Our goal is to bring the low fee trend pioneered by Robinhood to ETFs and mutual funds. We posted a Show HN about 3 months ago (https://news.ycombinator.com/item?id=41246686) and since then have crossed $10M in AUM (Assets Under Management) [1].
Here’s a demo video: https://www.loom.com/share/10c9150ce4114f278e8c249f211e7ec8. Please note that none of this content should be treated as financial advice.
Everyone knows that fees eat into your investing returns. Financial advisors generally charge 1% of AUM per year, and ETFs have a weighted average expense ratio of about 0.17%, although some go as low as 0.03% for VOO. Over a 30-year period on a $500k portfolio with $2k invested monthly, 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.
Double lets you index invest without paying any percentage-based fees - we charge just $1/month. It works by buying the individual stocks that make up popular indexes. By buying the individual positions, we can also customize and tax-loss harvest your account, something ETFs or Mutual Funds cannot do.
Most ETFs and mutual funds today are not that complicated - they can be expressed as a CSV file with 2 columns - a ticker and a share number. You can find these holding csv files on most ETF pages (VOO[2], QQQ[3]). Right now there are about $9.1T of assets in ETFs[4] and $20T in Mutual Funds[5] in the US, with estimated revenue of $100B per year. We think this market is ripe for disruption.
We offer 50+ strategies that track popular ETFs and are updated as stocks merge and indexes change. You can customize these by weighting sectors or stocks differently, or even build your own indexes from scratch using our stock/etf screening tools. Once you've chosen your strategy, simply set your target weights and deposit funds (we also support transferring existing stocks). Our engine then checks your portfolio daily for potential trades, optimizes for tax-loss harvesting, portfolio tracking, and redeploys any generated cash.
I (JJ) started working on this after selling my last company. After using nearly every brokerage product out there and working with a financial advisor, I noticed a huge gap between the indexing capabilities of financial advisors and what individual investors could access. We wanted to bridge that gap and provide these powerful tools to everyone in a simple, low-cost way.
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. 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.
We also compete with robo-advisors like Wealthfront, but offer more control over your investments. And did I mention we don't charge AUM fees? You can see our strategies and play with the research page https://double.finance/p/explore without creating an account.
Over the past year we’ve learned a lot about the guts of building portfolio software. For example, stocks don’t really have persistent identifiers that are easy to model and pass around. We trade CUSIPs with our custodian Apex*, but these change all the time for stock splits or re-org’s that you would not think would lead to a new “stock”.
We’ve also learned a lot about how tax loss harvesting (TLH) is best implemented on large direct index portfolios using a factor model as opposed to pairs based replacements which I initially thought might be the way to execute these. We do use a pairs strategy on smaller sized strategies. And how TLH and portfolio optimization generally is best expressed as a linear optimization problem with competing objectives (tracking vs. tax alpha vs. trading costs for example).
If you have any thoughts on the product or our positioning as the low fee alternative I’d love to hear it. I think Robinhood has proved that you can build a strong business by getting rid of an industry wide cost (in their case commissions, in our expense ratios). We aim to do the same.
[1] https://www.axios.com/pro/fintech-deals/2024/12/10/direct-in... [2] https://investor.vanguard.com/investment-products/etfs/profi... [3] https://www.invesco.com/qqq-etf/en/about.html [4] https://fred.stlouisfed.org/series/BOGZ1LM564090005Q [5] https://fred.stlouisfed.org/series/BOGZ1LM654090000Q
* Edit to add a note on risk: 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. See more at https://news.ycombinator.com/item?id=42379135 below.
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.
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
https://advocacy.urvin.finance/advocacy/we-the-investors-pfo...
Not a 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.
> 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.
The entire thing is adversarial and it's really just a choice of game you choose to play.
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.
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.
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.
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.
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.
Is this known for sure? I thought the value of this order flow to them was the lack of adverse selection.
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?
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.
Trading with a highly sophisticated counterparty can be very costly and undo the small profit they have made from thousands of other trades.
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.
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
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.
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.
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.
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?
They're basically criminals. A guarantee by Apex is worthless IMO.
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
The "in your name" part is specifically what I was looking for.
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..."
Zero interest until there is a very clear answer here.
off by an order of magnitude, you're saving 0.03% on fees
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.
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.
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.)
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...
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.]
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.
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 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.
"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.
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.
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".
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.
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
I don't want to wonder.
think it'll be difficult for them to be around 3 years from now (in their current form)
How big is the addressable market here?
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".
- 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?
So I need to know how do they plan to sustain that, and will it come at my expense?
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!
Fidelity is very much into new fintech ideas and products.. they were mining crypto very early on.
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.
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.
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!
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.
https://portfolioslab.com/tools/stock-comparison/FZROX/SPY
Unless you have a very good reason, just go for the cheapest.
- 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...
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.
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.
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.
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.
> 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.
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!
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.
One piece I'm curious about is spreading investments around simply for more FDIC / SIPC insurances? Is that something that rich people do?
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?
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.
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...
This is our current latest filed with the SEC:
https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_ia...
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.
They are assuming an additional $2000 contributed per month and a 7% return.
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.
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.
> However, educated index investors typically hold a total market index fund.
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...
Stocks are not my area of expertise so I gloss over a lot of details... maybe and equity trading specialist can chime in?
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
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)
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?
Dealing with traders is where all the nightmare stories come from.
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.
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).
We are working on getting some more ESG focused portfolios directly live but it's very very do-able right now.
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.
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.
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.
John Bogle would like a word
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.
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.
Or is the strategy to buy an index, then only sell losers after an amount of time?
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.
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.
Robinhood and Wealthfront both started their business on Apex as well.
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.
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.
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.
Also, how do you position yourself compared to Fidelity's Custom Investing product?
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”?
- 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
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
What would you say to someone who is skeptical about the long term viablity of your low fee promise?
A couple typos you might want to fix: https://triplechecker.com/s/840785/double.finance
After spreads, tracking error, and overhead, it'll be really hard to beat a Vanguard index fund.
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.
Edit: Thanks, answered earlier in comments.
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".
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.
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%
+1 on the comparison to M1, and congrats on your release @JJ and @Mark
(If there are no other revenue streams, what scale do you need to attain to cover operational and regulatory costs?)
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.
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).
Direct indexing seems fun, but it will be very messy at tax time.
Assume the model is bad and they gradually lose money and close. How does it work?
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.