Finpension invest – a new robo-advisor for non-3a ETF investments

Investing / Brokers
81

I tried to compare how this will compare for cheapest TER ETF.

S&P 500 ETF (IUSA)
IBKR SQ Finpension
Costs
Management fees 0% 0% 0.09%
Custody Fees 0.00% 0.10% 0.30%
TER 0.07% 0.07% 0.07%
Total cost of ownership 0.07% 0.17% 0.46%
Income
Dividend yield (nominal) 1.60% 1.60% 1.60%
Witholding tax loss (15% in USA) 0.24% 0.24% 0.24%
Tax credit 0.24%
Net dividend income 1.36% 1.36% 1.60%
Deductions in Income (3rd party management fees) 0.30% 0.30% 0.39%
Net taxable income 1.06% 1.06% 1.21%
Net income post Tax (25% marginal rate) 0.80% 0.80% 0.91%
Net income post Tax (30% marginal rate) 0.74% 0.74% 0.85%
Net income post Tax (35% marginal rate) 0.69% 0.69% 0.79%
Net income post Tax (40% marginal rate) 0.64% 0.64% 0.73%
Effective yield (25% marginal rate) 0.73% 0.63% 0.45%
Effective yield (30% marginal rate) 0.67% 0.57% 0.39%
Effective yield (35% marginal rate) 0.62% 0.52% 0.33%
Effective yield (40% marginal rate) 0.57% 0.47% 0.27%

I believe competition for Finpension would actually be brokerages with 0.3% custody fees (like UBS, ZKB etc). For brokerages with no custody fees or low custody fees, this 15% unrecoverable tax credit does not compensate

Now, if someone thinks about this rationally, 0.3% deduction for IB and SQ is actually more than actual costs and hence this tax credit advantage of Finpension disappears.

Did i get this right?

P.S -: There should be an added one time advantage of Stamp duties because it seems it is included in the costs. Although not sure.

P.S 2 -: Disadvtange of SQ (vs IB) starts reducing as AUM goes up because custody fees is capped to 200 CHF

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82

Thanks for your extensive comparison.

One correction: you’ll only be able to deduct the 0.3% custody fee (so the same as the others), they explicitly say so in their FAQ.

83

Ahh okay. I thought it was full 0.39% that could be deducted.

84

I don’t think it’s a coincidence it’s the same as the flat deduction (at least in ZH).

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85

One potential advantage of the finpension deduction is that it presumably wouldn’t be limited to the CHF 6’000 maximum of the flat deduction in ZH. That’s only a small advantage when considering the cost, though, and is only relevant if you hold more than 2M in taxable investments.

87

We have now also released the page regarding the new tax reporting: https://finpension.ch/en/reporting-for-the-lump-sum-tax-credit-for-withholding-taxes-on-us-dividends/

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89

@finpension

First of all . Thanks for your continuous effort to improve financial offerings for Swiss customers. I hope your Personal wealth business grows as well as your 3a did

One question I have. This is just for my own understanding. What exactly is “custody fees” ? For example some banks:brokerage charge 0.3%, some more and some do not charge anything.

Does custody fees comes with some sort of protection for the investors or it’s just a cost that is charged by custodian banks? I am not able to understand why there is so much difference in these cost. You separated Custody fees from management fees, so it seems even you don’t benefit from that.

To me it seems like added cost for no benefit. But would love to know if you see it differently.

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90

Custody is done by finpension. Thanks to our licence as an account-holding securities firm, we are not dependent on a custodian bank.

97

So assuming the portfolio has two thirds US stocks, the advantage would be 0.2% for the entire portfolio. Meaning the 0.39% yearly fees would turn into 0.19%.

Is that correct?

98

Maybe it’s without transaction costs at finpension vs with transaction costs at IBKR which are lower than at SQ?
I do not see transaction costs in the table…

99

Yeah I ignored those as those are one time costs.
But it would be 9 CHf on SQ plus stamp duty.
IB is almost negligible

I don’t know if stamp duty is part of FP offer

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100

Depends on how much US % you have in the portfolio and the dividend yield of the US

Say you have 60% US with 1.5% div yield x 15% = 0.135% less cost.

Now if they enable the other countries also, that‘s on average the ~ 2.1% (current VT yield) = 0.315%

101

I would imagine most people have at least one transaction per month or per quarter, especially if they use regional ETFs to reduce TER (and thus, likely invest in multiple ETFs). With exchange fees, a SQ ETF transaction is roughly CHF 11 + stamp duty. Whether that’s significant or not depends on how much you invest each month and how long you hold the investment.

Many people here have high salaries and invest a relatively large amount of money each month. I would expect the average savings rate for the target market of finpension invest to be lower.

Without a huge savings rate, monthly investments can get fairly expensive at SQ. If you invest CHF 500 a month, you might pay on average 0.2% p.a. just for transaction fees over a 20 year time span. You could optimize that by investing quarterly but that would make a balanced split into regional ETFs even less practical (and you would lose 1 month of investment return on average), so you would likely rather use a single world ETF, which would have a higher TER. Altogether finpension might no longer be more expensive and it would likely be more convenient.

I.e., even if finpension invest might not be the optimal option for many people here, it might still be a very good option for a large number of people.

(That said, neon or Yuh would likely be the better comparison for that target market).

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102

I agree totally.
For systematic investment planning where someone invests regularly smaller amounts , SQ transaction costs can add up. This is why I think SQ need to reduce their transaction fees to come close to IB and Saxo.

However - I think when it comes to transactions, there are four costs

  • Forex
  • commissions
  • exchange related fees
  • stamp duties

I am not sure why FP will not need to pay stamp duties. 0.39% includes only custody and management fees. So I am assuming Forex and commissions are included in this fees. But what about Stamp duties & exchange fees ?

I think if I didn’t know about all the math I always talk about, I would simply invest via FP invest :slight_smile: but knowing the actual details, I tend to optimize between IB and SQ. IB for smaller transactions and SQ for larger transactions.

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103

Isn’t IB cheaper for larger transactions?

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104

“Stock exchange taxes and federal stamp duty are charged to customers.” [source], meaning that they bill the customer separately for that.

105

Let me clarify. IB is best for every transaction. But since I use both, I try to use SQ for larger transactions only.

106

That explains…

107

While we’re still waiting for the launch, perhaps we could start a discussion about the “private markets” part.

So it looks like they are not using the known private equity ETFs, but the institutional-class variants of the funds “The Partners Fund” and “Schroder GAIA II Global Private Equity”. Those can only be bought/sold every three months and have a TER of around 1.5%.

What is everyone’s opinion on this offer? High risk, high reward? Con?

108

Imo PEs return profile is that of leveraged equity beta, minus higher fees, more concentration risk, and active management risk.

Seemingly less vol of PE only comes from volatility laundering (not marked to market).

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