLOW IS GOOD FOR YOU. There, I said it. [Source: I have 10 years of HFT / market making experience]
PFOF is misunderstood, as others pointed out here. However, it's not a 'win win win'; it's more like a 'win win lose'. This is something even media gets wrong all the time. I've only seen this mentioned as a footnote in Matt Levine.
[Note: I don't know if Double is doing it, or if they plan to - this is just a general summary].
So:
* Win: Citadel (etc.) make money by trading against order flow that's more benign than the resting orders in public exchanges.
* Win: The client gets a better execution price than the publicly displayed bid/ask. Back when I started (20+ years ago, yes, I'm old) this was 1/100 of a penny, the legal minimum (due to minimum tick print size). But recently, the market orders in my personal account have been getting price improvement of almost half the spread.
Things are a bit different in some options exchanges, where retail flow gets some priority, regardless of when you joined a given price point at the order book queue. But almost all equity exchanges use price-time priority, you're almost guaranteed adverse selection.
Example for those who may need it: if you place a buy limit @ $1.07 in a 1.07 (bid) - 1.08 (ask) market. Then, the bids at 1.07 slowly disappear, because firms such as "Shark Holdings, LLC" (the trading firm consisting solely of quants with unpronounceable foreign-sounding names) will cancel their bids if they sense the market is going down, e.g. if they observe a lot of trades at the bid. Then, the new market will be 1.06-1.07, and you will have sold at the ask.
OK, so here's who loses: any large orders that have to trade in the open markets (not 'dark pools', ATS, etc.) will be stuck with more 'toxic' orders, and get worse execution. The question is: do I gain more as an individual from having my (quasi-entertainment-value, usually small) personal account orders get better execution? or do I lose more by having my indirect trading (possibly an index fund that I hold my retirement money in) get worse execution? I think it's the latter. But nobody connects the dots and/or seems to care. [Of course, this is more complicated, because large institutional orders aren't 100% on behalf of small investors.]
You may say this component of market structure is stupid/wrong/suboptimal. I personally think so. But this is the reality of it. It's encased in rules. There was some attempt to get rid of PFOF a couple of years ago, but it failed. So that's not going away.
So this is a win-win-lose: it's globally suboptimal, but for the 2 first 'wins', it's locally optimal.
Summary: although PFOF has bad optics and stimulates pitchfork-y instincts ("big bad evil companies are out to gitcha", etc.), if your broker doesn't do it, you're both leaving money on the table - and guess what, they'd have to charge you some other way.
fuddle
How do you put together strategies such as "High Performance Small Cap"? Does your backtest include delisted stocks to avoid survivorship bias?
tmendez
Does it rebalance daily? Wouldn't you pay short term cap gains if it does?
Or is the strategy to buy an index, then only sell losers after an amount of time?
jjmaxwell4
We optimize (look at the account) daily but only trade if the portfolio meaningfully improves.
We take into account tax rates while optimizing your account. You can also chose to put your strategy in Buy & Hold which will never sell anything thus never realize any cap gains.
ahstilde
Where's the calculator that tells me if I save money with y'all vs with current legacy brokerages (schwab, fidelity, vanguard, etc)?
LAMike
It's cool, but I'm wondering what the breakeven cost would have to be if you weren't planning on making money from PFOF?
Can easily see this being $5-10 a month without a problem or even $500 lifetime pass for early supporters. Also if you add Lightning Network deposits to a portfolio I would be more likely to use it, you can make money off the spread too as long as it is under 1%
TuringNYC
>> One similar product is M1 Finance, but Double is more powerful. We offer tax-loss harvesting, a wider range of indexes, and greater customization. For example, when building your own index, you can set weights down to 0.1% (compared to M1's 1%) and even weight by market cap.
+1 on the comparison to M1, and congrats on your release @JJ and @Mark
ddulaney
How are you tied back into the financial markets? Are you yourself an exchange member? Or are you going through a traditional brokerage? Or are there other middlemen?
