@Merlin I have to say I don’t feel OK with the title of this topic, because it may very well be false and just freak people out. Can you at least convert it into a question?
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- For me, yes. They have the same tax parameters. But a distributing fund is more flexible and practical in the long-term.
- It will depend on the size of your portfolio and your third pillar. If you third pillar is 90% of your investments, then S&P500 is fine with the diversification from your third pillar. If your third pillar is 10% only, I think you should opt for some VT as well in your broker account. But, a S&P 500 is already a very good choice since the U.S. are almost half of the world stock market.
- It’s a very good choice.
It has already been discussed. It will probably affect us. The Swiss Law, not the EU one. It will affect foregin companies that advise swiss customers as well.
page 12:
The same requirements also apply to
foreign financial service providers who
advise clients in Switzerland.
As indicated by the heading in that document (“Registration of advisors”), this quote pertains to the requirement of advisors to register - and not the prospectus duty outlined under a separate heading on the same page.
A lot has already been said, but perhaps it’s helpful to delve a bit more into the legal details, for those that are interested.
What impact does the new FIDLEG/FINIG have on the offering of US-based funds in Switzerland?
The new Financial market regulation in Switzerland FIDLEG/FINIG will not directly regulate foreign brokers (exception: the foreign broker wants to establish a permanent type of business presence in Switzerland, but that’s not really what’s interesting us), but it will have an impact on what they’re able to offer in terms of financial products (in our case: ETFs) to clients based in Switzerland.
Among the new requirements is a so-called “Basisinformationsblatt für Finanzinstrumente” which is, basically, the Swiss version of the European KIID. According to Article 35 FIDLEG, whenever a retail client (such as most of us) is being provided a financial instrument (e.g. an etf share) by a financial services provider (e.g. a broker/bank), a KIID has to be available. If that is not the case, said financial instrument should not be offered to Swiss retail clients. This will be true not only for Swiss based brokers/bank, but also for brokers/banks domiciled in other parts of the world whenever they want to service the Swiss market with that financial product on a large scale.
Now, as has been pointed out in this thread, for US-domiciled funds, the fund administrators have not been willing to produce these kind of documents for the European markets because these funds were originally not intended to be distributed in Europe. That’s why the European brokers have stopped offering US-based funds to their EU clients after the PRIIPs Regulation has been enacted at the beginning of last year. It’s not impossible that some fund administrators will eventually produce some of the required documentation, but I wouldn’t hold my breath regarding that. At least the big fund providers have their own EU-based ETF offering incl. higher TERs compared to their US offerings. From a numbers point of view, they lack the incentive to produce and keep those documents up to date.
What does that mean for foreign brokers (e.g. IB/Schwab/Degiro etc.)?
Well, if they want to be compliant with the new regulation, they will most likely have to cease offering US based fund products to Swiss retail clients (if no KIIDs are being produced). Degiro chose to do that for Swiss clients prematurely based on the new PRIIPS regulation before the new Swiss regulation was enacted. I fear most other brokers will likely follow once FIDLEG/FINIG is enacted (probably at the beginning of 2020), as compliance even with foreign regulations is important, even if the firm doesn’t have a business presence here in Switzerland. The Swiss authorities have the possibility to sanction non-compliant firms at a supervisory level or on the basis of criminal provisions included in the new regulations. There are ways to enforce such sanctions even to firms based abroad, so there’s naturally a tendence to be compliant for financial services providers. Furthermore, it doesn’t really help a firm’s overall reputation if criminal charges are pending in another country. Now, it’s possible that e.g. smaller brokers will not implement the new rules here in Switzerland (perhaps due to negligence), but as a client, this type of behaviour doesn’t instill a lot of trust either, considering you’re willing to let them safeguard possibly a sizeable amount of your private wealth.
Is there no way to avoid all this?
Possibly. The accompanying ordinance to FIDLEG, which is still under consideration and therefore cannot be considered finalized, contains a so-called reverse-solicitation exemption (a construct that’s also present in the EU’s legislation). In a nutshell: A client has the possibility to contact a foreign broker and request from him e.g. to buy a specific financial product, even though this financial product isn’t being actively offered in Switzerland. For that exemption to be available, it is necessary that the foreign broker/bank doesn’t actively solicit the client beforehand about this product (e.g. send brochures, targeted online marketing etc.). If the conditions of the exemption are being met, FIDLEG/FINIG would not apply to that specific transaction and basically only the regulations in the country of the financial services provider would apply to this relationship. Reasoning behind this exemption: Clients should be allowed to decide for themselves whether they want to engage with a foreign broker/foreign financial product. If they do so willingly and consciously of the risks, the need for protection offered by the new Swiss regulation is waivered.
The big question here is: Are foreign brokers willing to accept these type of reverse solicitation-requests? As the reverse solicitation exemption isn’t really a clear cut and simple exemption, there is potentially some legal risk involved when they enter into these type of client relationships. It’s possible that most brokers will not really answer these kind of requests because integrating them into their business model could be costly and the demand could be weak. It certainly seems that Degiro and other European brokers have chosen to go down this route.
In the end, we will have to wait and see what happens next year, but from my point of view, the outlook doesn’t seem to rosy.
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Well, if IB and others will really stop offering US ETFs to people domiciled in Switzerland, then the question remains if we should keep whatever we have in the US, or just sell it all and buy the Europeans ETFs.
If this terrible scenario really plays out, then I guess I will just buy the VWRL from that point. Then you could start asking yourself: should I keep my IB account, convert the CHF to USD and buy the USD variant of VWRL which is traded on LSE, or maybe just go with PostFinance or SwissQuote and buy the CHF one.
