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True Wealth is a Swiss Robo-advisor that allows high customization, aggressive investing, and low fees. In November 2022, True Wealth introduced support for third pillars.
Since they are an excellent Robo-advisor, I want to check out their third pillar offer.
In this review, I will analyze the True Wealth 3a offer in detail. We will examine its fees, investment strategies, and pros and cons.
By the end of this review, you will know whether you should use True Wealth 3a.
|Total Fee||0.34% per year|
|Stock allocation||Up to 99%|
|Maximum foreign exposure||65%|
|Maximum investment in cash||100%|
|Investment Strategy||Index funds and ETFs|
|Languages||English, French, German|
|Custodian Bank||BLKB and Saxo Bank|
|Foundation’s domicile||Liestal, Basel-Land|
True Wealth 3a
True Wealth is a mature Swiss Robo-advisor launched publicly in 2014. As of 2022, they are managing more than 800 million in assets. True Wealth is a major player in the investing market in Switzerland.
Their Robo-advisor service is excellent. They have low fees, allow very high investment in stocks, and let you customize your portfolio to the extreme. In short, True Wealth is one of the best Robo-advisors in Switzerland.
In November 2022, True Wealth announced a new product: True Wealth 3a, their third pillar offer.
The 3a Digital Pension Foundation holds True Wealth 3a assets. The assets are managed by True Wealth under the foundation’s regulations.
Everything is managed holistically within your account. So, you can see both your 3a and your investments from within the same interface.
It is worth mentioning that the foundation is located in Liestal, in canton Basel-Land. When withdrawing your third pillar while abroad, you will pay withholding taxes based on the location of the 3a foundation. Basel-Land is relatively cheap for withdrawal amounts lower than 500’000 CHF. Higher than this, it becomes quite expensive. Also, for amounts up to 100’000 CHF, it is significantly more expensive than the cheapest tax domicile. But overall, it is a relatively good tax domicile.
You may want to consider this tax domicile if you plan to leave Switzerland. For people retiring in Switzerland, this makes no difference.
We should look at how money is invested with True Wealth 3a. True Wealth 3a will invest in index funds (from Credit Suisse) and ETFs. I do not know any other third pillar that uses both.
They focus on passive funds, which is excellent since these funds are low-cost and should replicate the performance of the market.
You can invest up to 99% in stocks in your 3a, which is very good. The 1% needs to stay in cash for rebalancing and fees. Interestingly, they have a 1% interest on cash which may be interesting if you need to temporarily keep your 3a in cash.
One major limitation is that you must have 35% Swiss francs in your 3a. Indeed, they are limiting foreign currency exposure to 65%. So, you must either invest heavily in Swiss shares or use currency hedging. This limitation is quite important and will hit your returns in the long term.
Interestingly, True Wealth is working on a solution that would allow lifting this limitation, just like Finpension 3a did. If they succeed, they will become much more interesting.
True Will will propose a well-diversified portfolio (diversification is critical). As an example, here is the portfolio True Wealth 3a proposed for the maximum risk profile:
We can see that there are four instruments:
- CSIF (CH) Equity EMU QBH – An index fund from Credit Suisse, investing in European stocks, hedged into CHF
- Xtrackers MSCI USA UCITS ETF 3C – An ETF from Xtrackers, investing in US stocks, hedged into CHF
- iShares Core MSCI EM IMI UCITS ETF USD – An ETF from iShares, investing in emerging markets
- iShares Core FTSE 100 UCITS ETF GBP – An ETF from iShares investing in UK stocks.
I see several issues with this portfolio:
- Too much currency hedging
- Too much invested in Europe and UK
- Too much in emerging markets
- Too little in US stocks
I will now go over these issues in detail.
First, there is too much currency hedging. 66% of the assets are hedged into CHF. Currency hedging is an interesting tool in the short term but should not be used that much in the long term. Over the long term, currency-hedged funds will likely underperform non-hedged funds.
Also, I do not understand why 66% are in Swiss francs since the minimum is 35%, so why add an extra 31%?
Second, this portfolio invests too much in Europe and UK. Together, they represent 48%, much more than I recommend investing in these two regions. As of November 2022, Europe represents about 15% of the world stock market. This allocation is a huge bias compared to what these two regions represent. The UK is only 4% of the world stock market, so why invest 14%? This allocation does not make sense!
Third, this portfolio invests too much in emerging markets. I do not understand why one would like to invest 19% in emerging markets. As of November 2022, Emerging markets make up 11% of the world stock market.
Finally, as a direct consequence of the previous biases, this portfolio invests too little in US stocks. The US forms a huge portion of the world stock market (60% in November 2022). But True Wealth 3a only invests 32%.
Overall, I do not like this portfolio. It differs way too much from global market capitalization. I do not understand these biases.
As a Robo-advisor, True Wealth has excellent customization. However, this is not the case for the 3a account. Indeed, you can only have a single global portfolio shared by the untied assets and the 3a. There is no way to tune the 3a to your needs without changing the free assets portfolio. I was expecting better from True Wealth.
