Tag Archive: Brokerage

Sogoinvest has been reasonably receptive to client feedback. I have provided feedback to them through various channels, including emails, this blog [1] [2] and through Grant’s TheCornerOffice blog.

Two of my greatest dissatisfactions with Sogoinvest had been the following:

• Long ACH delay between bank debit of funds and posting of credit into the Sogoinvest account.

• Margin interest accruing from trading day instead of the normal day T+3 where T is the trading day.

I am happy to report that Sogoinvest has taken steps to address these issues:

1. From Sept 15, 2006, the ACH posting date is reduced from day T+5 to day T+2 where day T is the date of ACH submission. Not as fast as Izone’s T+1 but good enough for me. The following is their reply regarding the new ACH timeline:

2. Sogoinvest will charge margin interest only from day T+3. This is as reported on TheCornerOffice blog:

Notice that the above message says “has always been to charge margin interest … upon settlement” whereas I had been told on the phone and through their secure mail that “to avoid margin, I must clear my margin positions at the end of the day”.

It appears that this is probably a case of mis-information from the CSR or that Sogoinvest has changed its policy but does not want to admit it. Either way, I can confirm from my August statement that margin interest is indeed only charged from day T+3 onwards. So I am happy with this outcome.

With these positive steps, I think I am willing to direct more of my investments through Sogoinvest.

Ameritrade Izone and Sogoinvest are two discount brokerages that I have accounts with. Both offer very low commissions, and this makes them very good candidates for investors who prefer to invest in ETFs rather than mutual funds. I compare these two brokerages because to me, they are good substitute products for each other. The following is the comparison table based on the factors that are important to me:

[Table revised 9/16/2006. To view the old table, click on the link below]

It is difficult to decide at this point which is better, especially when Sogoinvest is very new and still improving on its offering; although I must say that I am not particularly thrilled with Sogoinvest’s ACH and margin interest accruing timeline. I have already written comments about these in my previous Sogoinvest experience posts [1] [2].

[This post continues from my earlier post on my Sogoinvest experience.]

After having the Sogoinvest account opened for about one week, the following are my personal thoughts.

Pluses

• The order fills seemed to be quite good. Out of the five trades I placed last week (all were limit orders), two came back with slightly better price than the level 1 quotes. The fills were quick.

• There were no major hiccups for a new brokerage. Account opening was relatively quick and easy.

Minuses

• The ACH transfer time is not transparent and inconsistent. The timeline for one instance was: ACH submitted on day T, 8/4 (Friday), bank debited on day T+1, 8/7 (Monday), money posted by morning of day T+2, 8/8 (Tuesday).

• In the second instance, ACH was submitted on day T, 8/8 (Tuesday), bank debited on day T+1, 8/9 (Wednesday), but money was posted only on Friday night. This effectively means you can only use the funds on T+4.

• I emailed customer service who told me the ACH timeline should be
  • Day 1 (before 5pm): fund transfer request.
  • Day 2: funds are withdrawn from your bank account
  • Day 3: funds are posted to your SogoInvest account

• Customer service also told me that during the time that they are holding your money hostage, no interest is earned.

• My first ACH instance meets the timeline given by customer service but the ACH time for the second instance was clearly late by two business days.

• I asked customer service for an update of my second ACH transfer on Thursday afternoon but did not get a reply by the end of the week. This brings me to the second minus point that emails are sometimes not answered in a timely manner.

• PS. My email was completely ignored. And I later learnt that Sogoinvest had subsequently lengthened the period of time they hold your ACH money hostage. See update below.

Minor irritations

• Sogoinvest sends you an email with embedded links with every order submitted or cancelled.

• If you want to change the price of a limit order, it is a manual two-step process (cancel then re-submit). Some other brokers let you change price and then with one click will perform the cancellation and re-submission of the order in the background.

Update 2006-08-15

I asked customer service about how margin interest is computed. I was quite shocked to learn of the method they are calculating margin interest and the new ACH timeline. Below are excerpts of the emails:

Questions:

1. When I made a purchase using margin on day T, when would margin interest start accruing? Is it on the settlement day T+3?

2. To avoid margin interest, when is the latest that I can submit a ACH transfer from my bank to Sogoinvest? Is it on day T+2?

Answers:

My comments:

• If you bought a security on margin, margin interest accrues on day T+1. This is very unlike most other brokerages which start charging margin interest only on day T+3, the settlement date. By charging margin interest starting from day T+1, clients are being “overcharged” for margin interest by two additional days.

• When you submit a ACH into Sogoinvest on day T, your money gets deducted on day T+1 from your bank BUT the money will take another 3 more days before it posts to your Sogoinvest account, i.e. on day T+4. I specifically asked whether any interest is earned and the answer is no. So, Sogoinvest dings you of three days’ interest whenever you perform an ACH in. It does not look like the money held hostage can be used to reduce your margin balance.

• The above amounts might be small but in principle, I do not like dealing with companies that think customers are fools and can tolerate unfair practices. It also reflects badly on the company management’s mentality.

• My strategy has always been to have a margin account, and when I make a trade, to ACH in/out money to/from the brokerage when the trade settles. I do this because usually it does not make sense to keep cash in a brokerage account since the interest rates are very pathetic.

• However, for Sogoinvest, this strategy does not work anymore. At a margin interest rate of 9.5%, a $10k balance in the account would accrue an interest of $2.60 daily. So the 3-day delay imposed by Sogoinvest on ACH-in money would net them $7.80 in margin interest, overwhelming any saving in commissions. For example, using Sogoinvest could potentially save me $4 per trade (or $2 per trade when the promotion ends in 90 days) compared to the $5 charged by Ameritrade Izone. But I have to pay $7.80 in margin interest!

• The only saving grace now is that Sogoinvest is still currently offering free ACAT out (maybe to attract investors?). I am considering an ACAT of my holdings to Izone. At Izone, it is $5 per trade (unlimited shares) versus the $3 per trade (up to 5000 shares) at Sogoinvest after the promotion. The per trade fee might be $2 more but at least I have been treated fairly so far and the method of calculating margin interest and ACH credit are per industry norms and not stacked against the investor.

Update 2006-08-29

I added a post comparing Sogoinvest with Ameritrade Izone HERE.