Gerry Perez, Interactive Brokers UK MD on IBKR’s global scope and scale

[Richard Berry]:

Welcome to Good Money Guide. Today we’re talking to Gerry Perez, he’s the UK MD of Interactive Brokers. Now, Interactive Brokers looks after everybody from Mr. Jones just starting out all the way up to the biggest institutions. It’s got a very broad client base and a very broad product offering and they’re also very, very cheap. So, we’re very lucky to be talking to Gerry Perez, as I said, the UK MD today. He’s going to tell us a little bit more about Interactive Brokers, what they do, who they do it for, find out a little bit more about Gerry and maybe get some tips on how to be a better investor and trader. So, Gerry, thank you very much for joining us today.

[Gerry Perez]:

Thank you for having me, I really appreciate the opportunity to speak to your crowd and looking forward to it.

[Richard Berry]:

We’ve met a couple of times before in real life. Once at our awards, which was quite good fun and then briefly, I think it was at the London Investor Show.

[Gerry Perez]:

Keep that legacy image in your head.

[Richard Berry]:

Interactive Brokers, it’s one of the oldest and biggest and certainly by the metrics that we rank brokers, one of the best out there. What do you think it is about Interactive Brokers that sets them apart from all the other brokers out there in the industry?

[Gerry Perez]:

Sure, let me look at it from this perspective. The customers that we engage with, we always look at their problems and a lot of the problems that these customers have is effectively that they have limited access to transparent information and that’s really important to an investor because obviously you want to be able to see information so you could do comparisons as well as after you’re a customer, you also want to have that information to know what you’re paying and what is available to you.

Other things that we come across in all the marketplaces that we do is that a lot of these investors have very limited access to international markets. Sure, they want to have access to the local market, but you want that value proposition from the broker that you deal with to basically offer you more so you could centralise a lot of your investing as well as the opportunities. And, as you pointed out, is obviously costs and pricing and it’s all about the value proposition.

The value proposition will have to exceed that, and that’s where basically I think we differentiate from the marketplace. What does that mean when there’s gains of what our customers experience and what differentiates us? Number one; we offer access to over 150 market centres and think about the game for the customer. The FCA not too long ago, put out a communicate about diversification being very important. So, if I’m a UK investor, I’m basically tied to the local economy, I’m basically tied to the local market. However, if I want to mitigate my risks and I want to be able to get more opportunities, I certainly want to have access to international markets. And that really differentiates us, there’s not too many brokers worldwide that give you that easy access into over 150 market centres.

More importantly, we offer you multi-asset classes from one account and one currency, but as important as diversification, you can have all the diversification that you want is the pricing that we offer. It is as cost effective to trade the local domestic market in the UK as it is around the world. And that’s really what our customers put it as at the forefront.

Next, is effectively we’ve got some great trading platforms. We’ve always realised that we have different customers worldwide, however, we do not just offer one platform, we offer variety of platforms because we realise that our customers are diversified, they’re experienced. In addition, not one size fits all. So, we’ve got some great platforms out there from the IBKR Mobile, IBKR Global Trader, it works on a mobile device, it gives you access to real time data, access to all your investment opportunities and we don’t charge differently. And because we develop all our technology with our smart tools all in-house, we’re able to give an incredible amount of upgrades and new opportunities to new market centres. So, if I would say those are the differentiating points that sets us apart, not only in the UK but worldwide.

[Richard Berry]:

It’s actually quite interesting because I’ve tested all of your apps all the way through to the IBKR app and they really are actually significantly better than all the other providers out there. And I quite like the way they’re sort of categorised from workstation down to portals. So, you’ve got workstation for the almost institutional, professional customers, customers with some really heavy duty execution tools on there and then you’ve got the web-based portal for people just getting started.

[Gerry Perez]:

Great and that’s what we think, those trading platforms set us apart to save our customers time and money. So, thank you.

[Richard Berry]:

And what would you say your punters or customers are most interested in? Do you see a theme of what people in the UK like to trade for retail customers getting started and then the professional user base? What do your customers mainly like to trade?

