ETF Recommendation

[Dan_The_Man]

Hi ...question is in 2 parts, I'm looking for:

1. A recommendation on best place to buy and manage ETFs, by best I mean the balance between secure, cost, platform features etc.
2. Advice on allocating a lump sum to a range of ETFs that provides some growth in equities whilst providing some protection to the down side.

I'm willing to pay for advice, so if you have a recommendation on an adviser who could help with 1 and 2 above that's welcome too.

thanks

 

[MrEarl]

Hi,

I'm not entirely sure what you mean by "buy and manage" ETF's ... by their nature, there's no management in them, once purchased.

I've modest investments in a few ETFs and I am very happy with them, given they permitted me relatively low cost entry into various investments which are professionally managed, but which I can liquidate at any point in time (subject to there being a market obviously, but it means that you don't have to wait for a commercial property in Tokyo to be sold, or marajuana to be harvested and turned into suitbable product for medicinal purposes etc. etc.).

I use Goodbodys, but I imagine that others here will reference Davy, Cantor Fitzgerald etc.

Have a look at funds on offer from the likes of Vanguard & Blackrock Ishares - while they are far from being the only providers, they are well regarded.

 

[EmmDee]

Hi ...question is in 2 parts, I'm looking for:

1. A recommendation on best place to buy and manage ETFs, by best I mean the balance between secure, cost, platform features etc.
2. Advice on allocating a lump sum to a range of ETFs that provides some growth in equities whilst providing some protection to the down side.

I'm willing to pay for advice, so if you have a recommendation on an adviser who could help with 1 and 2 above that's welcome too.

thanks

I use ETFMATIC - it is a robo advisor in that you do a standard risk assessment, it creates a suggested balance of equities vs bonds (you can adjust to make the balance whatever you want), you lodge cash - lump sum or regular investments - and it automatically manages the purchases (and rebalancing if required). It will also reinvest dividends back into the strategy. It's very straightforward and fees are as low as you'll get I believe

Whether the process gives you enough advice on question 2 - you'll have to try and see (you can do the assessment before sending any cash). Definitely make sure you fully understand the process and the ETF's they use before starting anything

 

[Sarenco]

Hi @EmmDee

How do you manage your tax filings? The administration must be a nightmare with all those purchases and disposals.

 

[EmmDee]

The site provides tax reporting. To date it's just been purchases and dividends - so dividends as income is the only reportable item (notwithstanding the deemed holding period rule - when it gets close to that I may liquidate and (maybe) reinvest). I'm assuming that the report will also detail gains - which in effect (given it's ETF's) are also quasi-income

 

[Sarenco]

The site provides tax reporting

Presumably geared for UK investors (where there is simply income tax on dividends and CGT on disposals).

I assume you are invested in UCITS ETFs. Given our tax code, you must be paying 41% exit tax on each dividend payment received and then re-investing the balance on a quarterly basis (starting a separate holding period for each (re)investment)? Similarly, every time you rebalance that also gives rise to a new disposal/acquisition for exit tax purposes.

That's going to be extremely difficult to track.

Here's a pretty good IT article on the taxation of ETFs.

Don’t invest in an ETF until you understand the tax

Exchange-traded funds may be less attractive than they appear due to onerous tax reporting requirements

www.irishtimes.com

 

[EmmDee]

Presumably geared for UK investors (where there is simply income tax on dividends and CGT on disposals).

I assume you are invested in UCITS ETFs. Given our tax code, you must be paying 41% exit tax on each dividend payment received and then re-investing the balance on a quarterly basis (starting a separate holding period for each (re)investment)? Similarly, every time you rebalance that also gives rise to a new disposal/acquisition for exit tax purposes.

That's going to be extremely difficult to track.

Here's a pretty good IT article on the taxation of ETFs.

Don’t invest in an ETF until you understand the tax

Exchange-traded funds may be less attractive than they appear due to onerous tax reporting requirements

www.irishtimes.com

Yeah I know - that's why I said that each income and sale (assuming capital gain) event is essentially income.

The tax reporting isn't UK based - it isn't a calculation of tax due, rather a reporting of income and capital gains / losses. The reporting of that (and the calculation of tax due) is via the revenue portal.

 

[Sarenco]

The tax reporting isn't UK based - it isn't a calculation of tax due, rather a reporting of income and capital gains / losses. The reporting of that (and the calculation of tax due) is via the revenue portal.