I’m really worried about putting my money into any startup after the Synapse collapse, where a middleman for lots of tech-forward not-a-bank companies collapsed, stranding customer money.
jjmaxwell4
Your account is in your name at Apex Clearing - they are our Custodian and Broker Dealer. They power a lot of modern brokerage products like WeBull, TastyTrade, Composer, SoFi.
Robinhood and Wealthfront both started their business on Apex as well.
expat1241414
The site says it's available to US citizens, but I couldn't get through the onboarding flow as an expat living outside the US, e.g. no state tax filing. So it's not actually available to US citizens, just US residents (including citizens).
giantg2
If you're handling rebalancing and holding stocks individually, how does the tax efficiency compare to ETFs?
paxys
I'm curious about how direct indexing impacts tax filing. You mentioned generating short term/long term capital gains numbers, which is fine, but what about all the different transactions? Won't someone using your service have to enter all of them manually on their return?
dmoy
So I have zero enthusiasm for direct indexing, and there's effectively no chance I'm gonna use this product (or any other direct indexing company)[1], but
The tax filing thing should be a non-issue. Yes you'll probably get a 1099-B with like a gazillion entries. But, assuming this is done normally, all your holdings will be covered stocks, and all the trades will show up as reported to the IRS in box 12. Then you'll be able to just summary entry with IRS 8949 box A/D, entering like literally two lines, and you're set.
It sounds bad but it won't (I'M GUESSING!) be bad for tax filing headaches - two lines, same as any other broker.
Yea I don't like Apex and they've fucked up a couple things for me before, but they should get this part right.
And even if they don't...
Say they don't report basis to the IRS, you can still enter summary, and just physically mail the IRS your 1099-B (even if you efile), and it'll still be okay without too much work.
[1] my complaints stem mostly from portability. With a ~0.03% fee ETF, I can go to any broker in the future and still deal with it. If for whatever reason I want to stop working with <direct indexer X>, now I'm stuck dealing with thousands of individual holdings. If I was operating with large enough amounts that I could literally transfer to a different broker (IBKR) and hoist the remains into a creation unit of VTI or whatever, sure. But that's increments of $30M each, so ... lol not for people like me.
Or maybe in the future there's enough direct indexer services that they solve portability at increments smaller than <huge ETF creation unit>. Then maybe yea, idk.
Glyptodon
Only works out easy if nothing ends up being a potential wash sale with something in your other brokerage accounts.
dmoy
Ha, fair
If you're also using a other direct indexing service, or doing a bunch of manual stock trades yourself, then RIP your time :(
Gh0stRAT
IIRC if your brokerage reports everything to the IRS properly, you only need to fill out net short- and long-term capital gains on your schedule D rather than specifying every single transaction on a bunch of Form 8949 copies.
Not sure if Double's underlying brokerage is reporting everything necessary for this to be the case though, as I believe some brokerages don't.
loeg
How do you intend to handle uninvested cash? The big non-Vanguard players (Schwab, Fidelity) make up for their low nominal fund fees via Net Interest Margin on uninvested cash. Do you intend to offer market-rate interest on cash (e.g. $VMFXX), or take a significant cut there?
iamsaitam
In the age of internet, it's important to mention prominently which countries/jurisdictions you work with.
_imba_
Interesting, I'm in the industry and secured lines of credit, and insurance is definitely viable alternative revenue generators for a userbase like this and actually dovetail nicely. Wishing you all the best.
jnskender
Any relation to Boldin Financial Planner? Your sites and logos are extremely similar.
jjmaxwell4
No relation but I have shared some emails with the founder and we are both in SF I believe.
sagivo
I think it's a great idea. I wanted to do it myself many times and didn't have time for it. I hope it will shake this industry and help bring fees down.
mitthrowaway2
Who controls the voting rights to the shares purchased through these investments?
makrmark
You have the ability to vote as the underlying shares for your direct index on Double are all purchased in your name.
mitthrowaway2
That's great news! Thanks for the answer!
taway789aaa6
Great question! Keep in mind that ETFs in general are designed to NOT give you the rights to the underlying shares, or to vote as a shareholder. An ETF is a derivative, not an asset unto itself. It sounds like this product is mainly to allow people to invest in ETFs not into single tickers?
divbzero
What revenue streams, if any, are you considering in addition to the $1/month fee?
