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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 article 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 can also access 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 results from 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 pillar.
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.
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: 75% in stocks
- Profile 7: 97% in stocks
It is not a typo. There is no profile 1. It is a bit weird, but it is a minor 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 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 your risk capacity changes. And if your overall Selma risk profile changes, Selma will ensure that the third pillar risk profile still makes sense.
Once you retire, one good thing is that 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, and the rest is invested in various fixed asset classes: stocks, bonds, real estate, and precious metals.
Looking at my favorite profile, the one with 97% 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 more straightforward. 2% invested in gold will make no difference in the long term.
It is good that these strategies invest so much in the market. It is also great that the maximum allocation to stocks is 97%. It is a great advantage.
The investments are made weekly. It is an excellent thing since you only have to wait one week for your money to be invested!
Overall, they have good investing strategies using index ETFs. These strategies are solid and well-diversified. The maximum allocation to stocks is excellent. On the other hand, Selma 3a could simplify the portfolios to avoid tiny percentages. But this should be minor in the long term.
Fees of Selma 3a
When investing in the third pillar, you are investing for the long term. You will have to keep your money in the account until retirement. There are some exceptions, but most people will generally keep it for long.
So, when investing long-term, you must be careful about investing fees! So, let’s look at the fees of Selma 3a.
The base fee of Selma is 0.68% per year. This fee covers all the costs for Selma. They have the same fees for the main investing account as the third pillar account. The transparency of these fees is great: all accounts and all strategies have the same fees.
One great thing is that these fees are decreasing with your assets. Indeed, Selma has a degressive system for fees:
- Below 50K CHF: 0.68% fees per year
- From 50K to 150K CHF: 0.55% fees per year
- From 150K CHF: 0.47% fees per year
So, you can get lower fees if you have a sizeable third pillar. And even better, all your assets with Selma count towards this. So, if you have a Robo-advisor account at Selma, it will be easier to lower your fee.
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% per year.
So, overall, you will pay about 0.90% of fees annually. Compared to some invested third pillar accounts, it is not that bad. However, this is quite expensive compared to the best third pillar accounts in Switzerland. If you have more than 150K CHF with fees, this comes down to about 0.70%, which starts to become quite interesting.
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, 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 considered 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.
We should always compare services with other possible alternatives. So, let’s start by comparing Selma 3a and Finpension 3a (the current best third pillar).
Selma 3a vs Finpension 3a
The current best third pillar in Switzerland is Finpension 3a. So, let’s compare Selma 3a and Finpension 3a.
The investment strategies are slightly different. Overall, both services invest in index funds. Selma uses only index ETFs, while Finpension 3a uses index funds. Finpension uses index funds because, 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.
Both services let you invest up to 97% in stocks.
Regarding fees, you will pay about a 0.44% fee per year at Finpension 3a with the highest allocation to stocks. At Selma, you will pay about 0.90% per year. In the long term, such a difference in fees is very significant.
From a usability point of view, Selma is slightly easier to start than Finpension 3a. However, both remain extremely simple. While you have many advanced options, the basic options at Finpension 3a are as simple as those 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.
Finpension 3a is better than Selma 3a because of the much lower fees and the more aggressive investment. But Selma makes it easier to transfer your wealth at retirement age.
For more information, I have a complete review of Finpension 3a.
Security of Selma 3a
We can also 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 bankrupt, all your money is safe at VZ. If VZ bankrupts, since your shares are held in your name, they should also be safe. Now, VZ is a big asset management company. The chances that it will go bankrupt 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.
Selma 3a Pros
Let’s summarize the advantages of the Selma 3a account:
- High allocation to stocks (97%)
- Weekly investing!
- 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
Selma 3a Cons
Let’s summarize the disadvantages of the Selma 3a account:
- The fees are relatively high (0.90%/year)
- You can only have one third pillar account with Selma 3a
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 the 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. However, if you have a large amount in your third pillar, you could get it down to 0.70%, which starts to be interesting.
If you compare this account with Finpension 3a, 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 advantages. On the other hand, if you also have your investments at Selma, your risk profile will be better tuned.
However, Selma is still a good third pillar. They offer a significant allocation to stocks (97%). 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 like Finpension 3a!
Fortunately for Selma, they are the only provider offering regular investments and retirement accounts. So, you can easily combine and manage both types of accounts. And both will count towards the degressive fees! It is an advantage for Selma!
If you are interested in alternatives, you can check out the best third pillar in Switzerland.
What about you? What do you think about the Selma 3a offer? Which third pillar account are you using?