How I chose my Stock Broker and Why I switched from SAXO to Interactive Brokers

This article first appeared on DollarTriumph in August 2020. I have included an update of my experience since then at the bottom.

Having had the experience of opening accounts in both brokerage firms, thought I should share my thoughts on the positives and things to be improved on with both sides.

Over the course of the Circuit Breaker, I started my monthly DCA journey into the Vanguard ETFs (VWRA) as a means to diversify my investments outside of the STI. Through this time period, I have done plenty of research and picked the ideal brokerage firm for my investment habits.

Let me start off by listing down my requirements:

• Able to trade US, HK, AU, UK and SG stocks (not too particular about SG stocks because I am using DBS Vickers for that)

• Am not a trader so will only be executing < 10 trades a month

• Either Custodian or CDP was alright

I first crawled through the trove of information readily available on the internet on the top brokerages to go with why they would be ideal for my investment needs.

I also took a good read through some of the financial blogs in Singapore and did my own comparison. The 2 links below were helpful in listing a good comparison of what is in the market for someone looking to start a brokerage account in Singapore.

• Dollars and Sense – Comparison of List of Brokerages Accounts in Singapore

• Financial Horse – Which is the best Stock Broker for Singapore Investors

After digesting all the info available, I realised that SAXO seems to fit my needs as a brokerage firm to purchase US, HK, UK stocks.

It was a toss up between SAXO and Interactive Brokers but SAXO edged it as they had a custodian fee of 0.12% annually vs Interactive Brokers’ USD $120 annual fee. In theory, it seemed that as long as my holdings within SAXO was less than $100,000 it’d made sense to go with SAXO as it will be less than USD $120.

SAXO’s Experience

The account opening was really simple and quite quick. If I remember correctly, it took a couple of days for them to approve my account and I was good to go.

SAXO’s interface, website and mobile application were easy to navigate and get around too. I have to say that their User Interface Team definitely did a splendid job, the whole layout was easy on the eye and it was simple enough that you would not get lost traversing the site and getting the information you need.

The next step was to fund my SAXO account. Funding the account with Singapore Dollars was a relatively simple process, all I had to do was to just do a local bank transfer to their account here and I was good to go. The process was quick, it took mostly an hour or so max.

However, this is where my main gripe with SAXO arises. If you remember my requirement at the top, I wrote about how I wanted to purchase stocks/ETFs which were denominated in USD and not SGD.

To purchase these stocks, you could still use your SGD account but SAXO will convert to SGD first for you before purchasing it. The exchange rate which SAXO is charging is ridiculously high when you compare it with other brokers.

The fee that they were charging to convert your SGD to USD to purchase stocks in USD meant that it was extremely uncompetitive if you were to compare it to other brokers who are available in the market.

A quick search on google showed that many faced this issue too. A light at the end of the tunnel seemed to appear via the creation of a Sub-Account denominated in USD in your SAXO Account. Note that this is free and you just need $10,000 SGD in your SAXO account (be it via cash/stocks) and they will gladly open a Sub-Account for you.

Now that I’ve my Sub-Account opened up, the main issue was how should I fund it with USD and in the most cost-effective FX rate too?

Enter TransferWise and Revolut. Both seemed like they were the perfect solution to my issue. By converting SGD to USD using their services which promises a competitive FX rate, it seem like I can proceed to fund my SAXO account with USD and start investing away, no?

Alas, another barrier popped up in the form that both Revolut and TransferWise’s services were not acceptable by the SAXO’s team (at least this is the case at the time of writing).

That proved to be another barrier in using SAXO to kickstart my journey of DCAing into Global ETFs at the most cost-effective way.

SAXO’s fees starts from 0.15% while Interactive Brokers and FundSupermart is at 0.08%. In my opinion, the extra 0.07% will add up considerably over the course of your investments. For example, the difference it might make in a $500 purchase monthly over a year could be approximately $42.

(Update February 2021: SAXO has since revised their fees to be more competitive (0.06%, min charge of USD$4) with the market however, the min charge - USD$4 is still high compared to other brokers in the market.)

Lastly, while SAXO does not charge any fees, the withdrawal of your USD holdings will also incur a charge via the correspondent (intermediary) bank (USD $25). The adding up of these miscellaneous fees make investing with SAXO pretty pricey and the high FX fees you are being charged might actually put one off this platform.

In summary, while SAXO’s platform is seamless and well managed, I do not think paying a premium on your FX rate is worthwhile to use this platform. With newer players like TigerBrokers coming in, the competition is only going to get tougher for SAXO. While I know that there might be sign up bonuses etc for SAXO, I do not think it is worthwhile signing up for that benefit alone.

Interactive Brokers’ Experience

I first came to know of Interactive Brokers (IBKR)when a friend remarked that their website site was a nightmare to navigate and the layout is very messy. Although he did concede that the low fees involved was also a reason why he stuck it out.

I used to be very skeptical of using IBKR and would always recommend friends to SAXO instead since the UI and customer experience was always very seamless and prompt to respond.

However, the FX rate debacle which I mentioned above made me realised that I had to find a more cost effective platform than my current option. For that reason alone, I pushed my sights to IBKR and created an account with them.

The process was quite seamless and my account was opened instantly. Kyith aka InvestmentMoats has written a detailed article on the whole process here.

I have to admit that IBKR’s layout and ease of navigating through the site is not the best. I have had issues with locating certain indices or functions within the site, often having to find my way around for a bit.

However, I do feel that after listening to the supposedly many “horror” stories of IBKR’s interface, I think that has considerably lowered my expectations of the interface and I actually think that it is not as bad as what I have heard.

It has been a month since I’ve created my account and bought some shares on it. I find myself able to navigate through the site seamlessly.

The strength of IBKR lies in its low fees (though I’ve heard about TigerBrokers and TD Ameritrade recently) and this is evident from the moment I made my deposit into the broker. I deposited SGD and then chose to convert it into USD.

I was shocked to see that the rate I was given for the conversion was much better than any of the other brokers out there. The best news is that they just charge a small amount of fee for converting your currency. In my case it was $2.74 for converting SGD $4,500 to USD.

The mobile app for IBKR is also easy to use and to be frank, not much difference from any of the other brokers.

In Summary

Since you are vested in investing for the long haul, better to choose a brokerage firm well tailored to your needs than facing the hassle of withdrawing your holdings and transferring to a different broker a few years down the road. That is a nightmare, both financially and logistically (search for examples on google).

Disclaimer: I am not sponsored by any brokerage firms and all views here are purely my own.

Update - February 2021

Having used IBKR in the past half year, I have gotten accustomed to the user interface and purchasing/selling experience. I am still convinced that IBKR is the way to go if you are looking to invest for a lifetime as you should hit the 100K AUM target (hopefully) eventually.

The no min charges and low FX fees are the biggest allure, I can purchase and sell shares as and when I want without paying a min charge. I have seen my comm fees being as low as USD $0.28. These savings add up considerably in the long run.

To me, a brokerage account is a long term commitment as I will be investing for the rest of my life. I would try to ensure that I start on the correct footing and not be drawn by the short term carrots of new joiner bonuses etc.