In a world where most of our financial activity happens behind a screen, it’s easy to forget that the assets you own – the shares of a brick-and-mortar company or a bond that pays interest – exist as real-world instruments. One way to make those instruments work harder for you is through securities lending, a service that lets you temporarily loan your eligible holdings to institutional borrowers in exchange for a fee.
Betterment offers this service in partnership with Apex, a well-known market-maker that processes thousands of trades each day. When you choose to participate, the shares in your taxable account, IRA or HSA become eligible for loan. The income generated from the loan is then shared among you, Betterment and Apex, as detailed in the program’s disclosure.
How the Betterment-Apex securities lending program operates
Once you opt in, the selected securities are placed into a pool that lenders – typically banks, hedge funds or other financial institutions – can draw from. These borrowers use the shares for a variety of strategies, such as short selling (betting the price will drop), hedging existing positions, or simply matching buy-sell orders as a service. To protect lenders, each borrower must post at least 100% cash collateral. Apex holds this collateral with a custodian, and a trustee administers it on your behalf.
Who can borrow and why
The typical counterparties are large banks or hedge funds that need the securities for short-term tactics. Because the borrower posts full cash collateral, the risk of loss to the original owner is minimized. If, in the unlikely event that Apex cannot return your shares, the cash collateral is used to reimburse you, since the loaned securities are not covered by SIPC insurance.
Potential earnings, risks and tax handling
The amount of income you receive varies with three main factors: the quantity of shares you have, the market demand for those specific securities, and the length of each loan. There is no guarantee a share will be loaned on any given day, and earnings can fluctuate with market conditions. Think of the program as a low-effort side gig for your portfolio – it runs automatically, much like tax-loss harvesting, and requires no active management from you.
While the shares are out on loan you retain full ownership, meaning you still profit from any price appreciation and you can sell the shares at any time. The trade-off is a temporary loss of proxy voting rights for individual stocks; ETFs are an exception because their underlying voting rights are already delegated to the ETF manager.
Taxation is the most commonly cited concern. Qualified dividends earned while a share is loaned are replaced by cash payments, which may be taxed at a higher ordinary-income rate. Betterment mitigates this impact through a tax-aware approach**. First, the platform prioritizes loans that remain net-positive after estimating the extra tax burden, using the data you supplied in your financial profile. Second, any residual tax shortfall is offset by an annual credit issued to you, helping to keep the after-tax return attractive.
Getting started: enrolling and managing your participation
Signing up is straightforward. Update your financial profile to reflect your risk tolerance and investment goals, then navigate to the Portfolio Controls section in Settings (Settings > Accounts on desktop). From there you can toggle the securities-lending option on or off at any time, without incurring fees. Opting out instantly returns your holdings to the regular pool, preserving your ability to trade or rebalance without interruption.
Because the program keeps your securities fully invested, any price gains accrue to you even while the shares are on loan. You may also sell a loaned share at any moment – the transaction simply settles once the borrower returns the security. This flexibility, combined with the tax-aware framework and the safety net of cash collateral, makes securities lending a viable way to squeeze extra value from eligible assets without compromising your overall investment strategy.
