Hi Zhirong, thanks for your question. Allow me to take it in three parts - about costs which are directly relevant to Irish-domiciled ETFs vs MoneyOwl's offerings; about MoneyOwl's core proposition and advantage; and finally a word on Dimensional funds vs indexed funds/ETFs.
Fund domicile & costs
Indeed, fund domicile has an impact on implicit costs especially dividend withholding tax. To re-cap a little, for the sake of other Seedly readers, Irish-domiciled Dimensional unit trusts used by MoneyOwl are tax-efficient compared to US-listed ETFs used by roboadvisors that use ETFs, because with Irish-domiciled Dimensional funds there is no dividend withholding tax for Singapore investors, whereas for US ETFs there is a 30% withholding tax. This can add up to quite a bit of implicit costs. (See our article https://advice.moneyowl.com.sg/why-unit-trusts-... )
But as you rightly point out, there are also Irish-domiciled ETFs. Yes, these are just as tax-efficient as our Irish-domiciled Dimensional unit trusts, in that there is no withholding tax. However, Irish-domiciled ETFs have higher bid-ask spreads - another implicit cost - and much lower liquidity than US ETFs. The bid-ask spread of the Irish version of the global stock index ETF is more than 0.09% wider than the US ETF, and for emerging market stocks, the difference is more than 0.13%. Probably for this reason and the related lower liquidity, roboadvisors that use ETFs have chosen to use US ETFs.
There were a few other issues with ETFs highlighted in the article that remain irrespective of domicile in Ireland or US. This includes:
(1) Difficulty in deploying modest amounts every month as a regular savings plan - something we encourage as financial planners who are focussed on the ordinary man in the street - into ETFs, while being able to manage transaction costs well and be fully invested without having to accept fractionalising of shares.
On transaction costs, you would need to do your sums -- SGBudgetBabe pointed out that for IB, you have to pay a USD120 annual fee for accounts less than USD100k. ( https://www.sgbudgetbabe.com/2019/05/my-review-... )
As for fractional shares, MoneyOwl is not comfortable with fractional shares of ETFs as legal ownership is unclear, if the main record of the end client's holding is at the advisor's premises in a ledger rather than with the custodian. On this we acknowledge there are different viewpoints among different firms.
(2) Global bond ETFs are not hedged back to SGD, unlike the Dimensional fixed income fund in MoneyOwl. From a risk profile point of view, it is important to hedge out the currency risk of foreign currency -- foreign currencies fluctuate much more than bond prices, otherwise the bond portion of the portfolio will be volatile and that negates purpose of having fixed income in the portfolio, which is to reduce the volatility. In other words, without the hedge, you are actually taking a very different risk than what you might have intended with that fixed income/bonds part of the portfolio.
What MoneyOwl aims to offer
Having said all of the above, if finding the lowest possible cost is the only concern, and you are mainly an equities investor, DIY investing rather than investing through MoneyOwl or any advisor will be most cost effective. Investing with MoneyOwl can't really be compared to DIY investing which does not come with advice. We are not a brokerage or a marketplace for funds. MoneyOwl keeps investing costs low, but our value is not in aiming to be the lowest cost, but to give you the best chance of a successful financial plan of which investing is a part. MoneyOwl’s services are for the man on the street who needs and wants to receive advisory services. DIY investors who have the knowledge and ability to perform all the aspects of the advisory value chain on their own as described below should really continue to invest directly themselves as that is the cheapest way to invest. Our core is really in advice and may I suggest some pointers below for consideration:
(1) What constitutes advice or advisory services in investment? This includes:
- Risk profiling – helping to match you to the right portfolio based on the combination of your ability, willingness and need to take risk
- Portfolio construction with the right strategic asset allocation (return/risk)
- Regular review of strategic asset allocation, in case of major strategic shifts that affect our fundamental investing assumption
- Fund/instrument selection
- Monitoring performance of underlying funds
- Execution of buy and sell
- Rebalancing at regular intervals to asset allocation
- Risk coaching of investor to stay invested during turbulent markets
Not everyone is able or wants to do this on his own. Investors who can, should do these things on their own. For those who prefer advice, MoneyOwl will do all of these for our clients through a bionic model (tech + human advisers) for 0.65% p.a. (promotional rate now 0.50% p.a.)
(2) The value of advice, or advisor alpha: There are many reports that show that investors lose out on market return because they panic and sell too early when markets go down. An adviser adds value when he or she can help investors understand how markets work and risk-coach investors to stay invested over the long term to capture market return, rather than time the market. Just as importantly is educating the clients prior to things happening - and in MoneyOwl we have a full advice.moneyowl.com.sg site where we share articles and views (not just on investing but on financial planning in general) and on 25 May we are having an Investment Symposium ( please see
https://www.eventbrite.sg/e/moneyowl-investment...), plus our good-sized team of advisers is available to have discussions with you. One Morningstar study showed that the difference between a market return and an investor's return can be as much as 2+% per year over 10 years, which adds up to a lot.
