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«It pays to compare apples and oranges»

Wealth management: even cheaper than trading yourself

Oliver Herren12/23/2020

Are your custody account fees and transaction costs too high? Then don't look for a different broker. It’s cheaper to have your assets managed.

The lower the fees for your investment, the more return you keep. Since the first online brokers appeared on the market more than 20 years ago, you can trade yourself for fees that are well below those charged by the large banks. But should you really be managing your own assets simply because of the costs?

Online trading fees

Let’s take a look at two internet providers that have performed very well in fee comparisons for many years: Swissquote and Migrosbank.

For small trades, Swissquote is the cheapest provider in Switzerland. Its clients pay a fee of only CHF 9 for mini-trades with a maximum volume of CHF 500. However, it’s mostly only investors with a very small portfolio but who nevertheless want to diversify whose trades are below CHF 500. Or day traders who trade options in small amounts. For a CHF 10,000 position in Swiss shares or ETFs, Swissquote’s transaction costs are normally around CHF 50 (1).

Anyone who regularly transacts more than CHF 10,000 per position will find an attractive flat rate in Migrosbank’s online offer, where a trade in Swiss shares or ETFs will cost CHF 40 – starting with the first trade and regardless of volume. That pays off for investors who also hold larger positions in a larger portfolio.

Whichever bank you choose, all providers offer only part of their services at low prices. Migrosbank’s offer is aimed primarily at clients who want to transact large volumes on a regular basis. Swissquote tries to attract mainly retail investors and day traders with low fees for small transactions. But both are cheaper than the large banks.

You can easily simulate how much you would save in your particular situation by switching accounts with the online calculator from independent comparison service Moneyland (see link below).

True Wealth has no transaction costs

However, the question arises of whether the usual fee comparisons actually compare the right things. Because here – entirely rationally and expectedly – apples are compared with apples. For a change, the issue of fees can also be considered completely differently: it’s worth comparing apples and oranges.

Do you really have to trade yourself? Or is portfolio management perhaps even cheaper if it is professionally managed?

In True Wealth’s online wealth management service, the costs you would pay individually if you trade yourself (2) are settled by a flat-rate fee of 0.5%. This includes custody account fees and the transaction costs per trade.

Fund fees are shown separately at True Wealth because the fees for the ETFs you hold in your portfolio are always determined by the fund provider. As the fund fees are taken directly from the fund assets, they are not shown in your account statement if you trade yourself.

Let’s compare the total custody account and transaction costs from online trading with True Wealth’s flat-rate fee. At True Wealth, we will manage a custody account worth CHF 100,000 for CHF 500 per year. For the same size portfolio, Swissquote will charge custody account fees of CHF 100. So if you only want to spend CHF 500 there, you will still have CHF 400 left for transactions. This is likely to let you trade exactly eight times (in Switzerland, no foreign currencies). Migrosbank charges custody account fees of CHF 230. And you won’t get even seven trades for the remaining CHF 270.

Don’t forget to diversify

But you won’t get a well-diversified portfolio with only six to eight trades a year. On average, client portfolios at True Wealth contain between 20 and 30 individual securities, depending on the selected risk profile. It is not possible to build up this sort of diversified portfolio in the first year with only six to eight trades per year. If you carry out 20 individual trades yourself, the cost at Migrosbank would be CHF 1,030 and CHF 1,100 at Swissquote.

In subsequent years, six to eight trades will not be enough to adapt your strategy to another risk profile, or to carry out any rebalancing within your selected strategy. (To find out more about the benefits of rebalancing and how we do it, check out another article in this blog; see the link below.)

Just to rebalance twice a year needs an average of around 40 transactions annually. Doing this yourself would cost you CHF 1,830 at Migrosbank or CHF 2,100 at Swissquote – not to mention the effort required. By contrast, all the necessary trades are included in True Wealth’s flat-rate fee.

Online wealth management cheaper than online trading

Digital transformation makes it cheaper. For many years, that was the one big advantage of online brokers. But digital transformation today goes even further. Now, the systematic automation of processes makes even professional wealth management affordable – and for diversified portfolios with ETFs, even cheaper than online trading.

So ask yourself the question: do you really want to spend time trading on the stock market just because it’s cheaper than private banking? Or would you rather delegate management of your assets if professional wealth management can be so cheap?

Why not try True Wealth’s service? Use a test account to discover the complete range of functions of our online wealth management – and without any risk.

Links

Footnotes

(1) Swissquote’s prices are staggered up to a volume of CHF 125,000, when the exchange fees are CHF 250. Swissquote is cheaper for ETFs if you pre-buy a certain number of ETF trades.

(2) Our management fee includes transaction costs (building the portfolio, adjustment to target weightings, reducing the portfolio); i.e. trading commissions charged to you by our account servicing bank are deducted from our management fee in the subsequent fee statements.

An overview of True Wealth's fees

A previous version of this article was published on 08/18/2017

About the author

author
Oliver Herren

Oliver is one of the founders of the largest online retailers in Switzerland: Digitec Galaxus AG. He founded True Wealth together with Felix in 2013.

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