Interactive Brokers - all eggs in one basket?

I’m lost, which broker is this?

Interactive Brokers (now renamed to Inert Brokers)

Joining the discussion here with the same pain as the initial post, but it seems there is no solution most here agrees, so heres my propoal - please roast it!

Today I have the „VT“-replica (total 85%) with VTI, VEA and VWO and 5% in ICOM, 5% in IDWP and 5% in X03H all at IBKR and I dont feel comfortable since its approx. 60% of my NW.

From what i learned here, we ca diversify on these buckets:

Asset class: I have 15% in other asset classes than shares → seems ok for me
Asset geography: I tried always to get a world portfolio picking these ETFs → seems ok to me
ETF Vendor: 85% is at Vanguard → not ok for me anymore
ETF domicile 85% is US → not ok for me anymore.
broker: only 1 → not ok for me anymore.

Therefore I openen an account at Cornertrader and plan to do 1 of these 2 options:

A:
Keep only the VT-replica on IBKR and move the rest to CT + adding a world portfolio with iShares (SWDA + EIMI) in order to balance both accounts 50:50 long term.

B:
Keep only VTI and VWO on IBKR (54% total), replace VEA with an developed world without US ETF from iShares (do they have a similar ETF than VEA?) on CT and move the rest to CT as well (46% total).

I like the idea of B since i wont have to build 2similar setups on both places and would still profit from the low tax advantages with US stocks…

What do you guys think? How did you solve this challenge? What am I missing?

So far: The non-US domiciled Ex-US ETF.

I haven’t searched for one myself - but from observation, most ETFs excluding one particular country are domiciled and marketed in that particular country (to provided international exposure for domestic investors). Relatively common exceptions are ex-Japan and ex-South Africa ETFs but not the U.S.

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Where are your 3a money? 3a invested in stock funds at finpension / VIAC gives you a diversification among brokers.

I was thinking about something similar to your plan B and decided to keep it as a plan B %)

For US stocks you need a US domiciled ETF, otherwise you get a tax disadvantage equivalent to an extra cost of 0.2 -0.3% per year. The rest of the world you can as well buy as Irish ETFs - TERs are somewhat higher, but no difference in withholding taxes. Ireland might even have tax agreements better than US with some countries.

Developed countries (MSCI) ex US are:
Japan
Europe
Pacific ex Japan (Australia, Singapore, Hong Kong, New Zealand)
Canada

Canada I decided to ignore, Pacific is small and can be also ignored until your portfolio is getting significant in size. I also ignore small caps, but the rule concerning the domicile is the same.

For an additional broker I went for flatex. It has 0 cost saving plans (executed 1st and 15th each month) on almost all European ETF and does not look as cheap as Degiro. But Degiro most probably will also work fine.

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…or - and you just gave me that idea - a tax-advantaged „pension fund“ fund - such as the ones available at VIAC or finpension.

I similarly bought (outside of pillar 3a) three „Quality“ ETFs for the US, Europa and Japan, while ignoring the few remaining developed markets.

Yes, I also realized it afterwards.

(See last paragraph).

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Thanks a lot for the reply

Its at VIAC and Finpension but only approx. 35% in proportion (inkl. 2nd pillar) to the account value of IBKR and the trend is negative + if something bad happends and I need access to cash, the 2nd pillar or 3a money are not easy and fast accessible, therefore I still would feel comfortable having 2 brokers. That said, I could mentally add the 3a + 2nd pillar to the diversified part here and keep VTI and VEA on IBKR, move the rest and replace VWO though EIMI on CT…

That would lead to a balance of 46:54 wich feels quite good at first sight…

Intersting. I’ve never heard of that (or I don’t remember it). Maybe you can post a short review in a separate thread?

edit: flatex and degiro are now the same company or they just joined.

I will do after the end of third quarter. Want to see how exactly I am going to be billed for custody fees (must be zero for ETFs, but I want to check myself before reporting anything) and negative interest rate.

They are, but they are operating separately. There are some movements though - degiro started to offer English in national sites (at least DE) and they offer now trading at Tradegate, although more expensive than their standard prices.

Be aware that if you hold a US domiciled ETF in a Swiss broker, it is important that your Swiss broker is a “qualified investor” (QI). Otherwise, you lose 15% of dividends. Most notably, PostFinance is not a QI!
A better alternative instead could be TradeDirect. They are a QI and they are backed by BVC cantonal bank, which has pretty good AA credit rating (be also aware that SwissQuote does not even have a credit rating!). Last time I checked TradeDirect (not sure if numbers are still valid), the maximum annual custody fee was 108CHF, the fee to move stocks in/out was 0/150CHF.
So, if you are looking for a very trustworthy Swiss broker at a reasonable cost, TradeDirect is a very interesting option, especially for high net worth. Make sure that you buy on IB and then transfer stocks to TradeDirect, in order to avoid TradeDirect transaction fees.

