Brokerage - bank-brokers or brokers? [Bulgaria]

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bonzai
Posts: 14
Joined: Mon Jun 18, 2018 4:26 am

Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Mon Jun 18, 2018 4:44 am

Hello,

This is my first post to this wonderful community - I've been reading here for the last week, after discovering this community via MMM and want to begin with investing in ETFs.

My first question is this: I've met with several banks - Unicredit, UBS, and, after telling them I'm interested in brokerage only (and not their active investment options, which by the last 5 years numbers show a very high return, for an all-equity portfolio - 20-30% but that's another discussion), say they have these fees for investing with ETFs via their platforms with them being the brokers:

Unicredit:
- Buy/sell order - 2 EUR + 0.5% of the sum
- Safekeeping/custody - 0.06% every year of the total invested sum

UBS:
- Buy/sell order - 0.75%+0.15% (supposed to be some "stamp duty" taken by the stock exchange - strange Unicredit don't charge this, then..)
- Safekeeping/custody - 0.55% every year of the total invested sum

So, it's clear that Unicredit is the winner here - and, it's a local bank in Bulgaria where I'm from - very simple to execute with them.

However, I saw that many here talk about IB (Interactive Brokers) - and other such options.

Can I get your opinions on the fees above - are they insanely high? are they okay? any suggestions - banks versus online brokers like IB? any pointers?

To give some further information, the investment amount is substantial - a 7 figure sum - I'm not sure if this information is relevant but mentioning it just in case.

Thank you!
Last edited by bonzai on Mon Jun 18, 2018 6:34 am, edited 1 time in total.

imperia
Posts: 107
Joined: Tue Feb 21, 2017 6:31 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by imperia » Mon Jun 18, 2018 6:10 am

Unicredit:
- Buy/sell order - 2 EUR fixed sum unrelated
- Safekeeping/custody - 0.06% every year of the total invested sum

This is ok, in Croatia Unicredit charges 0,3% treding fees, 15€ minimum.

If you use IB and you have more than 100.000$ you do not pay 10$/month for inactivity, but trading fees in Europ are 0.1%(4€min)

For substantial investment amount like yours I suggest to take two brokers(Unicredit and Interactive Brokers).

bonzai
Posts: 14
Joined: Mon Jun 18, 2018 4:26 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Mon Jun 18, 2018 6:35 am

Thanks for the response - I actually made an error and edited the original post - the Unicredit buy/sell order fee is 2 EUR + 0.5% of the sum, and not just 2 EUR :)

bonzai
Posts: 14
Joined: Mon Jun 18, 2018 4:26 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Mon Jun 18, 2018 6:37 am

imperia wrote:
Mon Jun 18, 2018 6:10 am
Unicredit:
- Buy/sell order - 2 EUR fixed sum unrelated
- Safekeeping/custody - 0.06% every year of the total invested sum

This is ok, in Croatia Unicredit charges 0,3% treding fees, 15€ minimum.

If you use IB and you have more than 100.000$ you do not pay 10$/month for inactivity, but trading fees in Europ are 0.1%(4€min)

For substantial investment amount like yours I suggest to take two brokers(Unicredit and Interactive Brokers).
Can you please explain how would using two brokers be more efficient in this case?

imperia
Posts: 107
Joined: Tue Feb 21, 2017 6:31 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by imperia » Mon Jun 18, 2018 6:46 am

Diversification.
Broker can colaps, it is not common, but it can happend.

In this case use just Interactive Brokers, because Unicredit is too expensive.

bonzai
Posts: 14
Joined: Mon Jun 18, 2018 4:26 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Mon Jun 18, 2018 6:59 am

imperia wrote:
Mon Jun 18, 2018 6:46 am
Diversification.
Broker can colaps, it is not common, but it can happend.

In this case use just Interactive Brokers, because Unicredit is too expensive.
Thank you.

I wonder if a broker collapses, why should it affect the investors - because the shares aren't bought on the name of the investors but on that of the brokers' instead?

Do people trust IB with such sums of money invested through them? 7-8 figures?

On a different note, since IB is an american company, does this expose me as a European to any extra tax? (e.g. if I use IB to invest in local EU ETFs such as in Ireland, etc.) - or it's the same as would be if I were using a local European broker?

TedSwippet
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Joined: Mon Jun 04, 2007 4:19 pm

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by TedSwippet » Mon Jun 18, 2018 9:33 am

bonzai wrote:
Mon Jun 18, 2018 6:59 am
On a different note, since IB is an american company, does this expose me as a European to any extra tax? (e.g. if I use IB to invest in local EU ETFs such as in Ireland, etc.) - or it's the same as would be if I were using a local European broker?
The same as far as US taxes go. In your situation you will almost certainly want to avoid US domiciled ETFs with any broker, US or otherwise.

Your main additional danger from using a US broker is the potential for US estate tax on any cash holding above $60k. As well as estate taxes on US domiciled ETFs and US shares, the US will apply estate taxes on a cash holding above $60k (for you, since Bulgaria has no US estate tax treaty) in a US broker. A cash deposit in a US bank would be safe, but not in a broker (and yes, this is completely illogical).

If you can always keep cash below $60k in Interactive Brokers (or any other US broker) then you will sidestep that danger, but with a "7 figure sum" of money that seems somewhat unlikely.