(If there are no other revenue streams, what scale do you need to attain to cover operational and regulatory costs?)
kyt
Very interesting product!
I consider myself pretty financially literate, but I had no idea what an "expense ratio" was for certain. I assumed it meant fees but I had to look it up.
tlombardozzi
Excited to try this out JJ. Have wanted to build an infrastructure-focused portfolio for a few months now and am excited to have an actual tool to help me build it now!
arjunlol
This looks great. I'm usually very much a DIY type of person when it comes to investing because of the typical fees mentioned, but excited to try this out!
maclagor
I will just say, that as a user of both Robbinhood and Double, Robinhood feels more like gambling while Double feels like strategic management. Great product.
sergiotapia
As a layman, how is this different from just buying FZROX automatically every week for the next 30 years? No snark, trying to learn for my financial future!
ac29
Fidelity makes their own indexes for their zero-ER products, there arent any funds with the exact same holdings that I am aware of.
That being said, FZROX should track the broad US equity market pretty closely, so some of double's offerings should have very similar performance.
Double will let you do some additional things though. For example, lets say you wanted a US equity index with no exposure to the large tech company you work for. Double could do that, FZROX could not.
lazingabout
Is this possible to move funds from a Roth IRA or 401k into these low cost ETF alternatives, without taking them out of the tax advantaged structure?
jjmaxwell4
We don't currently offer Roth IRA or 401K accounts, but once we do then yes it would be possible to transfer the account without changing the tax-advantaged status.
dboreham
I might be interested in a broker that would split the kickbacks they get for submitting my trades, fully accounting for that revenue.
insane_dreamer
Looks like a great product. In all honesty though it would take a lot to get me to switch from Wealthfront because they not only offer these funds but also various IRA funds, bonds, etc. I like having everything in one place, and I don't have the time, nor sufficient knowledge of the market (if I'm honest with myself), to micro-manage my investments, so I can put up with a 0.25% AUM fee to "set it and forget it". But for those want more control or who are trying to reduce fees as much as possible, this looks great. Good luck.
Update: Having said that, the fact that you say stocks are held in an account at Apex in my own name (avoiding the Synapse problem), is attractive. I'm actually not sure whether Wealthfront does that. That would be an incentive to get me to switch (or at least partly).
mamcx
Is this open for investors outside the USA? LLC?
ddyulgerski
Is the plan to make money from stock lending?
rs999gti
To be a middle man to the middle man at 1USD/month.
hartator
Why not doing a VOO-like ETF, but at 0.01% expense ratio?
Direct indexing seems fun, but it will be very messy at tax time.
didip
One pain point I can see is during taxation. The 1099 will be long if your robo trader frequently trades.
Glyptodon
Can you (is it okay to) TLH assets that you have separate holdings and purchases of in IRAs or 401ks?
datavirtue
I'm wondering how/why you can actively manage a fund cheaper than Vanguard.
_nvs
Congrats, this is something I’ve wished existed. Looking forward to becoming a customer!
nahtnam
I would love to see a "Politicians" section which copies their investments
oatsandsugar
That's super! Do y'all have no petroleum etfs on offer?
oatsandsugar
As in ETFs that include no oil or oil processing companies
throwaway69123
can you make a savings account that auto holds my money in index funds extends me short term credit and pays debt through selling the underlying assets
Kenbook
Great idea, excited to watch you guys grow!
mitthrowaway2
Will this be available in Canada?
mmmore
> There are a number of robo-advisor products out there, but none that we know of offer direct indexing without expense ratios or AUM fees.