[Gerry Perez]:

Sure. So, we’ve been active in the UK now since 2002 and the customer breadth of needs and wants has definitely changed. It changes periodically during the year, but also seasonal as well as now where we are. When we came into this marketplace, we offered the equity markets, then we went into the derivative space and we have general investment accounts, we also went to offer to small businesses, institutional customers. But what we see the trend not too long ago, probably 18 months ago, is effectively the market shifted, a lot of customers traded in tax rep accounts and we launched the ISA stocks and shares, and that’s been one of our most successful launches. And, effectively, we went to go meet that need. So, our ISA gives our customers the ability to trade these international markets at very low costs, which really differentiates us. In addition to that, we pay a very competitive rate on uninvested cash over 430 basis points. And, effectively, what is important about our offering is we do not charge custody fees.

[Richard Berry]:

Do you know what, I was going to bring that up. There’s two things actually; We have a comparison table of brokers that pay interest on free cash and you’re up the top of that as well. And when it comes to ISAs, you are one of the cheapest provider for ISA’s too. How are you so cheap?

[Gerry Perez]:

That’s a very good question. Globally, our strategy always has been from day one when we started back in the nineties, is effectively is to make sure that we could scale. Interactive Brokers is part of the Interactive Brokers group and there’s only about 2,800 individuals that make up the whole entire global space. And what we’ve always done is pride ourselves on the automation and innovation and technology. So, by having all this innovation, we’ve been able to streamline the processes, the middle, the back office, and this allows us to scale, but more importantly lower the costs and we pass on those costs to the customers. So, unlike our competitors where they’re very top heavy, middle or back office heavy, we’re streamlined and the automation allows us then to be very competitive when it comes to pricing and that obviously wins over our customers.

[Richard Berry]:

And what’s your ideal customer? Obviously, you can cater for everybody, but who’s your ideal customer that you like to look after in the UK?

[Gerry Perez]:

For us, the ideal customers are individuals that have some experience trading, we’re not a platform for beginners or people that have no knowledge. In addition to that, we are for customers that effectively want diversification, they’re not only looking to trading the local market, but they want to trade worldwide. Customers that are willing to give us the opportunity to put our value proposition in front of them and basically let them know exactly what we offer. And sometimes it works and sometimes it doesn’t work and we’re pretty straightforward for them. So, I think in the marketplace, our ideal customer is someone that, again, demands global access, very smart tools and basically that we’re a trustable entity so they could put their money and they know it’s safe.

[Richard Berry]:

Okay. So that’s the mid-range sort of customer, what about the professional and institutional customers? I had years ago when I was a derivatives broker, in fact one of our biggest customers, he was a sort of quasi institution, he was a billionaire himself and we were always fighting backwards and forwards with you guys to get the business. It was always us, personal service, we’ll deal for you over the phone, we’ll give you access when you need it and then there was you guys and he was just like, do you know what? Even 15 years ago, it was like it’s a multi-asset broker, I can just do whatever I want online. Is that still the case? Do you find that in the institutional professional space as well?

[Gerry Perez]:

So, Interactive Brokers started in the early nineties in Europe and then expanded into other geographical regions. From the beginning, we’ve always been B2B, which basically our customers have been proprietary trading groups, hedge funds, introducing brokers, family offices, et cetera. And our institutional breadth has always been growing because, again, we’ve been very fortunate that the market has moved to our business model. And our business model is about transparency, low cost, efficiency and being trustworthy. And on the institutional space that matters a lot, if that didn’t exist, effectively, we would have grown. I’m glad to report on the institutional side, we’re in double figures, we’re very recognised from different publications as well as yours, and that has been the forefront from day one to grow into the institutional space and it’s been very successful.

[Richard Berry]:

Okay. So, let’s talk about you and your running of interactive brokers over here in the UK. How long have you been over here managing it?

[Gerry Perez]:

I had been here from day one. We started the company in 2000, we became authorised and regulated in 2002.

[Richard Berry]:

And how many of you are in the UK office?