More details: W-8BEN on your own & 30% withhold - #18 by Frank

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That’s surprising because I thought PF is basically SQ, and SQ is a QI.

Isn’t BCV the only cantonal bank without government guarantee?

According to wikipedia, also BCBE and BCGE. Anyway if the biggest cantonal banks fail, not sure how the canton will help (Zurich canton annual budget is one order of magnitude less than ZKB’s assets).

So the canton would likely need help from the BNS as lender of last resort if it comes down to it.

(that said, because of that guarantee ZKB is still one of the only 7 commercial bank that’s AAA rated)

Do you know what the cost of a USD wire is? For me dealing with the USD dividends to send it back to IB would be the annoying thing. (I assume their FX rates are very bad like all swiss brokers)

You mean Qualified Intermediary, but anyway, my experience is Postfinance is exactly same with US stocks as UBS, CS, etc, i.e. don’t lose the dividends, but get them back via DA-1 (15%) and get them credited to you (other 15%).

Here’s a Postfinance document, if not a QI, 15% US Quellensteuer would not be listed as shown.

My conclusion → Postfinance = QI

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They also seem to ask for W8-BEN.

My understanding as well (at least you’re benefitting from QI status).

I’m struggling since years to open an IB account and move there because of my “foreign broker anxiety”. I really like IB, their pricing and also that they offer an API etc. which would make life easier. I would like to build a nice stock portfolio, rather than just ETFs but with SQ this is way too expensive with but with IB it would be possible.

My main doubts are:

  • What will be if CH has troubles with the EU or the US? Could accounts be frozen and become difficult to get the money back?
  • What if WW3 breaks out and either the US or parts of the EU (e.g. EU gets divided or dissolved) will be against us? Will they just seize our money?
  • What if there are any disputes? Do I have to spend thousands of dollars and travel to the UK/US to settle it?
  • Is IB same secure as a Swiss institution? As a platform, as an institution, bankruptcy risk, stability, investor protection, etc. My latest understanding is that Swiss residents will deal with IBUK and SPIC protection does still apply and not the cheap 20k EU protection. But that’s only one aspect of security.

But I also imagine that parts of my doubts are just because of something like a home bias. Swiss person wants to deal with Swiss company without that being very rational most probably.

But here I see that many of you have a second (Swiss) broker besides IB (maybe because you don’t trust IB 100% or have similar doubts?) … and this is a bit intimidating.

What is also important for me that it’s simple, I really don’t want anymore 100 banking apps and accounts everywhere so I recently just closed everything except for my bank & savings accounts at 1 institution where all my cash will be, Finpension where all my 3a funds will be, and at the moment SQ where all my investments will be. I don’t really want a second and third broker/partner etc. So it will be either SQ or IB, I don’t want both.

Are my doubts unfounded or irrational? Are there any arguments to cure my foreign broker anxiety?

  • Keep in mind that Switzerland has had trouble with the US (and, to a lesser degree) the EU rather recently, regarding their banking secrecy - with hardly any collateral damage in the form of account freezes to Swiss account holders.
  • The UK isn‘t part of the European Union.
  • Once WW3 breaks out, your investments may be effed anyway.
  • Both the US and UK will likely have other dispute resolution venues in place, and they do have supervisory authorities. Also, you’re unlikely to need to travel there in order to take legal action. People do take legal action through agents representing them (solicitors) all the time. That said, UK and US law may not be one you’re familiar or comfortable with, even when or after being professionally advised.
  • Is it as secure? It‘s a question that can hardly be answered with a yes or no. Even if you solely focus on the deposit guarantee schemes (or similar for investment account holders), one may want to look beyond the coverage amounts only and research about their terms and conditions. What is a high coverage amount worth, if you can‘t or don‘t easily receive it?

Personally, I wouldn’t recommend making this trade-off in the name of simplicity. One institution can always go belly up, freeze your accounts or cards due to circumstances outside of your control (could be an honest error or misunderstanding), etc.

I feel safer and would recommend having at least one alternative payment account and card as a backup.

I agree that this is not a sensible decision.

It’s not only that something can go wrong with the institution that goes beyond your control. But also, that you can’t foresee (and plan for) all the ways in which something can go wrong (the “unknown unknowns”). Some examples: account getting hacked, getting scammed, getting extorted.

Another thing is that I personally don’t feel comfortable being dependent on 1 single institution. The same way a company doesn’t want to be dependent on a single supplier, it’s not a good position to be in.

“Diversification” and redundancy here is a very simple and cheap protection against these problems.

Hm, so in the end you would not only have multiple brokers but also multiple bank accounts?

I mean it would not all be with only 1 institution it would be like:

  • 1 institution for all cash / daily business and savings
  • 1 institution for all 3a funds
  • 1 institution for all investments

and I also have a Cornercard credit card (I use it on a daily basis for all shopping etc.) which is independent from all of the 3 institutions. Besides that, my wife’s institution for daily banking and savings is also different so in the worst case she can help me out if my account gets frozen. Do you think that’s not enough?