To look on the bright side, it would make life a bit easier:
- I personally own a PostFinance account, so having my ETF there would be convenient
- No more worries about the US Estate Tax
- I could easily transfer money within the same bank
- I would not have to bother with currency conversions
- No need to bother with DA-1 and reclaiming withholding tax (not possible)
That being said, all the advantages of US ETF would go away:
- lower TER
- lower spread
- lower fees of US stock exchange
- possibility to reclaim withholding tax
All that could possibly mean 0.5% lower return per year, which is of course A LOT, especially when you compound it over 30 years…
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IB is still good and cheaper. And you can buy stocks on SIX just fine without any currency conversion for a 3-4CHF fee.
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An advisor is different from a broker.
Moreover, also in that document.
A prospectus must be prepared and published before securities or collective investments are offered or admitted to a Swiss stock exchange.
And the Prospectus requirements are significantly simpler than the EU requirements.
Oh, and you can opt-out if you have > 500k in assets and sufficient trading experience. (Or assets of 2 million without trading experience.)
And if you look elsewhere in the document, execution-only services (by Swiss-based companies) are also treated much more leniently than advice. So even if IB were Swiss (they aren’t), execution-only services still wouldn’t at risk.
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In case you don’t believe me:
https://www.caplaw.ch/2018/key-investor-document-the-flexible-brother-of-the-eu-priips-kid
Regarding this point, you would have to rely on the broker implementing this check for you.
Wouldn’t that also require you to pay capital gain taxes?
No that’s a different kind of “professional” qualification. One is whether it’s your primary job, the other whether you are qualified to make complex investment decisions (and whether you should be protected from potentially bad decisions).
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Wow this blew up! I adjusted the title to avoid confusion. Let’s hope we can continue buying US domiciled stuff beyond 2020.
For me, I’ll go with the S&P 500 distributing fund as my primary investment basket. I’ve seen the Vanguard VOO
https://investor.vanguard.com/etf/profile/VOO being utilized a lot here, is it the go-to distributing ETF for the S&P 500?
I would personally advise against it. Why would you bet so hard on USA? Why not just buy the World? Then you would have Europe and Asia too. Historical data shows that US and exUS have had similar performance over the last 50 years. They have been changing leadership over this period, but the reign often lasted for a decade or more. You wouldn’t like to be on the losing side and wait for it to catch up, would you? That’s why if you buy the mix, you will get the middle result.
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You are completely leaving out one important detail, therefore much of this information is wrong. In Switzerland the law will be different than in the EU: If the service offered is Execution-Only, no KIID has to be provided which will be the case for most brokers. I have this in writing from the Staatssekretariat für internationale Finanzfragen SIF Please see here:
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Actually, that detail is also included in my post in the last paragraph, but I didn’t use the same same terminology (execution-only), but described the reverse solicitation exemption (which is actually the wider exemption for foreign financial services providers). That exemption works very much the same way as the “execution only” provision that was mentionned by the representant from the State secretariat.
Furthermore, the e-mail you refer to also comes to the conclusion that despite this legal exemption (execution only / reverse solicitation model for foreign providers), it will depend largely on tbe financial services providers whether they will engage based on these request only type of deals (= "Wie aber die Praxis der einzelnen Finanzdienstleister aussehen wird, kann ich Ihnen leider auch nicht sagen.)
FYI, this is the answer I received from IB :
"Thank you for your inquiry.
At this time we can’t provide a definitive answer. I’ve consulted with my manager and most probably we will apply the same restrictions that were set forth with PRIIPs regarding investments in ETF, ETNs and Mutual funds for EEA (European Economic Area) based clients. That means that all clients will be regarded as Retail and won’t be able to make investments in US based ETFs, ETNs or Mutual funds that don’t provide the required documentation by the regulators. We will also offer the possibility to request to be reclassified as professional, most probably with the same requirements for PRIIPs.
The client would need to meet at least two out of the three criteria’s:
1 -I have: - carried out transactions, in significant size (i.e. value of trades totaling EUR200,000 or more) on the relevant market at an average frequency of 10 per quarter over the previous 4 quarters; and - at least EUR50,000 account equity at present.
2 - The size of the financial instrument portfolio in this account, defined as including cash deposits and financial instruments, exceeds EUR 500,000.
3 - I work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of the transaction or services envisaged. "
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1 -I have: - carried out transactions, in significant size on the relevant market at an average frequency of 10 per quarter over the previous 4 quarters.
40 Trades a year seems easy but the significant size of 200k is hard to accomplish. Nope.
2 - The size of the financial instrument portfolio in this account, defined as including cash deposits and financial instruments, exceeds EUR 500,000.
This seems easy doable for some who have already FIREd or almost there. For others it is a long way to go. Nope.
3 - I work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of the transaction or services envisaged. "
What kind of proof might they want? Just fill out a survey? Then Yes.
Or must we be uploading some kind of “proof of work certificate”? Then Nope.
Ah damned. 
Guys, I’m wondering. Now it’s this, maybe we’ll find a workaround. Who knows what comes in 1-2 years. People who just decided to buy VWRL / Irish ETFs have a better peace of mind, I guess…
Then there is the issue of no online fraud protection at IB. Just imagine, if someone hacked into your account, he could easily bring the balance to zero, especially with a margin account. I guess I would feel safer with a broker that has my back on this. Of course, you can never be sure how would they handle your claim. How would you prove that it wasn’t you?
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Which company has your back on fraud? I thought only PF covers cyberattacks for 100000chf max.