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.
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.]
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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.
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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?
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.
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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.
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If a big bank launched this it would have $1B in AUM within less than an hour
I love the M1 product (and while I am not a Double customer, I love the value proposition). Note that ShareBuilder (eventually Capital One), FolioFN have tried and didnt get traction.
Fidelity has "Fidelity Basket Portfolios" and I'm assuming they have no traction -- the product is broken 3 of 5 days of the week, and almost nothing works. I could file a dozen Jira SEV-1 bug tickets "Fidelity Basket Portfolios" is so bad.
Chase has a basket product but it is barely surfaced on their OneVest menus.
But jjmaxwell4 don't let any of that distract you
1. This problem (solid, simple, inexpensive) direct indexing is totally real 2. Congrats on identifying this and getting going on it 3. All your best customers are almost certainly not posting on reddit. Again don't let it distract you. This is a great idea 4. Pricing
While you don't want to price on AUM, 1$ 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?
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
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.
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?