I thought I would setup a trading account with IBKR, with the intent to simply use it in future to make regular purchases of VDAL ETF units and making use of their advertised low-rate margin lending.
Turns out it was a total waste of my time and effort. In summary:
My wife already had an (unused so far) account with IBKR and sent me a 'referral' link, so I decided to sign up and test things out.
After signing up and transferring in an initial $2K to fund my account (and answering some questions about income and net worth) the automated sign-up process suggested I join as a 'sophisticated/ wholesale' account, rather than 'retail' account.
Looking at the info available about their margin lending, it *appeared* that the standard interest rate of 5.4% would apply, while a 1% 'surcharge' would be added for retail investors, so I thought 'why not sign up as a wholesale/sophisticated' investor if I get an extra 1% pa cheaper margin loan rate?
Turns out that:
1. I was not eligible for the $1K worth of IBKR shares as a new referral, as I am in the same household (address) as DW. I also didn't even get the normal $200 bonus available for any new account -- apparently as a referral from the same household I get even less than a 'walk in' new account!
2. The sophisticated/wholesale account application was 'pending' until I provided either a) a CPA (accountant) certificate regarding my assets/income meeting the requirements (I don't use an accountant, so that would cost me $110 -- and need renewal every 2 years), or b) get an SOA from a AFSL (while I am a registered financial advisor, I am currently 'between' AFSLs, and probably couldn't issue an SOA for myself anyway (and it would cost at least $500 to have one prepared by the paraplanner service at my old dealer group).
3. Further reading of the 'fine print' around the margin lending rates also revealed that the 1% surcharge is still applied to wholesale *individual* accounts, even if they are sophisticated/wholesale (so what's the point?)
So, I decided to cancel my application to change the default retail account to wholesale, so I could then immediately proceed with the process to change the default 'cash' trading account to a 'margin loan' trading account (and make my first test trade).
It was simply to apply online for the account type change, BUT they then sent out an automated email saying that since I didn't have an SOA, I would need to get a 'financial situation check' done by an associated third party. After sending in a copy of ID (driver's license') a second email then provided a link that I would need to use to provide that 'third party' with full access (login) to my main bank account -- so they could download and check my past 6 months of transactions! Sounds very risky to give some random 'third party' login access to my bank account(s)!!
And WTF - why a 'credit check' at all? - a 'margin loan' is secured against the value of the securities held in the account (and IBKR only has a modest LVR max of 50% in general), so there should be no need for personal financial info. This process would be something required if you were applying for an unsecured personal loan, not a margin loan.
Anyhow, I sent a rude reply to the email requesting I provide direct access to my main financial account, and withdrew most of my $2K deposit (I left a token $10 to keep the account open, in case they come back with some more sensible process), and will likely close the account.
All this for a modest $50K margin lending facility!
ps. I already have margin lending arrangements with three other margin lenders for a total credit limit of $900K, but the interest rates (between 9.4% and 10.2%) make use of margin uneconomic (except perhaps as a tax strategy to eliminate taxable dividend income and replace it with long term capital gains -- but at considerable risk). Looks like when I start investing my regular HEAS loan amounts (3.95% interest rate) I might as well not use 'double gearing' and instead just invest using my Vanguard Personal Investor account (where I can buy Vanguard funds and ETFs for $0, and only pay a $9 fee to sell Vanguard ETFs). If I make regular Vanguard ETF purchases there should be no trading fees, and only a single $9 fee when I eventually sell each holding.
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4 comments:
I've got three IBKR accounts (me, my wife, and our SMSF) and didn't have these difficulties. But they may have changed. Wholesale accounts can borrow more than AUD50k on margin. That's the main difference. But you might face professional level fees for data. So our SMSF has a minimal data package (a trust is a professional investor) and I use the personal accounts for data. Main problem with them is that they don't provide correct taxation data for Australian listed trusts. So, we have those in CommSec accounts.
It all worked out in the end (after providing copies of payslips they setup the margin lending account). I bought some VGAD and VVLU ETFs, so hopefully I will receive relevant AMMA statements for these, even if the IBKR financial reporting isn't suitable for Australian tax reporting. I finally made the IBKR ETF purchases on 1 July, then found out the following week that I was 'retiring' and probably wouldn't need the extra tax deduction from a leveraged investment! Especially as I also get some tax deduction from the depreciation on my investment apartment.
You won't get any tax statements from share registries for individual investments at IBKR as the investments are held in the name of BNP Paribas and not your name. The ATO will rely on the info provided by IBKR. IBKR is mostly correct for regular Australian stocks paying dividends. It's listed investment trusts where it is wonky. So I now have a CommSec account for our SMSF which holds LITs.
Thanks for the info. I think I will sell the two ETFs and reinvest via my Vanguard Personal Investor account (or put the cash back into my mortgage offset account), as apparently ETF tax reporting is a bit complicated, and you need to keep track of the annual adjustment figure to work out the eventual CG figure -- so not getting the annual statements for the ETFs would make life complicated.
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