Are II really the only SIPP prodivers allowing holding of foreign currency?

hoc

There is some choice when it comes to brokers offering multi currency in normal trading accounts and ISA rules prohibit holding of foreign cash so that is clear, but why do so few offer this option with a SIPP? From my research it seems only II offer it, with all others each sale or purchase has be converted to and from GBP charging the 1% or more FX commission each and every time. So buying one American share immediately with the proceeds from the sale of another can unnecessary add 2-3% in FX fees. Is there a particular challenge or do brokers view this as a simple money making scheme since customers don't complain, or can't given lack of alternative providers to move to?

bowlhead99

hoc wrote: »

Is there a particular challenge or do brokers view this as a simple money making scheme since customers don't complain, or can't given lack of alternative providers to move to?

It's not an insurmountable challenge but it's not free to implement and operate and the vast majority of pension and general investment account customers, by value of assets under management, don't trade very frequently or at all in directly held foreign shares (or non-GBP versions of funds).

As the market is competitive you won't find those vast majority of customers wanting to pay higher ongoing fees for functionality they don't use, and the market has shown that they are willing to accept a currency conversion cost for the odd non sterling trade they do (and the FX commission rates do drop off for large deal sizes that corporates or institutions use).

As far as I remember, II never had multi currency cash accounts until they acquired TD Direct's customer base and systems platform, which had offered multicurrency accounts for years. TD Waterhouse as previously branded -owned by a Canadian bank - had thought it would be sensible to have a multi currency offering when building up a brokerage in UK and Netherlands. Whereas a UK fund supermarket like HL, or a UK high street bank-owned stockbroker like Halifax, is not going to think that holding Hong Kong, Canadian, Australian, US dollar currency is something most account holders would demand. Adding the service would therefore put up costs and dissuade Joe Public from using it over a more competitive rival, unless you throw it in for free and reduce your profits.

hoc

Due to what is this additional cost to implement and operate you imply attributed? Handling currency on a platform isn't a challenge, many offer it on normal trading accounts and the systems already manage them since they are then converting from USD or EUR to GBP so the setup is all there. It's not like a full foreign currency account you get from a bank like Barclays or HSBC where they may be additional requirements/benefits and therefore costs. SIPPs typically don't give interest on cash so currency doesn't add complications in that sense either, what is left I am overlooking to cause extra expense to them and therefore customer?


Demand in the UK market may not necessitate it, clearly it doesn't, but isn't it surprising there aren't a few who offer it to differentiate themselves? I know, I know, there are costs you're saying. But I would have thought it makes sense to offer it to stand out at both ends of the market, whether the no frills bargain brokers like iweb focusing on cost efficiency or the more expensive posh ones offering more 'bespoke' service.


Incidentally, I don't have any facts, I don't know if you do, but anecdotally I find holding US shares (NYSE/NASDAQ) not such an uncommon phenomenon talking to my circle of friends. Practically any friend or colleague I chat with who has gone to the trouble of setting up a trading account or SIPP has at least one FAANG in their portfolio.

stphnstevey

Trading Accounts offer better deals for currency

Do you have to use SIPP money for foreign shares or could you limit this to your trading account?

Holding currency to limit currency conversion costs is only one aspect, the FX charge taken can vary hugely and also needs consideration

hoc

stphnstevey wrote: »

Trading Accounts offer better deals for currency

Do you have to use SIPP money for foreign shares or could you limit this to your trading account?

Holding currency to limit currency conversion costs is only one aspect, the FX charge taken can vary hugely and also needs consideration

The whole point is the FX charge would be a one time event until chosen to be converted to GBP. Assuming the account required funding in GBP, which makes sense, after the first purchase all subsequent would not attract any FX charges.


I put in GBP. I buy some NYSE share, I pay the USD FX charge. I then sell my NYSE share, it stays in USD, no FX. I then buy a NASDAQ share with this USD, no FX. There is no FX until the currency is chosen to be converted. FX rates and commissions don't vary by huge margins. Even if a SIPP broker who offered multi currency holding charged double the FX rate it would become cheaper after the third trade.


I don't think there is a valid reason for providers not offering this other than the fact they must be making good money off FX. Share trading fees in the UK are typically £5-10. The lowest FX commission on trades is 1%. So a foreign share trade above the £500-1000, which isn't exactly high roller and probably below the average typical amount, attracts a higher fee on FX commission than the trade fee itself.


Perhaps my views and expectations are distorted due to familiarity of services and platforms beyond the UK. After all, I am always puzzled as to just how many obliviously pay up based on uncapped holding fees or find it normal to have to pay transaction fees to buy funds.

stphnstevey

hoc wrote: »

The whole point is the FX charge would be a one time event until chosen to be converted to GBP. Assuming the account required funding in GBP, which makes sense, after the first purchase all subsequent would not attract any FX charges.

This is the case in some specialised Trading Accounts, but I haven't seen this in a SIPP

Companies charge fees whilst they can still get away with it and whilst they still remain competitive

There is some cost to the service, but there is also a margin added and in finance the margins on the product: "money" can be huge, despite there being very little difference in the actual transaction between platforms

There have been much higher charges in finance throughout history

If you dont like it, dont pay it or find a solution yourself!

hoc

stphnstevey wrote: »

If you dont like it, dont pay it or find a solution yourself!

Embodying the spirit of a forum intended to share knowledge ever so well I see. :T

stphnstevey

hoc wrote: »

Embodying the spirit of a forum intended to share knowledge ever so well I see. :T

People have taken time to help you, but you seem to want to constantly whine like a little girl, so can't see that happening further

bowlhead99

stphnstevey wrote: »

but you seem to want to constantly whine like a little girl

This petty answer did make me chuckle but mostly because it was quite out of context with the foregoing comments. The OP just wants to understand why nobody else does it like Interactive Investor (legacy TD Direct / TD Waterhouse model) and can't see a good reason.

The answer is simply that when dealing with the Great British Public who will fund their pension in pounds and take distributions in pounds and largely invest in pound-denominated products - and whose occasional foreign currency transactions needs can be dealt with, through an ad-hoc spot rate conversion process charged at point of use through a commission system - there is no need to run a more complex and expensive multicurrency bank account system within the SIPP, and then have a more expensive (or less profitable) product as a result, which only has an attraction for a minority of users.

Users are familiar with their financial service provider doing a spot conversion where necessary (e.g. when they buy something on their debit or credit card from a foreign store).

The current default setup has been the industry-standard way to do it for years, so there is no lack of competitiveness for any newly launching provider which follows the same approach, hence no particular traction for the idea of doing multicurrency account. Notwithstanding TD Waterhouse (now II) have been an outlier having their multicurrency brokerage system mapped across into their pension product for about a decade or so.

The high street banks don't offer multicurrency accounts to high street customers because there is a cost implication to do so. Ultimately it is not worth it for them. And complexity does translate across to a platform account: "SIPPs typically don't give interest on cash so currency doesn't add complications in that sense either" is probably not a valid comment because SIPPs are perhaps only not offering interest at present because market interest rates are low - that's not an enduring condition and if cash rates were 10% people may shun platforms that offered 0% while their cash sat idle for a month.

Many platforms are not particularly profitable. The idea of 'why not offer it to differentiate themselves' does not take hold because running a platform efficiently is a volume game - appeal to the 500,000 people not the 5,000; the 5000 likely do not want to split the cost of a brand new system and operating environment between themselves.