[Gerry Perez]:

Currently in the UK office we’re just under 150 and we’re in the City of London and we’ve been expanding since day one. But again, it’s a great market centre, for me, the UK, this is my sixth move internationally around the world and my wings got clipped here because obviously with regulation you could do things remotely. And since I’ve been here, I got to tell you, it’s a fantastic market, it’s got a very strong regulatory framework, it’s got access to great skilled people that make up our staff. The customer base is so diverse and you have got from the institutional to the person on the street, a great knowledge of investing and creativity as well as wants. So, it’s been fantastic.

[Richard Berry]:

Okay. Well and also thank God we’ve got the time zone as well. We’re right in the middle of all the markets. What’s the best thing? Let’s do best and worst things. What’s the best thing about your job over here? What do you like most about it?

[Gerry Perez]:

Dealing with the diverse customer base. I think it’s really important to be able to learn something, as you say, in any venue and effectively, to me, dealing with different customer types has always been very rewarding because there’s so many smart people, but they’re very, very well connected to other markets. So, the intelligence of speaking to our customers, learning what the trends are also basically gives us that dividend where we could pass passively along to our research and development so they could develop the types of accounts tools that basically spread across the world and keeps us competitive.

[Richard Berry]:

And what about the worst? What’s been the most challenging thing?

[Gerry Perez]:

It’s a very intense competitive landscape.

[Richard Berry]:

I think it’s getting more competitive every day.

[Gerry Perez]:

Exactly, and sometimes you hear the sound bites about zero commissions, et cetera. However, a lot of them are soundbites and what that puts out is a lot of misinformation too. So, the worst part is sometimes when we come across a lot of misinformation about value over price, it does take us some time to basically go correct and make everything fact-based. And that’s a shame because the customer has to be able to see transparent, factual information. Back in July you had the consumer duty, which was all based of positive outcomes for customers. That has worked in our favour and before that, there was a lot more misinformation. So, at least the trend is going in the right direction.

[Richard Berry]:

And on that actually, what do you think the future of trading and the future of brokerages is? Because cost per acquisitions, the price for getting a new customer is getting higher, even though there’s more and more brokers starting up, it’s never been easier to start a brokerage, it’s almost become a sort of marketing machine. So, do you think the services that brokers provide traders are going to evolve? How do you think they’re going to evolve over the years? Where do you see the future of trading going?

[Gerry Perez]:

Well, I mean I think that right now, if I just look at the trend is a lot of these are these tax wrapper accounts. In the UK you’ve got the SIPP, the ISA, a lot of money has been moving into that. When it comes to certain spaces or segments in the institutional space, for example, advisory services, et cetera, the customers are really demanding better value for cost. And I would imagine that that’s where the market is going. Customers want to be able to see as well as their traders, more intelligent tools, more transparency because the market is so efficient, it moves, they want to diversify in different time zones. So, you have to have those smart tools and I think if you don’t have a broker that basically gives you those capabilities, you’re going to be left behind. And I think that that is really where the market is going; we’re effectively trading on exchange smart tools, more diversification by trading global portfolios is a direction. Then you have basically other phenomenons or elements like artificial intelligence, machine learning, they will start taking a little bit more broader perspective and you’ll probably see them embedded in such things as customer service to give the customer a better customer experience and to meet how they could assist. So, that’s where I see the market going.

[Richard Berry]:

Okay. I do think AI is going to be great for trading actually. I was playing about with one of your apps, the option strategy app where historically it was actually quite difficult to create option strategies based on what you thought the market was going to do. So, you do the strategy first and then adapt it to the market. Whereas now, one of your tools, it was just, I think the market is going to go up a bit down a bit, then it’s going to be flat, then it’s going to up, then it’s going to go down and then it created an option strategy around that, I thought that was really cool.

[Gerry Perez]:

That’s great, yeah. We have an incredible amount and that’s another differentiating point. All the smart tools that are embedded in the Trader Workstation made a different cross segment of let’s say needs, but more importantly, we don’t charge differently or we don’t charge at all for them. It’s all embedded in the commission and that’s also positive for the customer because they get all these tools and, again, not one size fits all.

