As a bogle-style low-cost investor (i.e, tightarse Aussie), choosing a brokerage almost did my head in. Anyway, let me tell you my story.
To start with I found this comparison website here that I found quite useful and and re-affirming in the sense that I already bank with Citibank and their rates for SGX are quite low so I may as well stick to them.
So after trying quite some time ago for them to ‘contact me’ from their website, I finally gave up on waiting for them and went into a branch to get the necessary forms.
Duly filled in I then waited, and then they came back to me in the mail saying some new form was required. So okay no problem, fill it out and post it back. And then they come back again, saying something else wasn’t right. Fix and send, and then they come back again, saying signature is not matching somewhere, fix and send. On and on and on. I think this easily took 2 months to complete.
One of the major reasons for this delay was because I was asking Citibank to open up the CDP account on my behalf. CDP is the Central Depository for all SGX traded products which is quite unique in the world. I believe the idea is that if a brokerage goes bankrupt, your shares will still be safe. Anyway SGX seem to take forever to open up a CDP account through post when coming from a brokerage.
In the end I gave up and just went to the CDP office and opened up the account in a few minutes. Problem solved.
Then back to Citibank with my newly minted CDP account number. But then, they need to link the accounts, oh boy. This took another 2 weeks of getting it ready. By the way, my NYSE and HKSE accounts were opened up straight away as Citibank themselves act as the custodian of your shares. This is the downside of the CDP safety.
Finally, finally, finally one day it was there and ready to use! I was ready! But then, my wife wasn’t. Obviously with an intent to top me one day, she wanted to know what would happen if I “accidently” died. Fair question. So back we went to Citibank to open a Joint account and let the whole wonderful process start again. This time it took only a month.
In the meantime, I was still reading Andrew Hallam’s site and his new book – The Global Expatriate’s Guide to Investing.
On his site and in his book, he mentions about Saxo International as a good broker with very low fees. Also at the same time I had discovered that risk of buying US based ETF’s due to estate taxes. Unfortunately my Citibank account only traded on SGX, NYSE and HKSE.
My plan required access to the Toronto Stock Exchange, so now I needed a new broker. Great.
So off to Saxo I went, filled out all the forms and was totally ready to rock and roll. Account was opened, and then my rep told me that they would be introducing custodian charges of 0.12% as of next year. Noooooooooooooooo!!!!
These tiny tiny percentages add up, and if you have a choice to avoid them then you should. However, if you are already with a broker, you should probably stick with them as you will likely play a game of ‘expensive musical chairs’ (Stole that from Andrew).
Brokers are also competitors and at certain times they will run promotions to get new customers, and at different stages one might be more attractive one day, but change their rules the next day making another broker seem more attractive.
I did up one of my fanciest ever spreadsheets and worked out an uber cool formula for compound interest in a single equation, and this is what I discovered:
If you were to start with 100K, and add $3.5K a month, the new custodian fees would make you $94K worse off over 25 years. Down 2.11%.
Also Saxo have a currency conversion fee of 0.5% of the trade value. I’ll be honest here and Andrew if you ever read this this is my chance to say up front that this has driven me absolutely bonkers. You say this 0.5% conversion fee is a bad thing. But seriously it is very very hard to find better than that out in the Retail market.
So once again I made an awesome spreadsheet (if I do say so myself), that used Web connectors to automatically download forex rates for many of the local Singapore banks and foreign currency exchanges.
From there I was able to calculate the most attractive rates, and guess what, Saxo is right up there! This really did my head in as Andrew seemed to mention this 0.5% rate as a bad thing. For my own sanity, please spill the beans on where you can do better than that!!
Anyway, with these new custodian fees I just couldn’t in good conscience open up an account with Saxo. By the way, for Saxo buying on SGX they would act as the custodian. For my own peace of mind now that I have the Joint CDP account, I would prefer to use Citibank for my SGX trades.
At this stage I should also mention about Standard Chartered Bank. They have no minimum commission which is fantastic for people looking to start with smaller trades. The downside apparently is that their forex spreads are not attractive. Unfortunately they also don’t have access to the Toronto Exchange (but they have 13 others which is great).
As you can see though from my spreadsheet above, I decided to go with DBS Vickers. As someone that follows Andrew Hallam’s site quite closely, it was this original post that had turned me off them in the first place. I’ve come to learn that Andrew is also constantly learning and re-adjusts his view when new information comes to light.
Opening the account with DBS Vickers was quite straight forward. I had printed off the forms from their website, but realised I would need a DBS bank account if I wanted the Vickers account to open up quickly. This part was fantastic as DBS were able to open a Joint bank account within minutes of just dropping into any branch. They also give you an ATM card on the spot (finally after 6 years I now have a card that does NETS).
Now with the bank account opened, I marched on over to the Vickers office (and boy what a cool modern place that office is). The nice lady checked my forms and made sure everything was in order the first time. (Looking at you Citibank).
A few days later the account information and password arrived in the mail and I was ready to go. Almost.
Unless you can demonstrate prior experience or a relevant qualification, you won’t be able to trade SIP’s (Specified Investment Products). In order to do so you will need to pass an exam from SGX’s learning website. My wife and I had passed this exam and had used the results to open up our accounts with Citibank and Saxo, but for some reason DBS wants to check directly with SGX. I’m still pending on this as I write this.
So there you go. My saga of opening up a brokerage account. My advice to you is as follows:
- Take the SGX exam. It’s a bit of a pain but it needs to get done unless you have prior experience.
- Open an account with either Standard Chartered or DBS Vickers. SC is good for small trades, but not so great for larger ones due to the currency spread (you may be able to fund the account though in other ways if you can get a better rate elsewhere (Andrew I’m begging you, please tell me how!).
- If you plan to trade on SGX with DBS Vickers you will need to open a CDP account with SGX. Go directly to their office to do this, don’t get your brokerage to do this unless you’re a fan of waiting a really long time. For SC you won’t need this as they will act as the custodian.
That’s about it actually. By the way, you can call your bank or trader like DBS Vickers to lock in a better exchange rate than what they published. So far I’ve found that DBS Vickers offers the best rate, but I am guessing that DBS Bank may also give better rates if they go and check with their treasury departments.
In the next entry I will discuss a little more theory before moving on to funding your account, and how to make your first trade.