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If they just shared the money earned with us a lot less people would opt-out/leave the platform over this and it wouldn't be an issue in the first place. People feel scared/disappointed that this was hidden in the fine print and rightfully should. I think if M1 was more straightforward with us and shared the proceeds way more people would be fine with it. Robinhood already has this feature btw. It's not like other brokers don't share revenue from securities lending already.
They do now.
Here is what you need to know:
- Starting June 1 2023, 10% of any revenue earned by lending your fully paid securities will be accrued directly to you, with a monthly payout beginning on or about July 1.
- The payment amount is calculated at 10% of the total net proceeds earned and received for lending your shares. You will receive a payment only if Apex lent out any of your shares in the prior month.
- There is no action needed from you to get paid. All payments will be deposited into your M1 Invest account.
- You can always opt out of the program participation by sending an email to M1 at help@m1 (dot) com with "Securities Lending Opt-Out" in the subject line.
And what they don't tell you is:
If your stocks receive a dividend when loaned through fully-paid securities lending, you may receive a substitute dividend payment, also known as a dividend in lieu (DIL).
Although the payment amount is the same, substitute payments in lieu of dividends are non-qualified and will be reported on tax form 1099-Misc.Â
Whats the difference?
Qualified dividends are subject to preferential tax rates, which are generally lower than ordinary income tax rates. They are eligible for long-term capital gains tax rates if certain holding period requirements are met.
On the other hand, non-qualified substitute payments are typically subject to ordinary income tax rates.
For most taxpayers, receiving qualified dividends is more advantageous due to the potential for lower tax rates
TLDR
So they are opting millions of customers into a program that will negatively impact them and cost them more on their taxes. And they make sure NOT to mention that in their communication to the customers.
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