Yeah, I'm a little confused at what you're offering over existing options (e.g. Wealth front, Betterment, M1). If the answer is just "it costs less" won't you raise prices when it comes time to make money? I suppose "the thing that already exists, but slightly better" is not necessarily bad.
jjmaxwell4
Other than fees, we are also quite a bit more customizable than most other options you mentioned. We let you do things like rebalance between positions and pick your optimization type, and backtest a screened portfolio. More customizable than most robo-advisors out there and more powerful than brokerages like M1.
ac29
I posted elsewhere in the thread, but Fidelity does direct indexing for a flat $5/month fee.
presson
Love this, fees add up!
adv0r
no european customers?
Teodolfo
Direct indexing is WAY more valuable to US citizens living in the EU than US citizens living in the USA because of the painful intersection of MiFID II rules and US tax law (PFIC tax cancer makes buying EU domiciled funds a non-starter). Brokers will not sell US domiciled ETFs to US citizens living in the EU unless they can opt out of the consumer disclosure rules (e.g. by becoming an elective professional client of their broker under MiFID II rules). So these 2 million US expats have no choice but to manage a portfolio of individual stocks or pay exorbitant AUM fees. The first half-way decent direct indexing product that accepts US expats residing in the EU will make a killing!
nobodywillobsrv
I came here expecting to see how custodial and accounts stuff works. SV tech bros don't exactly have the best reputation when it comes to segregation of accounts and custodial stuff, credit etc.
Assume the model is bad and they gradually lose money and close. How does it work?
psawaya
Very cool :)
westurner
How does running index funds with 0% expense ratios differ from running diversified 401(k) funds?
Gusto payroll data can be synced with Guideline, which offers various 401(k) and IRA plans.
Are there All Weather or Golden Butterfly index funds?
Which well known index funds are weighted and which aren't? (This is probably not common knowledge, and might be useful for your pitch)
Given that you can't buy fractional shares, how and when are weighted indexes rebalanced to maintain the initial weight?
Like most funds, the S&P 500 index demonstrates Survivorship bias: underperformers are removed from the index, which thus is not a good indicator of total market performance over time.
From https://www.investopedia.com/articles/investing/030916/buffe... :
> Buffett's ultimately successful contention was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years. The bet pit two basic investing philosophies against each other: passive and active investing.
It's common for (cryptoasset) backtesting to have the S&P 500 as a benchmark. Weighted by market cap, the S&P 500 may or may not have higher returns than cryptoassets (for which there were not ETFs for so long).
Do you offer index fund backtesting; or, which performance and relative cost savings metrics do you track for each index fund?
How would a hypothetical index fund have performed during stress events, corrections, drawdowns, flash crashes, stress testing scenarios, and recessions; according to backtesting?
Do you offer fundamentals data?
Do you offer [GRI] sustainability report data to support portfolio/fund design?
Do you offer funds or index fund design with an emphasis on sustainability and responsible investing?
Can I generate an index fund to focus on one or more Sustainable Development Goals?
What is the difference between creating an index fund with you as compared with holding stocks in a portfolio and periodically rebalancing and reassessing?
IIUC in terms of cryptoassets:
- A (weighted and rebalanced) index fund is a collection of tokens.
- Each constituent stock or ETF could or may already be tokenized as a cryptoasset.
- A token is a string identifier for an asset. A token is a smart contract that has the necessary methods (satisfies the smart contract functional interface) to be exchanged over a cryptoasset network with cryptographic assurances.
- A "wrapped token" is wrapped to be listed on a different network. So, for example, if someone wanted to sell NASDAQ:AAPL on a different exchange or cryptoasset network they would need to wrap it and commit to an approved, on-file ETF fund management commitment that specifies how quickly they intend to buy or sell to keep the wrapped asset price close to the original asset's before-after-hours-trading market price.
- (ETFs typically have low to no fees. When you own an ETF you do not own voting shares; with ETFs, the fund owns the voting shares and votes on behalf of the ETF holders).
