Investing with private banking worth the fees?

[thequestionistgirl]

Hey all, I'm a newbie in this channel, so I hope you bear with my first question.

I recently received a bigger lump sum and now I'm at the crossroads of how to invest it. I do already own a Schwab International broker account in the US with a W-8BEN and I bought some stocks with decent wins so far but mostly at a smaller scale (~200k USD). I however plan to convert them into ETFs at some point so there is less to track (e.g. VUG, XMMO, SMH).

Now with the bigger lump sum, I could either go with private banking e.g. ZKB or Alpenpartners with investment advisors (and thus high fee - I expect roughly that this would be ~1%) or just move this asset over to my existing Schwab International broker account and manage it myself with longterm investing into low cost index fund like the ones mentioned. I do plan to keep this for long, say, 30 years or more and in roughly ~10-15 years from now to withdraw small parts for living expenses (like 2% or so).

Now to my questions:

• Has anyone made good experience with private banking (ZKB, or smaller shops like Alpenpartners) where they think it was worth the fees for getting access to their internal research / recommendations? Or are the experiences in here to rather go with low-cost passive ETFs and weather through the US market turbulences?
• The one upside I've heard for paying advisors is that the tax office is less likely to classify you as a trader since you explicitly pay someone to help manage your assets. This may be somewhat relevant for leveraged ETFs?
• How do you hedge against the US doller long-term when you plan to keep the investments for a 30 year+ horizon? Keeping some of the assets in CHF and investing them into e.g. large cap Swiss ETF like EWL? How much of the assets in % compared to USD?

 

[sunnyhope]

@thequestionistgirl No.

Buying VT and forgetting about it is in the long run far better than giving your money to a bank. They will most likely underperform, and charge you for that abysmal service.

Not relevant. There are certain criteria that are easy to not fall into (and two of them have to be met, you will not be a professional trader).

You can't really and it doesn't matter. If you are worried about having all investments in USD, you could go like 70 some US world ETF like VT, and then 30 in a swiss one.

Invest a little time and just make an IBKR account and buy VT and forget about it. Don't go to some bank.

 

[thequestionistgirl]

@sunnyhope Thanks! Do you see any issues / concerns with non-CH brokers like IBKR or Schwab International and investing larger sums through them? I personally already have Schwab given the zero commissions. Just asking given the broker is not domiciled in Switzerland.

The one thing which comes to mind is in case of death / inheritance which I read here :

https://www.mustachianpost.com/blog...t-etf-with-the-mp-family-as-concrete-example/

However, this situation may be very similar if you go with private banking in CH and invest in these ETFs.

Anyway, just asking in case there are any pro-arguments still to be made ... their fees are certainly a big drag long-term which is a huge con, fully agree with you.

 

[sunnyhope]

@thequestionistgirl I think IBKR are probably the most used broker of anyone putting a lot of time into researching investing in Switzerland.

If you want a Swiss one, Saxo is pretty good. And I think especially for larger clients as you seem to be.

 

[growth_17]

@sunnyhope under a >2M liquid, you're not a "large client".

 

[growth_17]

@thequestionistgirl If you want any form of proper customer service, Schwab is better. if that doesn't matter to you, IBKR is better. Also not domiciled in Switzerland. I don't think it matters that much, if it's a proper, big name brokerage.

 

[yhwh_will_uplift]

@thequestionistgirl it does not matter wheter a private bank holds your US Isin stocks or you as a private person. What matters is the domicile of your US Etfs. VT as example is Ireland, which does not account for your tax in case of death. But aswell as for the tax of dividends, so you pay "only" a lump sum of 15% instead of 30%

 

[bogdanpnw]

@sunnyhope Forget VT, there are way better options. For example VUG mentioned by OP.

 

[sunnyhope]

@bogdanpnw The two are not comparable. You have no idea what you are talking about.

 

[bogdanpnw]

@sunnyhope Please enlighten me then. Why would I invest money into an asset which is having lower returns?

 

[sunnyhope]

@bogdanpnw Then why not invest in SMCI, has one of the highest returns. Good luck.

 

[bogdanpnw]

@sunnyhope Not an ETF but it’s part of VUG so one could say I’m investing in SMCI

 

[sunnyhope]

@bogdanpnw No but you spoke about assets and asset returns.

