[Update 06/10/12: Modern Wealth Management FX charge is confirmed to be 0.5%, in line with the regular Saxo account, not 1.5% (and is being waived until mid 2013) – not clear if this was an error in the original charges sheet or has subsequently been changed. See this update for other additional details of the service. There is also now a separate entry for Modern Wealth Management in the broker directory.]
Saxo Bank has expanded its services for UK investors with a new offering branded as Modern Wealth Management. As the name of the basic account – Saxo Invest – implies, this is aimed more at medium-to-long-term investors than Saxo’s traditional client base of traders.
On first glance, it’s a useful product, with a simpler front-end compared to the Saxo Trader platform and better options for tax-efficient investing. Unfortunately, there seems to be rather a large catch within the small print of the charges.
Cheap on most points …
First, the good points. The Modern Wealth Management service offers a stocks and shares ISA wrapper, something that’s long been missing from the main Saxo plaform, as well as a SIPP. Fees for these are fairly reasonable – the ISA has no additional fee other than the £35 per year needed to open a Saxo Invest account, while the SIPP costs £195 per year. (Both wrappers are actually managed by European Pensions Management, a specialist pensions administrator and trustee that also handles SIPPs for a number of other UK stock brokers.)
UK stocks trades are charged are a flat rate of £9.95 for trades below £75,000 (versus 0.1% with a minimum of £8 on Saxo Trader) and international shares are 0.15% with a minimum of £9.95 (versus different fees for each country on Saxo Trader). Some trades will work out cheaper and some more expensive, but overall commissions still look competitive versus most other UK international stock brokers – and based on past feedback, some investors will prefer to have a single rate rather than variable commissions for each country.
The platform also offers ETFs at the same rate, plus the ability to deal in bonds and about 1,500 funds. Saxo Trader’s extensive range of CFDs, FX and other products don’t seem to be available on this platform, but that’s understandable given the different focus. International stock dealing seems to be limited to the US and Europe, which is more restrictive than the full Saxo Trader platform – but that’s as much coverage as many investors will want.
Currency sub-accounts are available, allowing you to hold cash in US dollars, euros and Swiss francs as well as sterling. And there’s no minimum account size, which is handy for smaller investors or those just wanting to test the platform. (A regular Saxo Bank account requires a minimum of US$10,000, although there are some introducing brokers to Saxo that will let you open an account for less.)
… but a step back on FX
So far, so good – but what’s the catch? As noted before, UK stock brokers tend to charge rather high currency commissions, which eats into your returns when trading international shares. This is especially a problem with ISAs, since you can’t hold foreign currency in an ISA – forcing you to convert into sterling and back out again every time you trade.
Hence the list of good ISAs for holding foreign shares is a short one – and given that Saxo charges a currency fee of 0.5% over the interbank rate, the fact that it now offers an ISA should have made it a clear market leader. Which is why the detailed list of charges for Modern Wealth Management [PDF] is a letdown. Specifically:
Foreign Exchange Charge
Investing in overseas shares will be subject to the prevailing interbank exchange rate plus an additional 1.5%.
In other words, the new service apparently charges three times the FX commission of the standard Saxo Trader. Based on that, the existing Saxo Bank service looks like it will remain significantly more cost-effective for most international investors. Of course, this doesn’t include the option of an ISA wrapper – but based on estimated costs, more restricted services such as iDealing and iWeb will probably be cheaper as long as they cover the stocks you want.