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Choosing a great third pillar is very important. You will invest in this account for many years in the future. Recently, there has been a trend for Robo-Advisors. So, now there are also Robo-Advisors third pillars.
I have already talked about Selma, the Robo-Advisor. But now, I want to talk about their third pillar offer. In late 2019, Selma introduced their third pillar offer.
If you already have an account with Selma or if you like Robo-Advisors, this could be interesting for you!
So, how does the Selma 3a account compare with the other third pillars available in Switzerland’ Let’s find out!
Selma is a popular Robo-Advisor in Switzerland. They are offering an investment account and choosing ETFs to invest in for you. You also have access to a personal virtual financial assistant from within the app.
Selma itself started in 2016, but they only started their Selma 3a account in November 2019. The third pillar account is the result of a collaboration with VZ Vorsorgestiftung that will hold the funds in your name. If you need a refresh on retirement accounts, I have a complete guide on the third pillars.
If you already have an account with Selma, you can directly open a third pillar account from within their app. This way, your two accounts will be connected. It is a straightforward way to manage your investments in the same place.
If you want more details about their investing offer, I have a full review of Selma Finance.
Let’s look in detail at the investment strategies of Selma for your third pillar.
The investment strategy for the third pillar is quite different from the investment strategy of the default account. Selma 3a is not a Robo-Advisor. They are using six profiles for investment:
- Profile 2: 15% in stocks
- Profile 3: 25% in stocks
- Profile 4: 35% in stocks
- Profile 5: 45% in stocks
- Profile 6: 60% in stocks
- Profile 7: 80% in stocks
It is not a typo. There is no profile 1. It is a bit weird, but it is a small detail.
When you start your account, the Robo-advisor will ask you questions to define your investor profile. Based on your answers, the service will assign you one of the six profiles that we just saw. After this, this is not a Robo-advisor anymore. Each profile is a fixed portfolio.
You can still change from one to another if you choose to or if you risk capacity changes. And if you overall Selma risk profile changes, Selma will make sure that the third pillar risk profile still makes sense.
One good thing is that once you retire, you can transfer your ETFs into your main investing account. So, you will not have to liquidate them. This feature could make your retirement much simpler.
All these strategies fully invest in stocks and bonds. Only 2% or 3% of each strategy is kept in cash in a money market fund. The rest is invested in various fixed asset classes: stocks, bonds, real estate, and precious metals.
Looking at my favorite profile, the one with 80% in stocks, we can see that half of the shares are Swiss stocks. The rest is a mix of Swiss bonds, international bonds, and tiny percentages of the other classes. I think that this portfolio could be easier. 2% invested in gold will make no difference in the long-term.
It is good that these strategies invest so much in the market. However, it would be better if they had a higher allocation to stocks. I would rather have no bonds and full stock allocation. However, Selma is currently working on offering new versions with more stocks. These new versions might still be available this year. So, if you are looking for more aggressive options, there is good news to look forward to!
Overall, they have good investing strategies using index ETFs. These strategies are solid and well-diversified. However, the allocation to stocks is currently still a little low (will soon change), even in the most aggressive approach. Moreover, the portfolios could be simplified to avoid tiny percentages.
When you are investing in the third pillar, you are investing for the long-term. You will have to keep your money into the account until retirement. There are some exceptions, but in general, most people will keep it for long.
So, when you are investing for the long-term, you need to be careful about investing fees! So, let’s look at the fees of Selma 3a.
The base of Selma is always 0.68% per year. This fee covers all the fees for Selma. They have the same fees for the main investing account than for the third pillar account. The transparency of these fees is great: all accounts and all strategies have the same fees.
On top of that, you will have to pay the fees for the products you are investing in. These are the fees of the ETFs. And these fees will depend on your investment strategy. With Selma 3a, these fees are from 0.20% to 0.22% fee per year.
So, overall, you will pay about 0.90% of fees per year. Compared to some invested third pillar accounts, it is not that bad. However, compared to the best third pillar accounts in Switzerland, this is quite expensive.
Open a Selma 3a Account
Opening a third pillar account with Selma is very easy.
If you already have an account, you can directly open a third pillar account from within your account. Otherwise, you will have to open a new account at Selma.
Opening a 3a account is a straightforward process. The Selma assistant will take you through all the steps by asking you questions directly. It is like chatting. It is a well-done process that is easy to follow.
Based on your answers from the chat, Selma will recommend one of the six profiles, and you will have the chance to change it before you start investing.