Understood but you would need to track the date and amount of every single dividend payment/acquisition/disposal and then calculate the exit tax due (taking account of any deemed disposals) on an annual basis. That can't be easy.

 

[EmmDee]

Understood but you would need to track the date and amount of every single dividend payment/acquisition/disposal and then calculate the exit tax due (taking account of any deemed disposals) on an annual basis. That can't be easy.

As I said - the platform provides tax reporting with income and capital reporting for the year. The only thing I'll need to be wary of is the deemed disposal after 8 years (Irish specific). The answer may be to decide to liquidate everything before the 8 year anniversary of opening the account and reset.

 

[Sarenco]

The answer may be to decide to liquidate everything before the 8 year anniversary of opening the account and reset.

Would it not be more efficient from a tax perspective to invest in a single, accumulating global index tracker?

 

[EmmDee]

Would it not be more efficient from a tax perspective to invest in a single, accumulating global index tracker?

Possibly. I did want to allocate to a robo-advisor though - it has a more granular capability on the various indices / ETF's if needed. They also have an ability to perform tax efficiency trading though I think at the moment for my capital and domicile it isn't relevant yet. ETFMatic are one of the few European robo-advisors around. The other relevant factor for me is that, due to my job, I would need to pre-approve any trades with my company - unless it is in a "hands off" vehicle. So again this suits

But it's not the only option and maybe I would look at an accumulating global index. But again - because of work - I can only open accounts with a very limited number of brokerage firms. I don't have an existing account and frankly this option saves me having to go to one of the list and then declare it in work.

There are always other factors that affect these decisions

 

[Sarenco]

The other relevant factor for me is that, due to my job, I would need to pre-approve any trades with my company - unless it is in a "hands off" vehicle. So again this suits

Ah, understood.

I guess by paying exit tax on annual basis, you are losing the gross roll-up benefit.

Also, if the ETF subsequently falls in value after the 8-year deemed disposal and you liquidated the ETF shares, you could submit a claim to Revenue for overpaid tax due to the deemed disposal.

 

[Andrew365]

I use ETFmatic and I have grossly underestimated this tax burden!! It was so much simpler in the US. As far as I have observed, rebalancing is rare unless you change strategy.

 

[Sarenco]

Yep, the tax burden on (taxable) investments in Ireland is very significant.

That's why I take the view that, in most cases, it makes no sense to invest outside a pension wrapper while carrying a mortgage.

Once the mortgage is paid off, one strategy is to maintain a high (perhaps even 100%) equity allocation in a (tax-advantaged) pension wrapper and to invest any after-tax savings in (tax-free) State savings products.

 

[Dan_The_Man]

I use ETFMATIC - it is a robo advisor in that you do a standard risk assessment, it creates a suggested balance of equities vs bonds (you can adjust to make the balance whatever you want), you lodge cash - lump sum or regular investments - and it automatically manages the purchases (and rebalancing if required). It will also reinvest dividends back into the strategy. It's very straightforward and fees are as low as you'll get I believe

Whether the process gives you enough advice on question 2 - you'll have to try and see (you can do the assessment before sending any cash). Definitely make sure you fully understand the process and the ETF's they use before starting anything

ok thanks for that ..interesting:

Low cost - check
Makes recommendations - check (i mean i may still take advice but good to know)
I see the follow up concerns about Tax - thats ok I have someone to do my taxes for me

Do you know ....

How secure is ETFmatic? ..meaning if the platform/service itself runs into issues, what the access do you have to your funds?
How easy is to liquidate and transfer funds if needed?

 

[EmmDee]

ok thanks for that ..interesting:

Low cost - check
Makes recommendations - check (i mean i may still take advice but good to know)
I see the follow up concerns about Tax - thats ok I have someone to do my taxes for me

Do you know ....

How secure is ETFmatic? ..meaning if the platform/service itself runs into issues, what the access do you have to your funds?
How easy is to liquidate and transfer funds if needed?

They use Barclays for client money accounts and Saxo Capital Markets as custodian. Currently regulated by UK regulator, subject to UK/EU client asset protection rules and part of the UK investor protection scheme (though they have a European license to transfer to in case of Brexit). So pretty much the same protection framework as any EU regulated financial institution.