(3) Bionic advice - human and technology. MoneyOwl has a team of human advisers who go beyond customer service, to provide actual financial advice, to supplement our robo platform. Successful investing involves connecting the head and the heart, to understand the trade-offs among need, ability and willingness to take risk (when these are in conflict) and when markets are turbulent. We need technology to do the quantitative parts and provide 24/7 accessibility for exploration, but we also need human wisdom and empathy. It's like a store where you can come in and browse without anyone tailing you, but we are there when you want to talk to us.
(4) Comprehensive in advice - Investing should not be an end in itself, but part of your overall financial plan. MoneyOwl is not only an investment (robo)advisor, but a comprehensive financial adviser. The investment robo module is our third - after insurance and wills - and soon we will launch comprehensive planning where we integrate both CPF planning and investments for retirement planning, plus introduce retirement withdrawal concepts. An sensible accumulation plan really should integrate national schemes for retirement (which are now compulsory) and not just be about investments and shortfalls, and should be supplemented by how to invest in retirement withdrawal years as well. This is very hard for DIY investors to do on their own.
(5) Best-in-class advice that understands Singaporeans - MoneyOwl benefits from its parentage as one of our parents - Providend - is a best-in-class advisor with deep experience in comprehensive financial planning and retirement planning, including CPF planning. Just as Providend has been serving the affluent market well, so now will MoneyOwl, its close associate, do for the mass market. At the same time, we inherit from our other parent, our majority shareholder NTUC Enterprise, a strong inclination to serve the ordinary working family in Singapore, thus combining a unique blend of expertise and mission and deep understanding of Singaporeans, underpinned by common values of Doing Right.
Dimensional vs indexed funds
From a financial planning standpoint, both Dimensional funds offered by MoneyOwl and globally diversified passive indexed funds (be they ETFs or unit trusts) are market-based funds that fit our investment philosophy -- no market timing, focus on long-term asset allocation (not short-term tactical shifts). That said, I think it is important to appreciate and understand the unique value proposition of Dimensional funds, which are based on Nobel prize-winning research about long-term dimensions of higher return; and you might feel that this is a good addition to your whole market-based portfolio even if you do DIY investing. (You can read more about Dimensional here https://advice.moneyowl.com.sg/the-right-buildi... ) Dimensional funds are not available to retail investors for direct investment - this is the stance that Dimensional takes around the world - because it knows that the odds of a successful investment journey are so much higher when the right advisor is there alongside the investor.
So it comes back to this - MoneyOwl is about advice and we are confident of our delivery of advisor alpha to you.
Hi Zhirong, thanks for your question. Allow me to take it in three parts - about costs which are directly relevant to Irish-domiciled ETFs vs MoneyOwl's offerings; about MoneyOwl's core proposition and advantage; and finally a word on Dimensional funds vs indexed funds/ETFs.
Fund domicile & costs
Indeed, fund domicile has an impact on implicit costs especially dividend withholding tax. To re-cap a little, for the sake of other Seedly readers, Irish-domiciled Dimensional unit trusts used by MoneyOwl are tax-efficient compared to US-listed ETFs used by roboadvisors that use ETFs, because with Irish-domiciled Dimensional funds there is no dividend withholding tax for Singapore investors, whereas for US ETFs there is a 30% withholding tax. This can add up to quite a bit of implicit costs. (See our article https://advice.moneyowl.com.sg/why-unit-trusts-... )
But as you rightly point out, there are also Irish-domiciled ETFs. Yes, these are just as tax-efficient as our Irish-domiciled Dimensional unit trusts, in that there is no withholding tax. However, Irish-domiciled ETFs have higher bid-ask spreads - another implicit cost - and much lower liquidity than US ETFs. The bid-ask spread of the Irish version of the global stock index ETF is more than 0.09% wider than the US ETF, and for emerging market stocks, the difference is more than 0.13%. Probably for this reason and the related lower liquidity, roboadvisors that use ETFs have chosen to use US ETFs.
There were a few other issues with ETFs highlighted in the article that remain irrespective of domicile in Ireland or US. This includes:
(1) Difficulty in deploying modest amounts every month as a regular savings plan - something we encourage as financial planners who are focussed on the ordinary man in the street - into ETFs, while being able to manage transaction costs well and be fully invested without having to accept fractionalising of shares.
On transaction costs, you would need to do your sums -- SGBudgetBabe pointed out that for IB, you have to pay a USD120 annual fee for accounts less than USD100k. ( https://www.sgbudgetbabe.com/2019/05/my-review-... )
As for fractional shares, MoneyOwl is not comfortable with fractional shares of ETFs as legal ownership is unclear, if the main record of the end client's holding is at the advisor's premises in a ledger rather than with the custodian. On this we acknowledge there are different viewpoints among different firms.