[Richard Berry]:

That’s very true. And what’s your favorite tool? When we interviewed Thomas Peterffy, the founder a few years ago now, and he said his favorite tool was the pairs trading functionality, where you can trade one stock against each other as a ratio in one go, instead of having to do two trades. I think he said something along the lines of the people that do well are the people that research stocks and bet one against another rather than just taking out outright positions. Do you have a favorite tool on the platform that you think is really useful?

[Gerry Perez]:

Right, a long long time ago I started as an options trader, so I’m a little bit skewed to the options world. I love the option trader, it’s a very robust trading tool and it gives you all sorts of insights as well as capabilities to trade different spreads, view of different information and as a historical options trader, it’s a phenomenal tool.

[Richard Berry]:

Yeah. Why do you think options aren’t quite so popular in the UK? I’ve been out in the States, I’ve been an options broker and dabble in the odd options every now and again, but whenever I want to take a position, I’ll very rarely use options for it. What do you think the sort of cultural differences between the US and the UK whereas retail punters in the states love options, but in the UK they haven’t quite got the grips with them yet?

[Gerry Perez]:

That’s actually a very good question. Remember, when I came to this country a long time ago, you had the phenomenal difference between European as well as American options. In addition to that, the American options have been a little bit longer to understand and basically get a grip on for the customer base. However, I’ve always said, ironically, I had this question come up to me about two weeks ago laterally, and I always said that what I don’t understand is if you’re in the UK, how is it that you could trade a US options cheaper through entities like ourselves than you could trade a local UK broker dealer? And that price difference has been, I think, a huge reason why the local customer segment hasn’t been trading options because when you trade options, you’re only paying for the premium, but if they pass on all sorts of extra costs, obviously the pricing of an option could then be £5, £7 compared for us where it is basically less than a dollar. So, that has been, I believe, a reason why the local market has not taken up options. However, we have seen a great growth of our customer base, which, again, I think we may be one of the very few that offer such low pricing into the US options market and we have seen a nice rise over the last two years.

[Richard Berry]:

And do you think as well it’s liquidity? Because single stock options, there’s pretty much a market in a very wide range of stocks, but in the UK single stock options, there’s not really the liquidity there for them or is that getting better? I don’t know, do you see more flow into liquidity stocks?

[Gerry Perez]:

I think it’s getting better but probably more linear than exponential and that’s a very good point as well; Liquidity for the US options market is exceptional, in the UK it has not been what it could be. Hopefully you’ll see that growth and we’ll see more options trader come about.

[Richard Berry]:

Okay. One more thing; we were discussing tax wrappers, how there’s more money flowing into more tax efficient ways of trading through SIPP’s for your retirement and ISA’s obviously you get your £20,000 a year allowance. One of the things that Interactive Brokers doesn’t offer, which is quite popular in the UK, is financial spread betting where trades are structured as bets rather than positions. And obviously the advantage of that is that your profits are free from capital gains tax. I’m sure you’ve heard the story about why it’s still free from capital gains tax, but any movement into that arena? Do you think you’ll look at offering that as a product for people that want to speculate in the short term?

[Gerry Perez]:

I don’t see that happening anytime soon. From day one, our founders always been about credibility and earning trust from customers, that’s why we primarily give access to exchange traded products where the spreads are completely transparent as well as that structure. And that basically has been the forefront of our taxes and strategy to win over business over the years. I am not going to say anything bad about the spread betting side, but, for us, one of the other points that you need to consider is when you put an order with Interactive Brokers because it is on exchange, the end user gets the natural order types, limit day orders, et cetera, but we don’t fiddle around with that order, right? So, the market volatility changes in a dramatic fashion. The customer is always able to adjust as the market goes. When it comes to spread betting or other phenomenons outside of exchange traded, you do have orders that are frozen for a short period of time and that effectively changes the dynamics of being able to invest and basically mitigate your risks. So, because of our strategy and taxes of being transparent and giving fair value, I don’t see it changing anytime soon into the spread betting world.

[Richard Berry]:

Okay. Oh, that’s a shame. I remember, I just looked it up actually, we covered it four years ago when Interactive Brokers started offering. Maybe it was just a feature, but you had a sort of simulated sports betting.

