Rich man's problem!

[Jerome]

Totally agree. No federal stamp, ridiculous commissions, instant and free tax statement (at least at IB), huge choice of products, quality of platforms... in short, foreign brokers are really cheaper while being of a much better quality than Swiss intermediaries.

I am also surprised that this foreign competition does not have more of an effect on the Swiss market. Perhaps we should understand that ordinary Swiss investors are reluctant to invest their money outside our borders. It must be said that the traditional image is rather that foreigners come to hide their money with us, so why would we do the opposite... The other possible explanation is the gigantic fees for transferring positions, which makes clients captive to their bank/broker.

I still have my Postfinance account because the management is free and there are no custody fees. I still have a few large positions there. But I have to say that when I see the amount of transaction fees, it really hurts. So I try to limit myself to stocks that I plan to keep for as long as possible. Sometimes these fees seemed so dissuasive that I almost wanted to feed even more IB but I didn't do it for the sake of diversification. A 3rd broker, via Degiro, will therefore be welcome.

The worst thing is that Postfinance is by far not the worst in Switzerland. All inclusive, it is even relatively cheap compared to what is done in this country. I have seen UBS fees for example (custody + transactions). It is a real scandal. When you think that almost everything is managed automatically by computer and that you are charged several hundred francs just for a click… Nonsense.

 

[dividinde]

You are right, foreign brokers are much more competitive than Swiss brokers. However, I am (at least for the moment) still one of those investors who are not inclined to invest their money outside our borders.

Why? Because the security of my capital comes first for me, well before saving a few dozen or hundreds of francs. One day, I will live solely on the income from my capital, so preserving it is my top priority. I simply trust a Swiss bank more than a foreign institution that is not subject to Swiss regulation (Finma) and does not have a Swiss banking license.

What would happen if a foreign broker went bankrupt? What if Switzerland changed its tax agreements with the foreign country where the broker is located? What about exchange rate risks? What if there were a tax problem? If my money disappeared from my foreign account (hacking, etc.), do I really want to have to hire a lawyer to fight with other regulations and legislation that I don't know?

Furthermore, it is true that brokerage fees are high in Switzerland compared to abroad (free trading even exists there!), but I find that these fees are not huge in themselves. I still remember my first stock market purchases in 1998 by phone where I paid 100 francs! Today I am around 20-25 francs depending on my broker and the size of the transaction. It is not nothing, but it is still reasonable. With generally less than 20 transactions per year, I usually get by on less than 500 francs per year. And that is at the moment when I am building my portfolio, in a few years I hope to practically no longer have to make transactions.

Another calculation: if I buy 5000 francs of Nestlé and pay 20-25 francs in transaction fees, we are talking about 0.4 to 0.5% of the purchase amount (I was at 2% in 1998!). If I keep these shares for life, I never pay anything else. Over 25 years for example, these 25 francs annualized represent only one franc…

For someone who mainly buys and holds Swiss stocks like me, I find that brokerage fees are more of a secondary argument.

But hey, even an old crouton like me might end up changing his mind! I'm thinking about it a lot at the moment...

I am very pleased to hear your feedback on Degiro, Jerome. Is this really how you avoid stamp duty entirely with a foreign broker?

An article that I find interesting and which supports the foreign brokers: https://thepoorswiss.com/fr/meilleur-courtier-en-suisse/

[Jerome]

Bankruptcy of a foreign or Swiss broker is the same problem. In any case, in both cases, there must be a separation between the brokerage activity and the deposit activity. This is in any case what Degiro and IB affirm for example. There is also the SIPC guarantee in the USA (IB) up to 500,000 dollars (of which 250,000 in cash). In Europe they are less generous because the guarantee is 100,000 euros in cash and only 20,000 in assets.

Of course, you'll tell me that all this is theory, because in the event of a breakdown, you can have all the guarantees in the world, but it's going to be complicated. Even in Switzerland. Except that there you can always go play tennis in their branch to get noticed. So the important thing is always the same, you have to diversify. And also stick to renowned establishments, because you can diversify as much as you want, but in the event of a financial crisis, several companies can have a bad time at the same time. From this point of view, IB has a certain historical foundation.

If there is a change in tax arrangements, well if it becomes too problematic, you just have to repatriate the funds.

The exchange rate risk is the same whether your institution is US, European or Swiss. It is determined by the assets. The only notable difference is that currently if you are invested in CHF cash in Switzerland you do not pay negative interest, whereas outside of Switzerland you are taxed. You just have to transfer the CHF to CH as soon as they are too large.

As for the risk of hacking, I am not an expert, but I still find that security is quite robust on the IB side for example.

You're talking about 25 balls of transaction, it's true that it's acceptable. And it's also true that compared to twenty years ago the amounts have dropped significantly. However, I sometimes trade large positions via Postfinance, and it really pisses me off when I see several hundred francs of brokerage + federal stamp going through it. On the IB side it amounts to tens.

But hey I understand your point of view too. With a strict buy & hold, this is much less important, that's true.

Yes, with IB there is no federal stamp and no withholding tax either. Of course, you will have to declare your income, but it is still a lot simpler for the tax return!