(2) Global bond ETFs are not hedged back to SGD, unlike the Dimensional fixed income fund in MoneyOwl. From a risk profile point of view, it is important to hedge out the currency risk of foreign currency -- foreign currencies fluctuate much more than bond prices, otherwise the bond portion of the portfolio will be volatile and that negates purpose of having fixed income in the portfolio, which is to reduce the volatility. In other words, without the hedge, you are actually taking a very different risk than what you might have intended with that fixed income/bonds part of the portfolio.
What MoneyOwl aims to offer
Having said all of the above, if finding the lowest possible cost is the only concern, and you are mainly an equities investor, DIY investing rather than investing through MoneyOwl or any advisor will be most cost effective. Investing with MoneyOwl can't really be compared to DIY investing which does not come with advice. We are not a brokerage or a marketplace for funds. MoneyOwl keeps investing costs low, but our value is not in aiming to be the lowest cost, but to give you the best chance of a successful financial plan of which investing is a part. MoneyOwl’s services are for the man on the street who needs and wants to receive advisory services. DIY investors who have the knowledge and ability to perform all the aspects of the advisory value chain on their own as described below should really continue to invest directly themselves as that is the cheapest way to invest. Our core is really in advice and may I suggest some pointers below for consideration:
(1) What constitutes advice or advisory services in investment? This includes:
Not everyone is able or wants to do this on his own. Investors who can, should do these things on their own. For those who prefer advice, MoneyOwl will do all of these for our clients through a bionic model (tech + human advisers) for 0.65% p.a. (promotional rate now 0.50% p.a.)
(2) The value of advice, or advisor alpha: There are many reports that show that investors lose out on market return because they panic and sell too early when markets go down. An adviser adds value when he or she can help investors understand how markets work and risk-coach investors to stay invested over the long term to capture market return, rather than time the market. Just as importantly is educating the clients prior to things happening - and in MoneyOwl we have a full advice.moneyowl.com.sg site where we share articles and views (not just on investing but on financial planning in general) and on 25 May we are having an Investment Symposium ( please see
https://www.eventbrite.sg/e/moneyowl-investment...), plus our good-sized team of advisers is available to have discussions with you. One Morningstar study showed that the difference between a market return and an investor's return can be as much as 2+% per year over 10 years, which adds up to a lot.
(3) Bionic advice - human and technology. MoneyOwl has a team of human advisers who go beyond customer service, to provide actual financial advice, to supplement our robo platform. Successful investing involves connecting the head and the heart, to understand the trade-offs among need, ability and willingness to take risk (when these are in conflict) and when markets are turbulent. We need technology to do the quantitative parts and provide 24/7 accessibility for exploration, but we also need human wisdom and empathy. It's like a store where you can come in and browse without anyone tailing you, but we are there when you want to talk to us.
(4) Comprehensive in advice - Investing should not be an end in itself, but part of your overall financial plan. MoneyOwl is not only an investment (robo)advisor, but a comprehensive financial adviser. The investment robo module is our third - after insurance and wills - and soon we will launch comprehensive planning where we integrate both CPF planning and investments for retirement planning, plus introduce retirement withdrawal concepts. An sensible accumulation plan really should integrate national schemes for retirement (which are now compulsory) and not just be about investments and shortfalls, and should be supplemented by how to invest in retirement withdrawal years as well. This is very hard for DIY investors to do on their own.
(5) Best-in-class advice that understands Singaporeans - MoneyOwl benefits from its parentage as one of our parents - Providend - is a best-in-class advisor with deep experience in comprehensive financial planning and retirement planning, including CPF planning. Just as Providend has been serving the affluent market well, so now will MoneyOwl, its close associate, do for the mass market. At the same time, we inherit from our other parent, our majority shareholder NTUC Enterprise, a strong inclination to serve the ordinary working family in Singapore, thus combining a unique blend of expertise and mission and deep understanding of Singaporeans, underpinned by common values of Doing Right.
Dimensional vs indexed funds
From a financial planning standpoint, both Dimensional funds offered by MoneyOwl and globally diversified passive indexed funds (be they ETFs or unit trusts) are market-based funds that fit our investment philosophy -- no market timing, focus on long-term asset allocation (not short-term tactical shifts). That said, I think it is important to appreciate and understand the unique value proposition of Dimensional funds, which are based on Nobel prize-winning research about long-term dimensions of higher return; and you might feel that this is a good addition to your whole market-based portfolio even if you do DIY investing. (You can read more about Dimensional here https://advice.moneyowl.com.sg/the-right-buildi... ) Dimensional funds are not available to retail investors for direct investment - this is the stance that Dimensional takes around the world - because it knows that the odds of a successful investment journey are so much higher when the right advisor is there alongside the investor.
So it comes back to this - MoneyOwl is about advice and we are confident of our delivery of advisor alpha to you.