Frankly 3a Review: A good new third pillar from ZKB

Mr. The Poor Swiss | Updated: | Retirement, Investing

(Disclosure: Some of the links below may be affiliate links)

Frankly is a third pillar account offered by Zurcher Kantonal Bank (ZKB). It is an interesting third pillar because it allows you to invest heavily in stocks. And on top of that, the fees are quite low.

It is good to see that there are more and more alternatives for good third pillar accounts in Switzerland.

So, let’s see what exactly is Frankly and how good it is!

In this article, I am going to look at many things about Frankly: its investment strategies, its fees, and its security. And I am also going to compare it against other good third pillars.

Frankly 3a from ZKB

Frankly is a third pillar account offered by the Zurcher Kantonal Bank (ZKB).

ZKB is a large bank that has been established a long time ago. They started Frankly as a mobile-only service to appeal to the younger generations. And they are also focusing on people investing in their pillars. As we will see, you can invest a large portion of your funds in stocks with this third pillar account.

Frankly is a very new service. ZKB officially launched Frankly in March 2020. But they already reached 100 million CHF of assets under management. One good thing about this service is that they promised that the fees would go down as more and more people use it. ZKB already reduced Frankly fees by 0.01% once they reached 100 million CHF. So hopefully, in the future, the fees will go down even lower.

So, let’s see what Frankly has to offer.

Frankly Screen
Frankly Screen

Investment Strategies

Frankly is highly focused on investing in the stock market. You can choose between eight different strategies in your Frankly account:

  1. Light 10 Active
  2. Gentle 25 Active and Gentle 20 Index
  3. Moderate 45 Active and Moderate 45 Index
  4. Strong 75 Active and Strong 75 Index
  5. Extreme 95 Index

The number in each of these strategies is the allocation to stocks. So, the Extreme 95 Index strategy allocates 95% to stocks while the Light 10 Active strategy only allocates 10% to stocks. The rest is invested in bonds, precious metals, and real estate.

Active denotes active investing while Index denotes passive investing. I am a strong believer in index investing. If I were to use Frankly, I would use one of the Index strategies.

It is really good that you can invest up to 95% in stocks. And you can get 100% invested since the rest will be invested in real estate and precious metals. But there will always be a very small cash portion. As of this writing, there is 0.5% cash in the Extreme Index strategy.

Each of these strategies invests in a single fund from Swisscanto (a subsidiary of ZKB). So, if you want details, you will have to go to the Swisscanto website and look at the fact sheet of the funds. I wish that all this information was available transparently on the Frankly website. There is a big lack of information on the Frankly website.

The Extreme 95 Index strategy seems good. It is using Passive investing through indexes. However, they do not share which indexes are being used. It is another transparency issue with Frankly.

Let’s take a look at the detailed allocation of the Extreme 95 Index strategy. This strategy uses the Swisscanto (CH) IPF III Vorsorge Fonds
95 Passiv NT CHF fund. Here are the most important characteristics of this fund:

  • The TER is 0%
  • There is a 0.10% issuance fee
  • There is a 0.09% redemption fee
  • 30% is invested in Swiss Stocks
  • 65% is invested in foreign stocks
  • 2.5% is invested in Swiss Real Estate
  • 2.5% is invested in precious metals
  • At least 70% is held in CHF

This last information is very important but is often overlooked by investors. There are only 30% of Swiss shares in this fund. So, investments in foreign shares are being hedged against CHF. Currency Hedging means you get insurance against variations of the currency pair that would cost you money.

Currency Hedging is a good tool, but not a long-term tool. It is great to hedge your investments if you are investing in the short-term. But if you are investing for the long-term, currency hedging is too expensive.

The fact that a lot of foreign currencies are being hedged is a large disadvantage of Frankly in the long-term.

Overall, the investment strategies of Frankly are good but could be better. It is terrific that they have passive investing options. And they let you invest a large portion in stocks. On the other hand, transparency could be much better, and the hedging will end up costing too much in the long-term.

Fees

In the long-term, fees are extremely important. Therefore, we need to look in detail at the fees of Frankly.

Regardless of your investment strategy, you will pay 0.47% in fees to Frankly. It means that every year, you will lose 0.47% of your invested money. Even if this fee seems high, it is quite low for third pillars in Switzerland.

On top of that, you will have to pay some fees based on the funds you choose. These are mostly issuance and redemption fees. The issuance fee is removed when you buy new shares. And the redemption fee is due when you sell shares. For instance, with the Extreme 95 Index strategy, you will pay a 0.10% fee when you invest and 0.09% fee when you sell.

Issuance and redemption are not as bad as management fees because they each only apply once (unless you change strategy often). But you need to keep them in mind. If you are investing in the short-term (if you are close to retirement, for instance), this may eat a lot of your profits.

There is a critical thing with these fees. The 0.47% all-in fees apply to each of the investing strategies. It means that even if you only invest 10% in stocks, you will pay 0.47%. So, you will pay a high fee for very little investment. It makes Frankly a bad third pillar for investing little in stocks. If you do not want to invest a lot of money in stocks, Frankly is not for you!