Personally, if this were me I think I would be inclined to look very hard to see if I could find another broker that would entail absolutely no connection whatsoever to the US. Avoiding hassles, delays, and loss of up to 40% of assets should the worst occur may be worth slightly higher fees. Or maybe consider investing through a personal holding corporation, to act as a barrier between you and the IRS.

imperia
Posts: 107
Joined: Tue Feb 21, 2017 6:31 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by imperia » Mon Jun 18, 2018 10:00 am

If you chose IB you will sign contract with IB UK.
Than you send money to Citi bank in Germany(euros), and than you can start with investing.
Do not hold cash above 60.000$ in brokers account, but you can hold assets.
Invest in Irish domicile ETF, and you wpuld be fine.

bonzai
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Joined: Mon Jun 18, 2018 4:26 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Tue Jun 19, 2018 4:26 am

imperia wrote:
Mon Jun 18, 2018 10:00 am
If you chose IB you will sign contract with IB UK.
Than you send money to Citi bank in Germany(euros), and than you can start with investing.
Do not hold cash above 60.000$ in brokers account, but you can hold assets.
Invest in Irish domicile ETF, and you wpuld be fine.
Thanks, very useful info!

If however the contract is with IB UK, and the money is sent to EU - why must I not hold more than $60K USD in the brokers account? seeing as in this case the broker is in EU?

bonzai
Posts: 14
Joined: Mon Jun 18, 2018 4:26 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Tue Jun 19, 2018 4:28 am

TedSwippet wrote:
Mon Jun 18, 2018 9:33 am
bonzai wrote:
Mon Jun 18, 2018 6:59 am
On a different note, since IB is an american company, does this expose me as a European to any extra tax? (e.g. if I use IB to invest in local EU ETFs such as in Ireland, etc.) - or it's the same as would be if I were using a local European broker?
The same as far as US taxes go. In your situation you will almost certainly want to avoid US domiciled ETFs with any broker, US or otherwise.

Your main additional danger from using a US broker is the potential for US estate tax on any cash holding above $60k. As well as estate taxes on US domiciled ETFs and US shares, the US will apply estate taxes on a cash holding above $60k (for you, since Bulgaria has no US estate tax treaty) in a US broker. A cash deposit in a US bank would be safe, but not in a broker (and yes, this is completely illogical).

If you can always keep cash below $60k in Interactive Brokers (or any other US broker) then you will sidestep that danger, but with a "7 figure sum" of money that seems somewhat unlikely.

Personally, if this were me I think I would be inclined to look very hard to see if I could find another broker that would entail absolutely no connection whatsoever to the US. Avoiding hassles, delays, and loss of up to 40% of assets should the worst occur may be worth slightly higher fees. Or maybe consider investing through a personal holding corporation, to act as a barrier between you and the IRS.
Appreciate the detailed response!

This estate tax pretty much disqualifies US brokers for my purposes.

Is there any other broker that is recommended for use by European investors?

TedSwippet
Posts: 1716
Joined: Mon Jun 04, 2007 4:19 pm

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by TedSwippet » Tue Jun 19, 2018 6:06 am

bonzai wrote:
Tue Jun 19, 2018 4:26 am
If however the contract is with IB UK, and the money is sent to EU - why must I not hold more than $60K USD in the brokers account? seeing as in this case the broker is in EU?
You might be okay with the UK division of a US broker, if the UK division is properly segregated from the US parent and run as a fully separate entity.

I guess you need to call IB and ask, although it may well be that they cannot answer it definitively for you. I doubt that is is a mainstream question for their frontline customer support staff.

bonzai
Posts: 14
Joined: Mon Jun 18, 2018 4:26 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by bonzai » Tue Jun 19, 2018 8:30 am

imperia wrote:
Mon Jun 18, 2018 6:10 am
Unicredit:
- Buy/sell order - 2 EUR fixed sum unrelated
- Safekeeping/custody - 0.06% every year of the total invested sum

This is ok, in Croatia Unicredit charges 0,3% treding fees, 15€ minimum.

If you use IB and you have more than 100.000$ you do not pay 10$/month for inactivity, but trading fees in Europ are 0.1%(4€min)

For substantial investment amount like yours I suggest to take two brokers(Unicredit and Interactive Brokers).
About IB - do they have safekeeping/custody fees?

imperia
Posts: 107
Joined: Tue Feb 21, 2017 6:31 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by imperia » Sun Jun 24, 2018 1:40 am

No i do not.
IB charges just trading and inactivity fees(account under 100.000$)

silverex
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Location: Vilnius, Lithuania

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by silverex » Sun Jun 24, 2018 5:43 am

You can look into resellers of IB, there are quite a few of them in Europe. For example, Lynx. I think most of resellers don't charge inactivity fees.

imperia
Posts: 107
Joined: Tue Feb 21, 2017 6:31 am

Re: Brokerage - bank-brokers or brokers? [Bulgaria]

Post by imperia » Sun Jun 24, 2018 6:12 am

One Bulgarian on this forum said there is such option in Bulgaria.
Resseler has lower inactivity fee, but higher trading fees.
Bonzai said that he has more than 100.000$ to invest, so IB is best option.

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