As with every investment vehicle, the process of investing in exchange traded funds (ETFs) brings with it a number of fees and charges. These include the administrative fees levied by the fund managers (the TER), spreads, brokerage fees, custody fees, taxes and stamp duties.
Because fees and charges eat into your ETF returns, it is obviously in your best interest as an investor to cut down on the costs of buying into funds. There are several ways to do this, including investing in ETFs with exceptionally low administrative fees (TER) and narrow spreads. A number of online comparison tools and investment magazines provide information which can help you in the often difficult process of selecting the right ETF.
Many investors overlook the fact that a number of external fees also apply to ETF share purchases. Some Swiss banks and online brokers charge very high brokerage fees for ETF transactions and custody fees for ETF safekeeping.
Fees which apply to ETF share purchases
Unlike some conventional investment funds, ETFs do not normally have front-end loads. However, Swiss brokers charge brokerage fees for the purchase of ETF shares just as they do for the purchase of stocks. Federal stamp duties must be paid in addition to brokerage fees.
Combined fees and charges can create a significant cost, as this example shows: If you were to invest 20,000 Swiss francs in a SIX-listed ETF, you could end up paying as much as 295 francs in brokerage fees at the most expensive brokers. Add to that amount a stamp duty of 15 francs (0.075% for Swiss securities) and you could pay up to 310 francs just to get your investment started.
Brokerage fees have the strongest impact when investments are smaller, proportionally speaking. If you were to buy ETF shares for 1000 francs, you could pay up to 75 francs in brokerage fees at Swiss brokers – equal to 7.5% of the amount you invest.
But there are more affordable brokers: The most affordable broker would charge just 9 francs for a transaction of 20,000 francs. That is more than thirty times less than what you would pay to perform the same transaction using the most expensive broker, as shown by the interactive online trading comparison on moneyland.ch.
Flat fees for ETF share transactions compared
Most Swiss banks charge the same brokerage fees for ETF share purchases that they charge for stock purchases. The fees charged vary broadly between different banks and online brokers. Fees levied as a percentage of the amount transacted or fees based on the size of transactions are the most widely used. Minimum fees are also common. The basic idea is that the larger the amount of money you invest, the higher the brokerage fees will be in whole figures – but the lower they will be in proportion to the amount you invest.
But there are some Swiss banks with online trading platforms that use a flat-fee model for share transactions of Swiss-listed ETFs. These include Migros Bank (40 francs per transaction of up to 100,000 francs), VZ Depotbank (39 francs per transaction of up to 100,000 francs), BKB-EasyTrading (30 francs), Cash banking by zweiplus (29 francs), Swissquote (9 francs plus real-time markup of 85 centimes), and Strateo (9 francs for ETFs issued by Comstage and iShares).
Costs of selling ETF shares explained
As with most other types of securities, the same brokerage fees which apply when you invest in an ETF also apply when you cash out your investment. That means you need to pay brokerage fees twice over the course of your investment: Once when you buy ETF shares and once when you sell those ETF shares. If fees are levied as a percentage of the transaction amount, the value of the ETF shares at the time of selling apply. Ideally, your ETF shares will be worth a good deal more at the time that you sell them than they were when you bought them – which means the brokerage fees which you pay to sell your shares may be higher than those you paid to buy them when a proportional fee model is used. Unlike conventional funds, however, you will not normally be charged a back-end load by the ETF itself.
Custody and account fees compared
It can be easy to overlook the fact that most Swiss banks charge custody fees for the safekeeping of your ETF shares. Unlike brokerage fees and stamp duties, custody fees apply for as long as you hold ETF shares, even when you do not make any transactions. Custody fees vary notably from one bank to another. Many banks levy custody fees as a percentage of the value of your ETF shares, often charging a minimum fee regardless of share value.
Some brokers use different fee schedules depending on where ETFs are listed. Higher brokerage fees may apply to ETFs listed outside of Switzerland. Some banks go as far as to charge a minimum fee per security. Brokers may also charge account maintenance fees or inactivity fees. There are also brokers like CornèrTrader which do not charge custody fees.
Comparing total ETF investment costs
Thoroughly comparing all relevant fees before buying into an ETF is important. In addition to brokerage fees, you should also look at custody fees for the safekeeping of your shares.
Example: Suppose you buy 20,000 francs worth of shares in two ETFs which are listed on the SIX Swiss Exchange, keep your shares in a custody account for one year and then sell them. Depending on the broker you use, you will pay anywhere from 160 francs to 1400 francs for the investment – not accounting for fees charged by the ETFs themselves.
The interactive online trading comparison tool on moneyland.ch uses all relevant information to help you quickly find out which broker is most affordable for your specific investment requirements. Selecting the “individual profile” option lets you enter the exact amount and kind of transactions you expect to make. The ETF calculator shows you exactly how the costs of an ETF will affect your returns.
Buying ETFs using robo advisors
Digital asset managers provide ETF investors with an alternative to brokers. Robo advisors primarily invest passively using affordable ETFs. However, you pay flat-rate fees for the service – typically between 0.5% and 1% per annum. The flat-rate fee generally includes brokerage fees and custody fees are normally covered as well. They do not typically cover ETF fees (TER) and taxes.
Advantage: You do not need to buy ETFs yourself and you do not need to manage the possible rebalancing of your ETF portfolio. The robo advisor handles your investments for you.
Disadvantage: Robo advisors are generally somewhat expensive compared to the most affordable Swiss online brokers. This is especially true if you plan to buy and hold rather than buying and selling ETFs regularly. However, if all you need is an execution only ETF investment service, robo advisors can be more affordable than many banks.
Swiss ETF savings plans
ETF savings plans through which regular contributions are invested in a preselected ETFs are not yet widely used in Switzerland.
The VZ Vermögenszentrum offers a product which has many of the characteristics of an ETF savings plan. The plan has an administrative fee of 0.55% per annum – plus relevant stamp duties and TER. Contributions to the plan can only be made on a monthly basis (or additional transaction fees will apply). The selection of ETF and index funds is limited to just above 30 investment products.
Cash by zweiplus also offers an ETF savings plan as part of its fund savings plan offering. A one-time fee of 1% applies to each purchase or sale of a savings plan. No fees are levied on contributions paid into the plan. However, a flat-rate custody fee applies and this is equal to: 1% of the value of assets for amounts up to 8000 francs; 20 francs per quarter for assets worth between 8000 and 100,000 francs; 100 francs per quarter for assets worth up to 500,000 francs.