High-Frequency Trading: A Hidden Cost to Retail Investors?

When it comes to retail investing—what most of our clients do—I often argue against the “do-it-yourself” approach. One major reason? The rise of high-frequency trading (HFT), which has significantly changed the game over the past 20 years.

Wholesaler firms like KCG and Citadel engage in HFT and play a very direct role in how trades are executed for retail clients. Here’s how it works: when you place a trade through a broker, you pay a commission. But instead of the broker executing the trade themselves, they often route it to a wholesaler. Interestingly, the wholesaler pays the broker for that order flow.

So how do wholesalers make money? Through the spread—the difference between what someone is willing to buy a stock for (the bid) and what someone is willing to sell it for (the ask). These firms access fast market feeds (which retail investors do not) and can spot micro-price changes before others. This allows them to buy low and sell high—within milliseconds—earning profits off the spread. It’s like being allowed to see the future half a second earlier than everyone else.

While this structure hasn’t drawn much regulatory scrutiny in the past, that may be changing. Reuters recently reported that federal authorities are investigating Citadel and KCG for possibly giving retail investors a raw deal. Some argue that HFT reduces commissions and that the spread is minimal—but personally, I’d rather see slightly higher commissions in exchange for more transparency.

LendingClub: When Small Errors Lead to Big Consequences

LendingClub’s CEO recently resigned after a controversial loan deal with Jeffries went sideways, sending the company’s stock down 35%. The SEC is now investigating internal control issues related to how some loans were sold.

Here’s what we know: LendingClub sold $22 million in “near-prime” loans to Jeffries. Later, it was discovered that $3 millions of those loans had incorrect application dates. LendingClub repurchased all the loans at par to correct the issue, and then resold them to another investor—also at par. That suggests the loans themselves weren’t fundamentally flawed.

So why the dramatic fallout?

It seems the real issue was a lack of transparency. The CEO had previously failed to disclose a personal stake in a company called Cirrix, which LendingClub later considered investing in. That lack of disclosure, combined with concerns over how the Jeffries deal was handled, eroded the board’s confidence—leading to the CEO’s resignation, along with three other senior executives.

Still, it’s hard not to wonder: if the loans were good enough to resell, and the only problem was a paperwork error, why did this escalate so quickly? Maybe the finance world still has its own unwritten “friend codes.”

Ellevest: Investing Differently—But Does It Deliver?

Sallie Krawcheck, the former CFO of Citigroup, recently launched Ellevest, a robo-advisor built specifically for women. The concept is compelling: a platform that considers the unique financial challenges women face throughout their careers and life stages.

Krawcheck argues that Ellevest is more than just a robo-advisor—it’s a tool for personalized, gender-specific financial guidance. The platform adjusts portfolios as clients’ goals evolve and sends notifications when someone falls off track.

But is this truly personalized planning, or just well-branded automation?

From what I’ve seen, Ellevest doesn’t yet offer the kind of holistic financial planning you’d get by working with a trained professional. And with a fee of 0.50% annually, it’s more expensive than competitors like Wealthfront (0.25%) and Betterment (0.15–0.35%). In fact, the only notable difference seems to be that Ellevest markets specifically to women.

For some, that may be worth the premium. Others might wonder whether they’re just paying more for the same underlying service—wrapped in a different message. And a small part of me wonders what would happen if a man opened an account. Would the system stop working? Or would it just rebalance his portfolio monthly like every other robo-advisor?

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