FX fees are the 1st real cost of Sipps

moctey

Sipp providers let you think you can have an account with decent fee for trading purpose. Let's say you have k£200. You trade in on year 10 times k£20 in a different currency. (like EUR market). Your cost is the margin they take 1-1.5%. That means your cost for the year is between k£20 and k£30. All other fees are ridiculous compared to the FX cost.

I don't understand why the regulator is not asking SIPPs provider to communicate in a more explicit manner on the FX fees instead of having this hidden in a brochure.

Worse if you want to switch a EUR position to another EUR position you have to first settle in GBP and pay the FX margin, then to buy again in EUR and pay twice the FX margin when you could just sell in EUR keep EUR and spend EUR to buy the new position. It's so mean to force people to settle in GBP.

10 Years ago, maybe this was acceptable because you had no other option except if you are rich and access to a customized banking solution. Today a startup like Revolut let you transfer your GBP instantly in many currencies with no FX fee and no Margin. I don't understand why we keep paying them enormous margin with no reason.

dunstonh

Sipp providers let you think you can have an account with decent fee for trading purpose.

There are very few SIPPs that are set up or priced to target the trading customer. Most are set up for dealing. Very few consumers in the UK do trading. Most use funds but those that use direct assets do so on a dealing basis rather than a trading basis.

I don't understand why the regulator is not asking SIPPs provider to communicate in a more explicit manner on the FX fees instead of having this hidden in a brochure.

If they are not allowed to publish the charge in their fee brochure, then how do you propose the communicate their charges?

It's so mean to force people to settle in GBP.

The alternative is to charge you for making available a currency account. However, to implement that sort of thing would cost the SIPP provider money. They will spend money where there is demand. The demand for currency accounts is going to be tiny.

Trading is not popular in the UK. So, demand for trading facilities is light.

Malthusian

moctey wrote: »

Sipp providers let you think you can have an account with decent fee for trading purpose. Let's say you have k£200. You trade in on year 10 times k£20 in a different currency. (like EUR market).

If you want to throw your pension away by gambling it on forex then I fail to see how it matters how much of it goes to the SIPP provider.

If you think you can predict currency movements then you will be doubling your money every few months or weeks and a 1.5% margin on trades is irrelevant. Small change. Something for little people who aren't genius traders to fuss over.

Which is it?

stephennt

I believe Revolut is heavily loss making - the super tight spreads you can see in the market are what you can get if you run your own bank (i.e. you trade million USD clips, you have your own back office, settlement, regulatory department, funding and credit). It in no-way reflects the true cost of doing a single FX transaction.

If you're interested in a multi-currency bank/broker though I believe Fineco (just lauched here in the UK) may offer this...?

EdSwippet

Malthusian wrote: »

If you want to throw your pension away by gambling it on forex then I fail to see how it matters how much of it goes to the SIPP provider.

The OP doesn't appear to be contemplating forex trading. Rather, just regular (although perhaps over-frequent) trading in non-GBP stocks.

For example, buying AAPL might cost 1.5% in broker forex for GBP to USD, then switching from that to AMZN would cost you another 3% (1.5% twice), and finally cashing out would cost a further 1.5%. That's a rather steep 6% for nothing more than a preference for holding US rather than UK shares combined with a restriction on holding any non-GBP cash. While the 10 switches in the OP's example may be a bit extreme, especially over a short time period, one switch is not.

TD Direct Investing offers multiple currency settlement in some account types. Whether or not this will persist across the merger with Interactive Investor is presently unknown.

Malthusian

If that's the case then I apologise and withdraw my post, but I took "You trade in on year 10 times k£20 in a different currency" at face value.

If you have a SIPP and FX costs are your primary cost then you are probably still gambling on day-trading though.

dunstonh

I read the post as the op looking at trading rather than dealing too.

bowlhead99

moctey wrote: »

Sipp providers let you think you can have an account with decent fee for trading purpose. Let's say you have k£200. You trade in on year 10 times k£20 in a different currency. (like EUR market). Your cost is the margin they take 1-1.5%. That means your cost for the year is between k£20 and k£30. All other fees are ridiculous compared to the FX cost.

So in one year you do ten trades of £20k each to deploy your total £200k. On each of those ten trades you might pay 1% FX commission which is £0.2k for each of the trades. So for all of the ten trades added together, you have spent (£0.2k x 10) which is a total of £2k. That is 1% of the £200k you invested.

However, you are saying "your cost for the year is k£20". But it's not, it's "k£2". So you are out by a factor of ten: no surprise it looks expensive.

Or are you saying you will split your £200k into ten chunks of £20k each, and then every one of those ten separate chunks will be bought and sold ten times each over the course of the year, for 100 trades total? As mentioned by others, that is "trading" rather than investing. Most people building their investments for retirement do not need to change what they are invested in 100 times a year.

Typically someone investing in a long term investment product such as a SIPP, -even if they only wanted to be buying foreign currency listed shares and not GBP listed funds, investment trusts or ETFs - would buy the shares in year one, hold them a decade until they have doubled or tripled in value, then sell. They would incur no FX fees in year 2-9, only in year 1 to buy and in year 10 to sell. So the fee is 1% of the start balance to buy and 1% of the end balance to sell. It will be 2% of the average balance, set against total profits of 100-200% on the starting capital. It is certainly a cost, but niche products have costs. If you want to lower the costs you look for other ways to get exposure to those markets or companies.

I agree with Edswippet above : and use TD Direct for investing in my unwrapped accounts. The FX conversion fees are high but mitigated by having multicurrency cash accounts.

AnotherJoe

Someone posted here the other day that you weren't allowed to hold foreign currency in an ISA. I don't know if the same applies to a SIPP but if it does then as the OP points out, trading (as opppsed to buy/hold) non Sterling denominated shares is likely not a good plan.

I have the TD multi currency account which doesn't suffer from this issue but it is unwrapped. I have two foreign company shares in my SIPP both are long term holds. I'd think really hard about buying another one if I sold either of those.

Malthusian

AnotherJoe wrote: »

Someone posted here the other day that you weren't allowed to hold foreign currency in an ISA. I don't know if the same applies to a SIPP

Pretty sure it doesn't. Back when you had to use at least 50% of your ISA allowance for stocks and shares (rather than any combination of cash and stocks and shares as it is now), there were rules to prevent you using stocks and shares ISAs as a de facto cash ISA. I can't remember exactly how it worked off the top of my head but the gist is that while you could hold cash in a stocks and shares ISA, it was only allowed if the cash was being held short-term awaiting investment. I imagine these rules applied whether it was pounds or foreign currency.

There's never been any such restriction on SIPPs. You have always been allowed to have 100% of your SIPP in cash and I assume that cash can be pound sterling or dollars or ringgits or whatever you like.