On top of that, there are the costs of hedging. It is difficult to put them in absolute since this will depend on the future. But on average, we can say that this will be at least 0.30% extra fee per year. And it could be more.

Overall, the base fees of Frankly are really good. However, the hedging costs will weigh you down.

If you are not convinced by their importance, read about why investing fees are very important.

Open a Frankly account

You can directly open an account from the mobile application.

For this, you can download the application from your favorite app store and follow all the basic steps of creating an account. During the process, it will ask you your ID, so make sure you have it ready. It is a straightforward process that is well done.

I am not going to go over all the steps. Anybody can follow these steps without any help!

Once you are done creating your account, you can directly fund. If you already have another third pillar account that you want to transfer, they will give you the necessary forms. You can fill the form and post the documents. They will then take care of everything.

ZKB did a good thing in creating a seamless onboarding process. It is well done and simple. The application itself is simple and practical.

Something good is that you can create up to five accounts for yourself. It is an excellent feature since it will allow you to save money on taxes. For more information on that, I invite you to read my detailed article on the third pillar.

Overall, there is nothing wrong with the onboarding and the usage of Frankly.

Frankly Onboarding
Frankly Onboarding

Security

If you want to invest money in financial service, you will want to make sure the security is good.

From a technical point of view, Frankly has good security. The app is linked to your phone. It means that having your password will not be enough for anyone to access your account. It is the default way of securing mobile applications these days.

Your invested assets will be held in your name as shares of the various Swisscanto funds. If ZKB fails, the shares will still be yours. It may take some time to recover, but it is safe. And the cash will be held by ZKB.

Overall, there is nothing wrong with the security of Frankly. They are not doing anything special, but they are providing the same level of security as other similar apps.

Frankly vs VIAC

Until now, I have always recommended VIAC as the best third pillar in Switzerland. So, let’s see how Frankly compares to VIAC.

First of all, if we take a look at the fees, Frankly is slightly cheaper than VIAC. Indeed, it has a TER of 0.47%, while VIAC’s fee is 0.50% (0.45% TER  plus 0.05% foreign currency). This difference is not significant, but over the long-term, it could make a difference.

With VIAC, you can invest up to 97% in stocks but only 95% with Frankly. On the other hand, Frankly lets you invest 100% while you always keep 3% in cash with VIAC. Again, it is not a huge difference, but in the long-term, this could be significant.

From a usability point of view, VIAC has a slight advantage since they also offer a web application and not only a mobile app. It is good for people like me who are not fond of mobile phones.

One place where both services differ is in the information they share. With VIAC, you can get the details of the indexes they are invested in. And you can get good information directly from the website and the app. On the other hand, Frankly is not transparent. They always refer you to PDFs of Swisscanto, and they do not share in which indexes they invest, only in which fund they invest in. So VIAC is much more transparent than Frankly.

For me, the most significant difference between these two third pillar accounts is in the currency hedging. VIAC does not force you to hedge a large portion of your foreign assets. With Frankly, you will have a minimum of 70% of your portfolio in CHF, with currency hedging. It will be costly in the long-term since you are going to miss out on returns. If you are close to retirement, this may be an advantage. But for most people, this will be a significant disadvantage. And this difference will make Frankly more expensive than VIAC.

So, given the lack of transparency and the mandatory currency hedging, VIAC is significantly better than Frankly. VIAC remains the best third pillar currently.

If you want more information on VIAC, I have an entire Review of VIAC. In the future, I may make a full comparison of both services. But for now, it seems that VIAC is still the best third pillar.

In the future, I may make a full comparison of both services. Let me know if you would be interested.

Frankly Pros

Let’s quickly summarize the advantages of Frankly:

  • The TER is very low, at 0.47% per year.
  • You can invest up to 95% in stocks.
  • The mobile app is fairly easy to use.
  • You can create up to five accounts.

Frankly Cons

Let’s also summary the disadvantages of Frankly:

  • A large part of the foreign currency is hedged to CHF. It will lead to lower returns in the long-term.
  • There is a strong lack of transparency on the website.
  • You cannot customize your portfolio yourself.
  • You can only use it on your phone.

Conclusion

Frankly is a good third pillar account. It is significantly better than most third pillar accounts out there. The fees are quite low, and it offers a large investment in stocks. The fact that its mobile-only could also appeal to many people.

However, it is not the best third pillar. Currently, VIAC remains the best third pillar available in Switzerland. VIAC has several advantages over Frankly:

  • VIAC does not hedge to CHF by default
  • VIAC lets you use a customized portfolio
  • VIAC is much more transparent

If Frankly was to offer non-hedged alternatives, it would become much more interesting! In the meantime, it is a good third pillar account, but VIAC is still the best option.

If you want more information on VIAC, I would recommend reading my review of VIAC.

If you are using Frankly, I would love to get your feedback on this service.