One good thing is that if you have your investing account and your assets at Selma, you will have a good overview of your assets. And your third pillar assets will be taken into account by the Robo-advisor for investing your main assets.
Currently, you can only have one third pillar account with Selma. I think that this will change in the future. But this could be an issue if you are close to retirement. Having several third pillars can help reduce your taxes.
Selma 3a vs VIAC
The current best third pillar in Switzerland is VIAC. So, let’s compare Selma 3a and VIAC.
The investment strategies are slightly different. Overall, both services invest in index funds. Selma uses only index ETFs, while VIAC uses index funds and ETFs. The reason for VIAC using index funds is that as a third pillar foundation, they have access to better funds than most. Also, this reduces trading costs and stamp tax duty.
However, this adds redemption and issuance fees. Also, Selma will let you transfer your ETFs directly into your main wealth. So you may not have to liquidate your ETFs when you reach retirement age.
Selma lets you invest 100% of your assets. But 2% will be kept in a money market fund. VIAC only enables you to invest 97% in the stock market. However, with VIAC, you can invest up to 97% in stocks! With Selma 3a, you can only invest 80% in stocks. However, as mentioned before, Selma should introduce new options with more stocks in 2020.
Regarding fees, you will pay about a 0.54% fee per year at VIAC with the highest allocation to stocks. At Selma, you will pay about 0.90% per year. In the long-term, such a difference in fee is very significant.
From a usability point of view, Selma is slightly easier to get started than VIAC. However, VIAC remains extremely simple. While you have many advanced options, the basic options at VIAC are as simple as the options with Selma.
On the other hand, Selma will show a combined overview of your investments and your retirement assets. You only need one place to manage both of these assets.
Overall, I think that VIAC is better than Selma 3a for several reasons:
- VIAC’s fees are lower.
- You can invest more in stocks with VIAC (likely to change this year if Selma increases stock allocation!)
- Both options are straightforward to start with.
But Selma has some advantages as well:
- You have a good overview of all your investments.
- Selma makes it easier to transfer your wealth at retirement age.
For more information about VIAC, I have a complete review of VIAC.
We can also take a look at the security of your assets. Security is essential for long-term investing.
VZ Vorsorgestiftung will hold your cash and your shares. All your shares are held in your name. So, if Selma bankrupts, all your money is safe at VZ. And VZ bankrupts, since your shares are held in your name, they should be safe as well. Now, VZ is a big asset management company. The chances that it bankrupts are relatively low.
From a technical point of view, the security of Selma is quite good. All the communications are encrypted. And you can use Two-Factor Authentication (2FA) as well. Using a second-factor will highly increase your security.
Overall, security seems alright to me.
Let’s summarize the pros of the Selma 3a account:
- Well integrated into the Selma Robo-Advisor
- Investments and third pillars are matched together
- Extremely simple to use
- Strategies invest fully in the stock market
- Use passive ETFs
- Good security, with Two-Factor Authentification
Let’s summarize the cons of the Selma 3a account:
- The fees are relatively high (0.90%/year)
- Can not invest more than 80% in stocks (likely to change in 2020!)
- Can only have one third pillar account
While Selma is a good Robo-Advisor, its third pillar has few advantages.
If you are looking for a simple solution to combine all your investments (Selma Robo-Advisor) and your third pillar (Selma 3a) in one place, Selma is a great offer. This offer is only one of its kind in Switzerland.
But in this case, simplicity has a cost. Overall, for a pure third pillar invested passively, Selma is too expensive. You will pay about 0.90% in fees per year. This fee is too high for me.
If you compare this account with VIAC, you will pay significantly higher fees. Since this is not a Robo-advisor third pillar account (the strategy is a fixed portfolio), you do not get some of the advantages. On the other hand, if you also have your investments at Selma, your risk profile will be better tuned.
Currently, Selma 3a offers a lower allocation to stocks than VIAC (80% instead of 97%). But Selma is working on a new portfolio with a higher allocation to stocks. This offer could make Selma more interesting. I will update the article once this comes.
It is not a bad third pillar. If you compare it to some of the alternatives of big banks, Selma 3a is a good third pillar. Unfortunately for Selma 3a, there are some very competitive alternatives out there like VIAC and maybe soon valuepension!
Fortunately for Selma, they are also the only provider offering both regular investments and retirement account. So, you can easily combine and manage both types of accounts. It is an advantage for Selma!
So, for now, I think people should stick with VIAC until another new third pillar comes to challenging. Now, if you are already investing with Selma, their third pillar could be great to have a simple combined platform.
What about you? What do you think about Selma 3a offer? Which third pillar account are you using?