There are EIP and ERC standard specifications for bundles of assets; a token composed of multiple other tokens. A wallet may contain various types of fungible and non-fungible tokens. For wallet recovery and inheritance and estate planning, there's SSS, multisig transactions, multiple signature smart contracts, and Shamir backup, and banks can now legally hold cryptoassets for clients.
tschwimmer
I like the idea behind this business and like the value that you are providing. I'm a target customer because I'm sensitive to investment fees and have done lots of comparison shopping over my investing lifetime.
Unfortunately, I won't use your product. While you do appear to be cheaper than Vanguard for a comparable product, I don't think the risk of switching is worth it. The primary risk I'd be worried about is your business model changing (or you getting acquired by legacy finance) and increasing fees down the line, at which point I'd feel like I'd want to switch back to Vanguard. I'm also worried about exposing myself to your organizational risk (e.g. your internal controls failing and an employe running off with the money, your accountant falling victim to a deepfake scam, etc.) which I suspect is going to be much higher than your competitors. For the additional .17%, I actually feel that Vanguard is a damn good bargain.
I think your product actually does have a lot of value for folks invested in crappy mutual funds or with some advisor taking a massive AUM fee, but I don't really think those consumers are generally lacking the information required to understand that your product is superior, I think they're just going for something different.
It's a tough spot. The market size is obviously tantalizing but I feel like the segments are all reasonably well served as it stands. For the folks that you're really targeting, I think it's very hard to beat Vanguard. Their corporate structure and huge size really gives them a massive advantage that seems hard to beat. Best of luck to you folks!
LocalPCGuy
Same sentiment here - I feel like this is the largest challenge for people that would otherwise be ideal candidates. I wasn't even willing to move off one of the largest brokerages for the semi-recent Robinhood 3% "transfer deal" just because even there I felt like it was too much risk (granted, that was for a retirement account).
For someone that has quite a bit of my portfolio in very low cost index funds, something like $40k does seem like a relatively low "fee" for avoiding risk, especially considering it's spread over many years.
That said, I do like the idea, and hopefully there are enough folks willing to tolerate the risk to provide a viable alternative to the big status quo brokerages.
maerF0x0
This can be a real thing when companies are charging $25-$40 for ACH Transfer fees (per account) meaning a switch can cost $100.
One piece I'm curious about is spreading investments around simply for more FDIC / SIPC insurances? Is that something that rich people do?
eithel
> charging $25-$40 for ACH Transfer fees (per account)
Do you mean ACAT fees? I haven't seen many accounts charging for ACH fees as those are basically free. Only Wise (Transferwise) charges for it from my experience.
If it's ACAT fees, a lot of brokerages (not Vanguard) will reimburse you the fees if the account balance you are bringing in is big enough, I've noticed.
jjmaxwell4
Appreciate the thoughtful response. I hear you on switching costs being quite high for a brokerage and its very much a considered purchase. I'd love for Double to be considered in the future.
0goel0
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varelse
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ruskyrubble
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softienigga
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solaarphunk
Are you paying yourself with securities lending revenue?
aquigley
Cool product! But I would love for this to have a decentralized backend using tokenized assets as the securities. It would help me solve the trust issue with yet another new FinTech startup and then I wouldn't mind letting you collect the PFOF if I could swap out backends if needed. Or can let the community develop the best strategies/factor tilts/tax alpha for each individual's unique situation.
Ummm, have y'all thought about spread costs?
If you look at the spread of any of these ETF's mentioned (spread = ask px - bid px), you will notice that the spread is much smaller than if you were to sum up the spreads of each component stock.
That's possible because of a mature ecosystem of ETF market makers and arbitrageurs (like Jane Street).
If you buy all of the stocks individually, as it sounds like y'all's solution does, you will pay the spread cost for every. single. stock. The magnitude of these costs are not huge, but if we're comparing them against VOO's 17 bps/yr expense ratio, it's worth quantifying them.
I imagine eventually you can hope that market makers will be able to quote a tight spread on whatever the basket of stocks a client wants, but in the meantime, users would be bleeding money to these costs.
(Source: I work in market making and think about spreads more than I would like to admit.)