US (TD Ameritrade, Charles Schwab) vs. Europe (Degiro) based brokers

Hi all,
there are sporadic posts about one or the other, I thought maybe to bring experience and wisdom in one thread altogether.

So, here goes a kickstart question to open the discussion:

TD Ameritrade, Charles Schwab. They are reliable, gigantic, and available to subscribe to international investors. Why are they getting sub mentioned as compared to e.g. Degiro about being a choice of preference ?

In my view :slight_smile:
pros -

  • easy to subscribe to online with no hustle (admiteddly it takes Schwab couple of weeks, or more, to review the application, TD Ameritrade does in as short as one week or less)
  • to the most direct full access to US markets
  • zero transactional fees, no account maintainance cost
  • low entry access (no minimum deposit for TD Ameritade, 25k USD first deposit within 90 days for Schwab, yet edivence shows that once the deposit is made the account balance can fall back to any low without risk of account closure)
  • straight forward against US withholding tax rate (from 30% to 15%) with W-8BEN on file
  • option to apply for margin on te account, with avail to borrow as high as 50% (maybe more) of held securities (for those who want to play the game and colaterise their securities to buy e.g. the dips while missing the cashflow) and then repay the margin loan with sending funds later

cons -

  • US estate tax complications (not always and not for everyone, though). But, this is not a brokers issue per se, it is rather dependent on the instrumentss domicile, the same implicatons equate to European brokers, too.
  • risk of preventing Swiss investors as of 2022 from buying US ETF`s, see FinSA . (yet, as of now, they continue accepting EU investors, so by extension this seems low likelihood scenario, yet to note it as possibility here.)
  • losing on irrecoverable L1 withholding for those US ETFs holding non-US assets e.g. VXUS, VWO or partially holding non-US assets e.g. for the non-US portion of VT. i.e. Whereas US investors get tax credit on those withholdings against their IRS taxes, it appears that non-US persons cant do.
  • High margin loan interest rates of ~10% (compare to margin ability in the pros)
  • base currency conversion to USD - transfer/funding hassle
  • can`t think one right now, add any other (TBD)

neutral -
(TBD)

So, all in all, where those may be lacking (or not) in being the generally accepted choice of preference for a broker ?

What say you all ?

Cheers

1 Like

Funnily, I discussed this morning with some colleagues about a very similar topic. We try to optimize everything in the best possible way, too (that’s why we are Mustachians, lol). Very long story short: as a main broker, take the one you are feeling confortable with. In our case, it is Interactive Brokers because of low margin interest rates, fast processes, CHF-compatibility etc etc. You can compare all brokers if you like, there are couple of reasons why IB is widely used in this forum.

As a back up broker it could make sense to take a Swiss one - especially from the regulatory point of view. We found this morning a very good article from @thepoorswiss , see here: What Is The Best Swiss Broker In 2021? - The Poor Swiss

In my/our eyes SwissQuote is a good choice if you are searching for a “hodl” broker. An idea could be, that you are transferring some of the assets to SQ, once you reach 200k in assets at IB. CHF 200 per year as a “savings” broker is not that bad.
The assets are then split up, of course, but there is at least a bit of diversification. I am talking for myself when saying, I would like to have a part of the securities ruled by Swiss regulations.

To get back to your initial post or questions:

I red a lot in this forum that some Mustachians tried to open an account with Schwab, but there is - at least it seems so - no reply from the broker. What is for sure: Schwab seems to be a very solid broker. Therefore, you cannot do anything wrong when choosing them.

1 Like

Right, I will add to that in the cons. US brokers are in the range of ~10% margin loan rate, as compared to IB`s ~1,5%.

Indeed, Schwab is slow on the processing of an application. To this, Ive found TD Ameritrade more time efficient and their client service via chat to be responsive and knowleagable. Adding own experience, Schwabs application itself is pretty straight forward (everything done online no need for mail in, first open up a website registration to set access credentials, then once in, fill out application form, W8-BEN, upload identity and address documentation). But then… one needs to sit and wait in this “empty shell”, it might take them weeks (!!) to review application and activate the trading account. Once activated, one gets a note to fund the account.

IIRC FX rates are much higher than IB (doesn’t matter for me as I fund it mostly with USD but might matter for some).