 

[patrickshani23]

@thequestionistgirl Do not do it unless you reach high amounts and need special services such as: borrow against your asset regularly to manage cash flow, access to closed hedge funds and private equity options (often high minimum investment)

 

[thequestionistgirl]

@patrickshani23 Thanks for your reply! I presume the first point is in particular if you live off your wealth and need cash flow for larger bills like taxes. The latter two to diversify into riskier assets, but potentially also debatable whether its worth it. High amounts means beyond 10m? Curious if you could be more verbose. The arguments from initial discussions with going via private banking I've heard was: "one-stop shop", advice in diversification into different assets, access to their research groups (incl. data from bloomberg terminals), the possibility to participate in IPOs pre market, but there is also FUD like "it's not in a different country and you can just go to your local bank", "emotional support not to sell when times get tough", not being classified as trader by tax office, etc. But likely all this may be nice but won't outperform a passive s&p ETF in most cases plus it feels hard to judge about the track record of that specific advisor/group you trust your money with and then when you would be at the point to decide otherwise to migrate your assets, it's probably not possible to switch brokers easily (I'm guessing only cash out, transfer & rebuy) .. so you're locked in for the long run. Also, it felt like they're making it more complex than it needs to be. Esp. after reading simple path to wealth book.. the book worked for the past performance of the US economy.. question is if the VT/VTI strategy also still holds up the next 30 years.

 

[patrickshani23]

@thequestionistgirl Yes correct, if you live off your wealth it can be very useful to tap into credit anytime you need large sums, while your existing investment mature or continue yielding what they are.

Hedge funds are not supposed to make the portfolio riskier but rather less volatile. If you live off your wealth it is all good and nice when sp500 goes up 30% in one year, but less so when it retrace 20% and your are temporarily (?) down large amounts. Hedge funds return less than sp500 on average but they are constant (or supposed to). Typically they are supposed to make 1% per month, in practice a bit less, maybe 0.75%. In reality They make much more but the management of the hedge fund keeps very high returns and charges absurd fees in change of that reduced volatility that you receive. Many large portfolios want to hold a portion of this, maybe 20%, for the higher certainty and peace of mind.

Many of the hedge fund strategies don’t work in massive scale so the funds are closed. Normally they manage the owner cash plus some more. Private bankers allow you to enter when some other clients decides to sell, for instance. Or when the banks dropped Russian clients and forced sales, their other clients had a window to buy in.

Private equity is much the same except the horizon of investment is 10years and your don’t see any cash for 5-6 years. Min tickets also large but return should be high (15-20% pa).

These instruments can be part of larger portfolios, i would say 5m+, for those who need to secure passive income for themselves or generations.

Another point is that often only one of the people in a family is able to make investment decisions for wealth of this size. One might want to make sure things are in auto-drive on a very long term horizon to guarantee their surviving spouse and children an adequate wealth management even when they are not financially savvy or educated or old enough.

Finally their job is to keep you from buying stupid things, tell you off when you want to panic sell and keep pushing money into etf, bonds and others following a predefined allocation strategy.
Normally during high rates you buy a decent portion of 10-15yr bonds. When market collapses, as it does from time to time, rates dip, bond values spike, shares drop and your private banker tells you to sell bonds (at heavy gain) and rebalance into falling equities. Private equity and hedge funds being in the background somewhat stable.

You can see the private banker as an advanced and educated financial personal assistant. If you have a day job you don’t have time to research, google, browse Bloomberg etc. he does. On a 5m portfolio if you pay 1% (I think this is high btw), that is 50k/year tax deductible cost. Some might think this is worth it. Others stop paying once they stop working and wealth management becomes their work. Very large wealth would be able to afford a dedicated professional and family office.
Many times the cost of the private banker includes the trading brokerage costs and custody fees.

 

[thequestionistgirl]

@patrickshani23 Thank you for this interesting insight! I was not aware that the management fee is tax-deductible. Could you elaborate on that? I tried to find some information on that earlier and from what I read was that it is not. If it would be that somewhat changes the weight for the pro private banking along with your other arguments.

Also, what do you think would be reasonable fees, 0.6-0.8%?

 

[patrickshani23]

@thequestionistgirl The bank sends a tax statement where they also put the fees. I’m not sure how they express it and rules change by canton to canton. Banks also prepare different tax statements depending on your canton of residence, so mileage might vary.

Fees are negotiable but obviously the higher the invested the lower the fees. You pay for someone time and right to access.. so there is negotiation space within reason.
The banker will also make payments for you, make sure you don’t go in overdraft, zero the account when coupon arrive and place in short term liquidity pool… etc

If you use a couple of hour per week, and pay 25-30k per annum, this seems reasonable. If you account is complex and require a lot of attention, follow up, cash moving around.. etc then you should pay more.

I have seen as low as 50bp all in to 1.35 all in. Mileage will vary here too

 

[bogdanpnw]

@thequestionistgirl I think private banking is for different generation than us who know how to use the internet. Private banking is good for my parents/grandparents who would easily loose all their wealth by making few wrong clicks on an online platform.

I’m banking with ZKB and I was thinking of opening an investment account there but high fees kept me away from doing that. It’s more than 1%.

For amounts less than 500k you can use broker like IBKR and just buy into VUG or whatever other ETF which beats market.

 

[estacks]

@bogdanpnw Why do you recommend Ibkr for amounts less than 500k?