To liquidate - there is an option to either withdraw funds or close a portfolio completely. In either case the liquidation of positions occurs at the next dealing cycle - they deal with the ETF's weekly. Funds will be transferred after that - so a maximum of 7 days (they say) if you happen to liquidate just after their weekly dealing date.

One thing to note - if you are withdrawing funds, they need to have an authenticated bank account on file (this isn't done as part of opening the account). So if you felt you wanted to be sure any quick withdrawals go without a glitch, I would pre-emptively arrange to have an authorised account on file with them.

 

[Dan_The_Man]

They use Barclays for client money accounts and Saxo Capital Markets as custodian. Currently regulated by UK regulator, subject to UK/EU client asset protection rules and part of the UK investor protection scheme (though they have a European license to transfer to in case of Brexit). So pretty much the same protection framework as any EU regulated financial institution.

To liquidate - there is an option to either withdraw funds or close a portfolio completely. In either case the liquidation of positions occurs at the next dealing cycle - they deal with the ETF's weekly. Funds will be transferred after that - so a maximum of 7 days (they say) if you happen to liquidate just after their weekly dealing date.

One thing to note - if you are withdrawing funds, they need to have an authenticated bank account on file (this isn't done as part of opening the account). So if you felt you wanted to be sure any quick withdrawals go without a glitch, I would pre-emptively arrange to have an authorised account on file with them.

thanks...I did receive some info from them (below), it may be factual but I'm not sure what all this means?
I like to test a bad case scenario, we have another financial crisis and both ETFMatic and Barclays are in trouble / go bust ..whatever , what redress to I have to my funds?



ETFmatic is covered under the FSCS scheme which only pays compensation for financial loss. Compensation limits are per person per firm, and per claim category. For investments it is currently £85,000 per person per firm. The scheme covers 100% of the first £85,000. For more details visit FSCS Investment Limits page.

The scheme only covers claims against ETFmatic, not Barclays and SAXO. However, the Client Money custodian we select must meet specific criteria, one of them being the rating which they receive from credit rating agencies. We review these ratings periodically and should it fall under the requirement we must consider replacing the custodian with another. These ratings are transparent - you may find Barclays one here: https://www.home.barclays/barclays-investor-relations/credit-ratings.html. SAXO chose not to get a rating. For details on the Bank’s financial solidity, please consult the Investor Relations-section on the Saxo Group’s website:
which offers access to Annual Reports, ICAAP (Internal Capital Adequacy Assessment Process) reports as well as Risk Reports? ETFmatic

 

[landlord]

That's why I take the view that, in most cases, it makes no sense to invest outside a pension wrapper while carrying a mortgage.

Once the mortgage is paid off, one strategy is to maintain a high (perhaps even 100%) equity allocation in a (tax-advantaged) pension wrapper and to invest any after-tax savings in (tax-free) State savings products.

Sarenco. I havnt got involved in these discussions for several years, but previously you were recommending investment trusts instead of state savings (at least I think you were.....for someone whose pension was maxed out and paying a v v low tracker rate mortgage). Is that still the case?

 

[Sarenco]

Sarenco. I havnt got involved in these discussions for several years, but previously you were recommending investment trusts instead of state savings (at least I think you were.....for someone whose pension was maxed out and paying a v v low tracker rate mortgage). Is that still the case?

Hi @landlord

My take is bit more nuanced than that.

I think investment trusts (which are taxed under the usual income tax/CGT regime) are a good option for somebody with a low marginal tax rate. For example, a retired person living on the State Contributory pension who receives a substantial inheritance.

I don't think I've ever recommended that anybody invests outside a pension wrapper while carrying a mortgage - even a cheap tracker.

If somebody has a paid for house and is maxing out their pension contributions, then investment trusts might well be a good home for their after-tax savings.

However, most people in that scenario would typically be pretty well advanced in their career and may well be thinking about de-risking their portfolio in the run up to retirement. My suggestion in those circumstances is to maintain a high equity allocation in the pension wrapper and use after-tax savings to buy (tax-free) State savings products.

Hopefully that all makes sense.

 

[Dan_The_Man]

If somebody has a paid for house and is maxing out their pension contributions, then investment trusts might well be a good home for their after tax savings.

Mortgage paid - check
Max out pension AVC - check
I have a chunk in State saving (10yo) and will consider dripping more into 5yo
I have another chunk hence my original question here to set-up some ETF ....however I am open minded.
What specific investment trusts do you recommend?