IBKR(VT) vs Neon(FWRA)

Investing / Brokers
1

Hello everyone
I am planning to invest at least 1000 per month in an ETF (possibly larger amounts later on). Now that I have done some research, I have shortlisted two brokers: IBKR and Neon.
With IBKR I would probably go for VT, due to the lower TER (0.07%). With Neon, I would go for FWRA (TER 0.15%), as it can currently be bought with the savings plan without brokerage fees. The question is, of course, whether this offer will remain the same for the next 10 or 20 years (I doubt it). Whether the ETF is distributing or accumulating is not so important to me. As has been shown here, the VT at IBKR is of course much cheaper than the FWRA at Neon. If the 0% brokerage fees for buying at Neon were to be abolished, the difference would be even greater.
I don’t rule out the possibility that I might want to invest in individual shares later on. This should not be disregarded when choosing a broker. However, I would like to build up a solid ETF portfolio first.
At the moment I am leaning towards IBKR and VT. IBKR seems to me to be a very established broker. VT also has a lot more AuM and as I said a lower TER. There would be no stamp duty and I could invest with 0.35$ brokerage per purchase. The exchange fee is negligible at 0.03%. The downside here is that by the time I have about 35k in VT, I will have lost 15% of the WHT on the dividend.
FWRA with Neon, on the other hand, has the disadvantage that the TER is higher and has less AuM. As I said, buying could cost brokerage fees again in the future. Neon would be a broker based in Switzerland, which could be an advantage. However, Neon is still relatively new and possibly less secure than IBKR. In addition, the selection at Neon is of course much smaller compared to IBKR (both individual stocks and ETFs).

I would be interested in your assessment and see if I forgot anything important. Thank you very much.

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All else fine, makes sense, but

Why would that be?
There is no “WHT lost”, you just get it “back” when doing your tax return (and pay your tax rate on it as it’s treated as income).

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You only get it back if it’s at least 100.- Otherwise it’s lost.

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4

Fair enough.

Just quickly calculating “on the road”, so I might be wrong, but isn’t it then ~15-20k, not 35k?

15’000 * (2% * 35%) = 105

Probably missing proportion of the US (~65-70%) in it indeed, but still don’t think 35k are needed.
What’s your calculation basis?

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Why do you use 35%? WHT is 15% (assuming W-8BEN)

So 100/0.02/0.15= 33.3k CHF. Around 36.5k USD.

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Ah indeed, pardon my Friday brain. :slight_smile:
Was reading a few topics in parallel so 35 probably stuck from the “swiss-related” ones. :sweat_smile:

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no world etf or fund at any Swiss broker will beat VT at IBKR :slight_smile: VT at IBKR is cheapest (to buy, to hold or to sell), diversified and without stamp duties. By the way, you can also buy FWRA at IBKR.

So the reason to choose another broker over IBKR will not be financial. It would be more about familiarity , US estate tax understanding etc

Read this thread for some more numbers Here

Last point -: at some point you will exceed the threshold for US WHT tax credit and then you will be able to get the money back.

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There are could be other reasons why US WHT is not reimbursed, in particular if your tax rate is too low. In this case, FWRA will be probably better than VT. Try with your numbers:

In any case, if you are OK with Interactive Brokers, go for it. You can buy both ETFs there. And I would still recommend VT for one fund portfolio if your concern is fees, not US domicile. The difference between two funds should be small to matter.

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Actually it’s more like ~72k. US is 62% of VT and FWRA, and the dividend yield is more like 1.5%. And withholding tax is 15%.

So CHF 100 ÷ 15% ÷ 1.5% ÷ 62% = CHF 71’685

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Just remember that with FWRA, you will have lost those 15% no matter the size of your investment, so it is not a disadvantage of VT, but more like a draw in terms of WHT between the two until you reach the required sum.

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11

I would say this is not accurate.
15% is deducted on whole dividend which is 2% yield.

US portion wouldn’t matter in this calculation.

You are thinking about L1TW . But the 15% DA-1 is giving back is L2TW

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You can only reclaim WHT for the US part of dividends, no?

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No. You can claim whatever was deducted by fund house which is 15%

There are two taxes
L1TW which is deducted by underlying companies depends on company domicile
L2TW which is deducted by fund and this is purely dependent on fund domicile

For VT, L1TW for US exposure is 0% and for rest is X% unrecoverable, L2TW is 15% at fund level.

For FWRA , L1TW for US exposure is 15% which is unrecoverable and for rest is Y% unrecoverable, L2TW = 0%

I might be wrong but this is my understanding of what is going on.

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This is a bit tricky

Let’s say investment 10000 USD

VT -: gross dividend would be 200 USD
FWRA -: gross dividend would be 175 USD (for illustration only as exact number might be a bit different)

But

VT -: net dividend would be 170 USD + 30 USD tax credit
FWRA -: net dividend would be 175 USD

If you cannot claim credit, FWRA would end up being more profitable from dividend perspective

But this game changes as you reach threshold of 100 CHF across your investments and then VT wins again … basically it depends on your ability to reclaim.

For argument sake -: if an investor only have one investment and all of it is in either VOO or VUSA

VUSA and VOO basically will have same yield for Swiss investor if the total WHT for VOO is less than 100 CHF

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The way I understood it is: for US-domiciled funds and dividends from US companies, the L2WT is 0% and L1WT is 30%, unless you fill out W-8 BEN in which case this gets reduced to 15%. And these 15% you can get back through your taxes by filling out DA-1.

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I rather have my assets with a Swiss Bank than in the US. So clearly Neon for me

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Plus I have with neon a recurring investment plan. With IBKR I have to do it myself and will try to time the market which I will fail :)… at Neon no FX because it is in CHF and with 300million the ETF has a nice size

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What about the spreads? Neon uses the BX Exhange. Does that have a sicnificant effect?

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You can create a recurring investment plan on IBKR as well I believe.

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Thanks for your answers.

We are also assuming that Neon will keep the 0% brokerage fees for FWRA for years. But how do we know that really? They could change it in a year. VT at IBKR would look even better then. So I don’t see what is the point with Neon really. Only “advantage” (if any): Swiss bank.

Would be interested in this as well.

Yes you can.