I’m aware that some independent advisors have negotiated better than advertised margin rates for their clients. I have specific knowledge of an advisor switching from Schwab to tdwaterhouse and back again because Schwab eventually matched the margin rates. My question is there ever kickbacks, in any form, to the advisors based on these loans? Would that even be legal assuming they are a commissioned based firm with the appropriate licenses?
Well, I think the important thing to notice here – these cheesy online brokers are way overcharging.
TD is 4.5% margin rate, IBKR is 1.5%. If someone is going to use leverage, it’s totally crazy to be on Schwab, etc.
Smart large clients don’t pay advertised rates. Can be as low as 0.5% at those “cheesy” online brokers for a little longer anyway. Advertised effective rate at IB for a million is about 1.2%. Tiered. Lower for more.
Oh well if they have a secret rate that’s better, but the secretive rates thing is cheesy.
No kickbacks based purely on loans, as this is against regulations, but lower rates are used as negotiation tactics to get more assets. Similarly with commissions… a kickback is viewed as promoting churning within the account, so this is not allowed. Now, it does depend on the structure of certain accounts (self-directed vs. advisory), but that is roughly how it works. And all rates and commissions are always negotiable.