Mr. The Poor Swiss is the author behind thepoorswiss.com. In 2017, he realized that he was falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

14 thoughts on “Frankly 3a Review: A good new third pillar from ZKB”

  1. Thanks for another great Review.
    The all-in-fee sounds very good! Seems to me, the catch here (for people who want a high stock allocation) is the currency hedging you mentioned (talking about the 95-Fund). So the fund itself is held in CHF, but holds other shares that are CHF-Hedged? According to the link below, the cost of hedging is usually included in the TER. If this fund has zero TER, does that mean you’re not paying for hedging (can hardly imagine that :) )? Or will the fund have a slightly lower performance because some of the contained shares have extra hedge costs?
    I find this somewhat confusing.. Would love a blog post of yours discussing hedged funds in detail!

    Link I mentioned earlier:
    https://www.justetf.com/ch/news/etf/why-currency-hedged-etfs-are-rising-in-popularity.html

    1. Hi EarnestPear,

      Yes, the hedging is the catch here. Note that some people may prefer hedging, but that’s another story.
      The fund itself will hold normal shares, maybe in USD. But on top of that, they will pay for hedging, generally with forward contracts so that the fund itself will trade in CHF. In a lot of cases, the cost of hedging is in the performance of the fund. Sometimes, it’s included in TER, but it depends because there are several costs to hedging.

      There are also some advantages to hedging, it’s not all bad. For the very long-term (and for most investors) I do not think it makes much sense.

      There will be an entire article on hedging coming this month to the blog, stay tuned :)

      Thanks for stopping by!

  2. Thank you for this great article, which provides interesting insights (especially the hedging aspect)!
    When comparing frankly to viac in the last section you didn’t mention the issuance and redemption fees. To my knowledge viac does not have these fees, which is another significant difference between the two 3a solutions.
    Keep up the good work!

    1. HI daigaff,

      Thanks for your kind words :)

      Actually, there are also issuance and redemption fees with VIAC. Most of the funds they are using have these fees. It is difficult to compare them since it depends on, so I consider them to be equivalent. But I should make this more clear in the article :)

      Thanks for stopping by!

  3. Hi,

    Thanks for the comparison, this is very valuable! As usual: amazing job!

    I am wondering whether Frankly really subtracts additional fees for the currency hedging. Their management fee is an all-in-fee, so as a customer I would think that currency hedging costs are included. Am I wrong or is this another transparency issue of Frankly?

    Best, Fero

    1. Hi Fero,

      Thanks for your kind words :) I’m glad it’s useful.

      No, they will not show in the all-in-fee since it will depend on the performance of the CHF and of the foreign currencies. You cannot really estimate. But over the long-term, the costs are quite significant (can be up to 0.5% on top of other fees).
      You will lose returns compared to the non-hedged returns. However, you will have less volatility in your portfolio, which is good.

      I still think this is a transparency issue, but they cannot show this as a percentage since it depends on the future.

      Thanks for stopping by!

  4. Interesting. Whilst on the subject of 3te Säule accounts, there is another option when you take third pillar together with the same bank as you take a mortgage. Namely, that you can pay part of your amortisation into their third pillar instead of paying back the capital on your loan. The amount in the 3te Säule must be pledged to the bank in case of default. This means you gain the advantage of investment over the long term in the 3te Säule and you avoid using cash to pay down your mortgage.

    1. Hi Captain Telf,

      Yes, this is entirely correct. I cover this on my guide on mortgages.
      You can either use a third pillar to amortize indirectly or you can pledge your assets instead of using them for your downpayment. But keep in mind in that case that the amount of your mortgage will increase and so will your interest payments and your amortization as well.

      Thanks for stopping by!

      1. Hi Mr.
        Well, technically you’re right, but having pledged the third pillar (or any other account in that matter) means that any payments in that account is part of the amortization amount you have to pay in. As many people already pay the max. amount in the third pillar, there are no “new costs” in that sense, when having a mortgage.

        1. Hi Michael,

          I am not sure I follow you:
          * You still have to pay more interest since the debt is higher, right?
          * And you will amortize a higher amount since the debt is higher, no?

          Unless I am missing something which is quite possible since I have never pledged anything to a bank.

          Thanks for stopping by!

  5. I wish I could invest in active funds or trusts or individual stocks. The returns on the passive trusts are pretty poor as you end up owning a whole lot of large poorly performing companies and sectors you just don’t want to be in. My uk pension is invested 100% in the equities I have chosen. Pity CH doesn’t allow the same as it’s going to make Swiss pensioners poorer.

    At least it’s better than the 2nd pillar. I’m quite pissed off I can’t manage my own assets – it’s my money!

    1. Hi HickvonFrick,

      I would not wish to invest in active funds personally. I would rather bet on the entire stock market than try to be smarter than it or rely on people thinking that they are smarter and paying them large fees for failing at that.
      But being able to invest more aggressively in the second and third pillar would be great indeed. The Swiss system is definitely not the best in terms of control of the assets.

      Thanks for stopping by!

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