Tax-Aware Long-Short SMA Financing Shifts to New Brokers

BlackRock (BLK), Charles Schwab (SCHW) and Interactive Brokers (IBKR) described the same shift in tax-aware long-short financing between October 14 and 15, 2026, speaking from the product, custodian and new-broker sides: large custodians are limiting financing for these roughly $170 billion strategies, and demand is starting to move to other brokers [1][2][3].

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Why custodians are limiting financing for long-short accounts

Registered investment advisers (RIAs) usually hold client assets at custodians such as Fidelity (private) and Charles Schwab. One of the fastest-selling RIA products of the past two years is the tax-aware long-short strategy, run as a separately managed account (SMA). In a common 130/30 version, the account is 130% long and 30% short, and trading deliberately realizes losses that offset capital gains elsewhere in the client's portfolio. These accounts depend on the custodian for margin financing, borrowed shares for short sales and operational handling.

Custodians have limited financing capacity and operational bandwidth, and they tighten when demand grows too fast. According to InvestmentNews, Fidelity began blocking RIAs from opening and funding new long-short SMAs in December 2025, and financing rates for these strategies rose from 60 basis points to 152 basis points [4]. The overflow went to Schwab, which then raised its own bar: from September 16, new accounts of this type need at least $10 million [5]. Demand itself has not fallen, so strategy providers are looking for other financing sources, and brokers with prime brokerage businesses (financing, securities lending and settlement for institutions) can take these accounts.

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Schwab margin balances rose $22.8 billion in a quarter as Interactive Brokers began taking accounts

Schwab's margin balances grew by $22.8 billion in one quarter, and the company then deliberately slowed its long-short business. At the end of the second quarter, margin balances were $165.1 billion; management said then that it was well positioned to keep supporting the business, which was roughly 1% of revenue [6]. By the end of the third quarter, balances reached $187.9 billion, which Schwab said included continued growth in long-short activity [2]. CEO Rick Wurster explained on October 15 that a large competitor had less availability, so Schwab's growth ran ahead of expectations, and the company throttled growth for a period to make sure it could support the program operationally and on capacity. He expects demand to continue, and Schwab plans to launch its own long-short offering [2].

The product provider and the new broker describe the other two sides of the same change. BlackRock CFO Martin Small said on October 14 that long-short industry assets had reached about $170 billion, three times the level a year earlier, that custodial and financing models are adjusting, and that BlackRock aims to add financing counterparties. Its Aperio unit has $19 billion in long-short assets and took in $4 billion in the third quarter [1]. Interactive Brokers said on October 15 that it now offers these strategies to RIA clients, has onboarded three strategy providers including AQR (private), held about $300 million in related assets at quarter end, and is seeing more interest because other brokers are imposing limits [3].

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Financing and stock-lending capacity now set how much long-short can grow

Taken together, the three disclosures point to one control point: how much of this strategy can be sold increasingly depends on who is willing to provide financing and lendable shares. Strategy providers now have to work with several financing counterparties, and the brokers that take the accounts can earn margin interest and stock-lending spread and may also keep advisers' other assets. Interactive Brokers said it would price these accounts at the rates it already offers large balances and large accounts [3], so new entrants are competing mainly on financing cost.

This view has clear limits, because the restrictions have not yet caused lost flows. BlackRock still took $4 billion of long-short inflows in the third quarter, and Schwab said net new asset growth did not slow after it raised minimums in October [1][2]. Goldman Sachs' CFO said the largest balance-sheet extension is behind the firm [7], so dealer capacity is not unlimited, and Interactive Brokers' $300 million remains small against a $170 billion industry. Indicators to watch are whether Schwab's margin balances stop growing, Interactive Brokers' related assets and number of strategy providers, and quarterly long-short inflows at BlackRock.

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Companies exposed to this shift

• Goldman Sachs (GS): Its equities financing business supplies the margin and stock loan that custodians are rationing. Trade press reported that it became a new custodian for some long-short accounts after Fidelity and Schwab pulled back [8], and its CFO said the firm is exploring these strategies, though it has not disclosed any scale [7].
• BNY (BK): Its Pershing unit provides custody and financing to advisers. The same report said Pershing took on some long-short accounts [8]; if that business reaches scale it would show up in Pershing's custody and margin balances, which BNY has not broken out.
• Franklin Resources (BEN): Its $23 billion Canvas platform added 130/30 and 140/40 long/short strategies [9]. Like BlackRock's product, it depends on custodian financing, so the same custodian limits could constrain its distribution.

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Sources

[1] Drillr · BlackRock (BLK) · 2026-10-14 · Q3 2026 earnings call

[2] Drillr · Charles Schwab (SCHW) · 2026-10-15 · 2026 Fall Business Update (Q3)

[3] Drillr · Interactive Brokers (IBKR) · 2026-10-15 · Q3 2026 earnings call

"We are seeing increased interest in our offering, particularly as other brokers impose limits on these strategies."

[4] InvestmentNews · Custodians curb long-short SMA strategies · 2026-07-30 · Media report · https://www.investmentnews.com/equities/custodians-curb-long-short-sma-strategies/267624

[5] InvestmentNews · Schwab tightens tax-aware long-short account rules yet again · 2026-09-03 · Media report · https://www.investmentnews.com/equities/schwab-tightens-tax-aware-long-short-account-rules-yet-again-extending-custodian-retreat-from-strategy/268064

[6] Drillr · Charles Schwab (SCHW) · 2026-07-21 · 2026 Summer Business Update (Q2)

[7] Drillr · Goldman Sachs (GS) · 2026-10-13 · Q3 2026 earnings call

[8] 24/7 Wall St. · Fidelity and Schwab just backed away from a tax strategy · 2026-08-20 · Media report · https://247wallst.com/personal-finance/2026/08/20/fidelity-and-schwab-just-backed-away-from-a-tax-strategy-too-good-to-be-true-the-wealthy-responded-by-shoveling-in-more-money/

[9] Drillr · Franklin Resources (BEN) · 2026-04-28 · Fiscal Q2 2026 earnings call

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