Josh Brown says investors are (re)learning how profitable these financial stocks are, including one on his list

Interactive Brokers reported record Q2 results, with net revenue up 28% year over year to $1.90 billion, net income up 39%, and a 77% pretax margin; customer accounts grew 34% to 5.2 million and margin loans rose 67% to $108.5 billion. The article argues IBKR could gain RIA custody share as Fidelity and Schwab restrict tax-aware long-short SMA strategies, while IBKR continues to support them and prepares a national trust bank charter. Travelers delivered strong Q2 segment income growth and returned $1.57 billion through buybacks and dividends, but both stocks are currently consolidating after reaching record highs, with technical support cited near $80 for IBKR and $350 for TRV.

Analysis

IBKR’s opportunity is not merely incremental trading volume; it is a potential shift toward higher-balance, operationally sticky RIA relationships. Tax-managed long-short mandates create recurring commission, financing and cash-balance revenue while raising switching costs once advisers integrate reporting, borrowing and trading workflows. The trust-bank buildout matters because it can remove a custody-friction point that otherwise limits full-wallet migration; the relevant proof point over the next 1-3 quarters is accelerated advisor-account growth and net new customer equity, not retail account openings.

The market may be underpricing the negative selection embedded in this asset-gathering opportunity. Long-short SMA assets are more rate-sensitive and liquidity-sensitive than traditional custody balances: a sharp equity drawdown, factor unwind, or lower short rebates could simultaneously reduce margin balances, trading activity and net interest income. IBKR’s operating leverage makes share gains valuable, but also means any deceleration in net interest income or deterioration in margin-credit metrics could compress its premium growth multiple quickly.

SCHW’s restrictions could be strategically rational rather than evidence of franchise erosion: reducing concentrated leverage exposure lowers tail risk and regulatory scrutiny, potentially supporting its funding profile. That makes an outright SCHW short unattractive absent evidence of sustained advisor asset outflows; the cleaner expression is relative exposure to custody-share migration. For TRV, continued underwriting discipline and investment income can support earnings resilience, but the next leg is likely contingent on reserve adequacy and catastrophe experience rather than technical consolidation; a benign-loss quarter is the nearer catalyst, while a pricing-cycle slowdown is the 6-18 month risk.

Key Decisions for Investors

• Initiate a 3-6 month long IBKR / short SCHW pair, sized beta-neutral, only if IBKR reports sequential acceleration in RIA-linked net new assets or margin balances. Target 10-15% relative return; exit if IBKR’s net interest income declines sequentially beyond expected rate-driven compression or if SCHW demonstrates stabilizing advisor flows.
• Add to IBKR on post-earnings confirmation rather than on headline momentum: require customer equity growth to exceed account growth and no deterioration in credit-loss or margin-liquidation disclosures. A 15-20% downside stop from entry is appropriate given the equity-market and rate sensitivity of the financing book.
• Maintain TRV as a quality financial overweight versus KIE, but do not chase before the next earnings/catastrophe update. Use a 6-12 month horizon; the thesis is falsified by adverse reserve development, a material combined-ratio miss, or evidence that commercial pricing is decelerating faster than loss-cost trends.
• Avoid using HOOD as a direct hedge for IBKR. The firms overlap in active trading, but HOOD’s earnings sensitivity is more tied to retail risk appetite, crypto and transaction mix, whereas the prospective IBKR upside is institutionalized advisor custody and financing penetration.