[Gerry Perez]:

That was in the United States right when the phenomenon came up, we offered through a sister site some access to a probability sport betting, but effectively that was basically just to see or test the waters.

[Richard Berry]:

Oh, that’s a shame. Anyway, I got very excited. If I trade, I tend to spread bet because if I make any money, I don’t want to give some of it away.

[Gerry Perez]:

Capital gains.

[Richard Berry]:

Yeah, it is a great product and I thought, here we go, IBA interactive is going to be doing DMA spread betting, but nevermind. What do you see in traders? Obviously you’ve looked after a lot of customers over the years, retail customers, professional traders, what traits do you see in successful traders who consistently make money and what errors do you see people making? What’s a good trader to you?

[Gerry Perez]:

Historically from being around the world, I’ve always said that a good trader is someone that’s disciplined. They have pretty good idea of what they’re going to do, how much they’re going to risk and they stick with it. It’s very easy to become emotional in a trading pitch or behind a screen and you don’t want to get away from your plan because once you do, it’s very easy to basically lose more money or take on more risk. In addition to that, someone that’s knowledgeable and not just basically centred on one, let’s say, understanding of the marketplace. I mentioned to you before, I was an options trader. As an options trader, you don’t become successful until you know about trading on the underline, which are the stocks. You don’t become successful with just learning the US market, you also have to learn internationally because it does have some impact on what you’re trading locally, geographically. And in order to do that, it’s somebody that has an open mind to go get that knowledge and that intelligence to grow and be able to see different opportunities. If you just stay focused that, you know what, I only do one strategy and that’s it, that’s great. However, the market is so efficient and there’s so many tools out there with more of AI and machine learning to come, you have to grow your intelligence as well as your knowledge base. And I’m glad to report that we just actually recalibrated our IBKR campus, we just relaunched it earlier this week. It’s a huge delve of information regarding international markets, it’s all free. And the reason why we did that is, again, we have a lot of customers that really want to get that information because, again, they want to grow as good traders. And I think discipline, as well as knowledge are the two main factors in being successful.

[Richard Berry]:

Discipline and knowledge, there you go, I couldn’t agree more. I think there are so many people that get into trading for trading’s sake and don’t understand the underlying economies or companies or understand that everything is relative to each other. So, the Interactive Brokers campus, obviously we’ve had a look at it before, we’ll have a look at it again for the updated content because finding a reliable source of education is really important, especially with social media the way it is these days.

So, as always a final question, we ask this to everybody we talk to, is there a book or a service that you could recommend? A book that you think everybody should read that can help them understand the markets better and ultimately become a better investor and trader?

[Gerry Perez]:

I love to read books, I probably read a book once a week and it’s always reference books. And there’s one book in the marketplace that I’ve always gravitated to and I think it’s a fantastic book, it’s called Trading Exchanges Market Micro Structure for Practitioners. It’s written by Larry Harris and it’s published by Oxford University Press. What has always fascinated me about this book is from the perspective of the practitioners. You have a lot of books of people looking from the outside in, but this book really goes into the front, middle, and the back office in a way that is simple to understand, but more importantly, it gives you the perspective of what you should know in order to be successful. So, to me, this is one book that I highly recommend and I stand with it, I’ve looked at it three or four times. I haven’t found something as good and as enriching as that book.

[Richard Berry]:

Brilliant. Well, I shall certainly give that a read. We’ve got about 50 book recommendations and it’s amazing, every CEO or MD we talk to, no one’s had the same book recommendation out of everyone. By that, I suppose that’s what makes a market opinion, everybody has differing opinions and differing recommendations. So look, I’ll give that a read, maybe we’ll put a little review up on the site.

Well, there we go. Gerry, thank you very much for talking and hopefully we will have a chat again in the future when Interactive Brokers have some more interesting updates.

[Gerry Perez]:

Please, I really appreciate the opportunity. I always say to all the party customers that are listening in, please take a look, compare us and make the best decisions. All the best and all good things about Good Money Guide from our perspective. Thank you.