Right, thats why I thought to add the FX conversion, plus currency risk, in the "neutral" area as weighting can vary per each individuals case, background, country moves, etc.

@nabalzbhf one way or another, this is nonetheless an important aspect, I`ve found this article on the bogleheads forum, which in summary states

Non-US investors and ETF currencies demonstrates why it is that for investors in these ETFs, the only currency exchange rate that impacts long term returns is the one between the investor’s home currency and the currency of the ETF’s assets. During the holding period, the investor owns only assets valued in the currency of the assets. Other currencies besides the asset’s and investor’s own are irrelevant.

Would be interesting to hear views.

If you look in the forum there’re are already plenty of views on the influence of the ETF currency (spoiler: it doesn’t matter).

As for the original question, what are you comparing these brokers to?
Because if you compare to IB most of your pros should be moved in the neutral or cons list.

I’m fairly sure there’s agreement that currency doesn’t matter.

My point was just about the 0.5% drag (I guess that’s around that range) when investing CHF into schwab. But it’s a oneoff cost so long term it won’t matter much.

1 Like

Not sure I get that.

If the U.S.-domiciled ETF (VXUS, VWO) is distributing to you…

  • tax withheld is reduced to 15% with W8-BEN
  • as for the remaining 15%, you can (likely) you can reclaim them with your tax return

If the Irish-domiciled ETF is distributing to you

  • no tax will (likely) be withheld

In the end, doesn’t it come down to the withholding tax on shares held by the fund itself - and thus to the DTA between the U.S., where the U.S. ETF is domiciled - and the country/countries it invests in, from which the fund receives its dividends.

Ireland might have (some) more favourable DTAs than the U.S. with third countries - but to what extent?

2 Likes

Youre absolutely right, I didnt phrase it with clarity: In the case of a US broker, fact is, that for US-investors, foreign tax paid by the US domiciled ETF itself is then credited as tax credit to use against their their IRS filings.
Whereas, in the same case when holding US ETF via a US broker, but for foreign investors, there is no such tax credit.
So I take it that whereas for US ETFs holding foreign equities L1 withholding is mitigated for US investoprs with tax credit, for non US ones that is irrevocably lost, right?

I am mainly trying to establish US vs. Europe based brokers. As, from reading around, it seems as Degiro be the standard choice for European and many Swiss investors, so I am tying to see benefits on the one or the other side.
Interactive Brokers now, they get me a bit confused as to which side of the fence to put them, i.e. is US broker but with subsidiary (regulated?) in Europe. Would you rather put it on the US-brokers class with Schwab and TD Ameritrade?

I think you’re trying too hard to fit brokers into a mold depending on their location.
Each is different and there’s big variability independently of them being based in the US or elsewhere. (btw Swiss investors deal with the UK entity of IB, not the european ones).

Most people here don’t use the US brokers you mentioned because it’s usually more difficult to open/fund/manage your account and as mentioned by @nabalzbhf there’re currency conversion fees if your income is in CHF.
Degiro is convenient, and while not free it’s still a very cheap broker especially for buy-and-hold.

If anything, I think they’ll likely prevent them from buying - though not holding U.S. funds.

I think that would be the main disadvantage when trying to use e.g. TD Ameritrade as a main broker with a Swiss income in CHF.
Funding the account would probably incur some large bank transfer fee + currency conversion fees each time.

1 Like

TransferWise can be useful (albeit hasstle to some). I would not recoomend Revolut, as they`re using SWIFT (which incurs between 20-40 USD leak per transfer), but TrranserWise does rather US domestic payments so no such cost in the picture. I am very confident that with TW the total tansfer cost end to end will be their upfront fee of ~0.5%. (the payment flow is as local CH account->TW local CH IBAN account->US Broker)

1 Like

I am waiting for more clarity on the Schwab/Ameritrade merger. Depending on what comes out of it, it might become my 2’nd broker as I don’t want all of my networth tied with IB. Transferring money to Schwab or Ameritrade is not complicated if you already have an IB account as per my understanding.

1 Like

It will likely take some one year , or more, I think. From reading around, no fundamentals are expected to change with(from what I read) the wishful hope that TD Ameritrade`s web UX and ThinkorSwim for active trading will replace Schabs somewhat outdated end user tools.

By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, vous confirmez avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/