 

 

 

[dividinde]

Thank you Jerome for these details. I still have two questions regarding the purchase of Swiss shares via Degiro:

1. How does it work with the withholding tax on dividends? Do you receive 100% from the dividend and then have to declare it in your tax return? Or is there also a withholding of 35%?

2. According to the article I linked to, you can't have a CHF account? Does that mean you have a EUR account and the exchange to CHF is done when you buy Swiss stocks?

Quote from the article: "A big disadvantage of DEGIRO is that they do not offer support for foreign currency exchange. It is not possible to keep foreign currencies in your account. On the other hand, your money can be converted automatically when you make purchases of securities in foreign currency. But these automatic conversions are very expensive."

[Jerome]

I don't know about Degiro yet because I just applied to open an account. I'm going to transfer just enough money to do one of my usual transactions and I'll give you a rundown.

[Mystic]

1. How does it work with the withholding tax on dividends? Do you receive 100% from the dividend and then have to declare it in your tax return? Or is there also a withholding of 35%?

You receive the dividend at 100% in your account and at the same time, Degiro deducts 35% from you, in the accounting, it's clear. In the end, you therefore receive 65%.

Example with one of my actions:

2. According to the article I linked to, you can't have a CHF account? Does that mean you have a EUR account and the exchange to CHF is done when you buy Swiss stocks?

If you are on Degiro.ch, you have an account in CHF. If you are on degiro.fr, you have an account in EUR (with a difference in pricing for each country (.fr, .de, .ch, etc.). So if you have an account in CHF and you receive a dividend in EUR or USD, it is automatically changed to CHF.

You still have the option in the settings to say that you don't want automatic change but manual.

Please note that you can have multiple accounts (e.g. degiro.ch, degiro.fr, degiro.de) linked to the same address. You just need to have another username.

With Degiro, I have never had any dividend problems. Even for foreign stocks, I receive a breakdown in March of each year: how much dividend (in CHF, EUR, USD) per country and then per company. Always useful for requesting the refund of withholding tax from each foreign country as well as for my tax return.

 

Another calculation: if I buy 5000 francs of Nestlé and pay 20-25 francs in transaction fees, we are talking about 0.4 to 0.5% of the purchase amount (I was at 2% in 1998!). If I keep these shares for life, I never pay anything else. Over 25 years for example, these 25 francs annualized represent only one franc…

For someone who mainly buys and holds Swiss stocks like me, I find that brokerage fees are more of a secondary argument.

This point of view is perfectly defensible. On the other hand, if we start to reinvest the dividends, then the yield takes a hit!

[dividinde]

Thank you Mystik for these very clear details. These Dutch people seem very serious and trustworthy to me.

[Jerome]

So my first impressions:

– opening an account is easy and fairly quick

– money transfer to Swiss IBAN takes a good business day, so quite fast (but less than IB)

– the graphical interface is pleasant and easy to access

– in terms of security it seems to me less armored than IB. Double authentication is not activated by default, you have to go to the settings and you have to use Google authenticator. No native solution in DEGIRO.

– in terms of the choice of shares, what I see for the moment is that we do indeed find Japanese small caps there, unlike Corner Trader for example. On the other hand, we do not find them all, unlike IB.

So for now my first impressions confirm what I thought: fairly clear advantage to IB. On the other hand it is certainly a good plan B and a good possibility of diversification in terms of brokers.

It's hard to say more for now, but I'll keep experimenting...

[dividinde]

Thanks for this first feedback Jérôme. I am also looking forward to hearing about your experiences with Swiss stocks as well as your first dividends.

[Mystic]

I have been with DeGiro since 2017 and honestly, I have never had any problems with Swiss stocks and dividends. Everything is clear.

And if there is ever a corporate action (e.g. capital increase or takeover bid), I am contacted by email to ask me to take a position. This went very well with Sunrise, for example.

[dividinde]

A bit of a dark question, but do you know what would happen in the event of the death of the account holder? Wouldn't the task be much more complicated for the heirs than with a broker whose headquarters are in Switzerland?

[Jerome]

I think on the contrary that it would be simpler. Foreign brokers are not informed of your death, unlike local banks that block your account as soon as they have the information that you gave your last breath. So, if you have informed your partner where you have the accounts and you have given her access, she will have time to repatriate the money to your Swiss account.

IB also has an advantage on this side, because they ask you if you wish to designate a trusted person in case of need, like this one.

[Mystic]

So, if you have informed your partner where you have the accounts and you have given her access, she will have time to repatriate the money to your Swiss account.

As long as the bank account you linked to the Degiro account is not closed, it….

[Jerome]

Yes, it will be blocked, but in Switzerland. And as soon as the papers are sorted, she can benefit from all the fruits of my labor… 😉

[dividinde]

"So, if you have informed your partner where you have the accounts and you have given her access, she will have time to repatriate the money to your Swiss account."

Thanks, that seems more or less clear to me, except for one thing: in my case it would not be cash, but 100% shares. My wife would therefore have to sell all the shares before being able to repatriate the money, which is not my goal.

In my opinion, the simplest solution would be to give power of attorney to my wife, so that she has the same rights/access to my account as I do and can use it as she wishes (without having to sell the securities to repatriate the cash to Switzerland).

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