The investing strategy of True Wealth is alright, using low-cost passive index funds and index ETFs. However, the portfolio proposed by default is far from optimal. On top of that, having 35% in Swiss francs is a significant limitation.
If you want maximum returns over the years and use passive investing, it is important to reduce the fees. The fees are the best lever for passive investors.
Currently, there is no management fee on True Wealth 3a. This fact is amazing.
On top of that, there are a few fees. First, you will pay the TER of the ETFs and index funds. This fee depends on your portfolio. The fees vary from 0.15% for global portfolios and 0.25% for sustainable portfolios. So, we can take 0.20% as a base fee.
Then, you also have to pay stamp duty taxes when shares are bought and sold. This tax is only for ETFs, not for index funds. It should not make a huge difference since this only applies to operations. And this can be reduced by netting and pooling.
And there is also a small markup of 0.10% for foreign currency exchanges. Again, this can also be reduced with pooling and netting, so they should not be too significant. And given the high amount of CHF in the portfolio, this fee should not pose an important issue.
You will pay an overall 0.20% fee on your True Wealth 3a asset. This fee is incredibly low, almost twice lower than the cheapest available third pillar.
So, where is the catch? I mentioned that, currently, True Wealth 3a does not have a fee. However, the 3a foundation can add a 0.225% management fee to the True Wealth 3a assets.
True Wealth has a contract with the foundation that says the fees cannot increase until at least January 2024. True Wealth will try to mention that management fee further, but we have no guarantee that this will hold after January 2024.
So how does True Wealth make money? Usually, commission-free services make money in a way that is detrimental to users. However, I do not see this with True Wealth.
The reason they are making it free is two-fold:
- They offer a new service to their existing clients at a very low cost for True Wealth
- They hope to bring in new customers for their Robo-advisor service, which is not free (but very affordable).
We should also mention that since True Wealth uses some ETFs instead of institutional funds, they cannot get back the dividend withholding. Dividend withholding means that you will lose some of your dividends. Depending on your risk profile, this can account for 0.02% to 0.14% (for the most aggressive investor).
For an aggressive investor, we get a total fee of 0.34% per year. And for conservative investors, this would be around 0.22% fee per year.
With the extra 0.225%, the total fee would only be 0.565% which is still a fair fee. A conservative investor would reach 0.445%, which is quite good.
So, overall, True Wealth 3a fees are excellent! If a management fee is introduced later, it will become fairly priced but not excellent any more.
Investing in True Wealth 3a
If you already have an account with True Wealth, you can open your True Wealth 3a in a few minutes. Everything is included in the web application.
If you do not have True Wealth, you will need to open an investment account, and then from there, you will be able to open a 3a. The minimum is 1 CHF for the 3a. If you want to also invest in their free assets, you will have a minimum of 8500 CHF.
True Wealth has an excellent feature for contributing to your True Wealth 3a account: auto top-up. With this feature, every time you contribute to your True Wealth account, the money will go to your 3a until the maximum is reached. And then, the rest of the money will go to your regular Robo-advisor account.
But that is not all! True Wealth will automatically create five third pillar accounts. True Wealth will fund these accounts with a similar amount over the years. Having five retirement accounts is optimal since you can stagger the withdrawals over five years to reduce the taxes you will pay.
This feature is amazing because it makes investing in a third pillar easy. You do not have to worry about investing the maximum every year, and you do not have to worry about opening and balancing five accounts.
You can also transfer money directly from your free assets. True Wealth made it very easy to fund their 3a.
On the other hand, you have to be careful that adding a 3a to your account can change your free portfolio! When I added a 3a to my account for testing, True Wealth added some real estate to my free portfolio. I dislike this, and adding a 3a should not change my custom portfolio because I added a 3a. You can change it back, but you must notice it first! I may have missed the notice, but if there is a notice, it is not very visible.
So, be careful about your free portfolio changing without enough notice.
We should quickly compare True Wealth 3a against two alternatives.
True Wealth 3a vs Finpension 3a
I am currently using Finpension 3a for my third pillar accounts. Finpension 3a is currently the best third pillar in Switzerland. So, we should compare True Wealth 3a and Finpension 3a.
The investing strategies are relatively similar. However, Finpension 3a uses only index funds, while True Walth 3a uses a mix of ETFs and index funds. Both services let you invest 99% in stocks.
The customization is much better with Finpension 3a. True Wealth only lets you have a global portfolio shared between your free assets and your 3a. On the other hand, with Finpension 3a, you can have a different portfolio for each account, and everything is highly customizable.
True Wealth 3a has the unique feature of automatically creating five accounts and balancing them. I wish Finpension 3a implement something like this.
Regarding fees, Finpension 3a costs about 0.39%, while True Wealth 3a is about 0.34%. On the other hand, True Wealth will incur stamp duty taxes, and its currency conversion fee is higher than Finpension’s.
Overall, True Wealth 3a is slightly cheaper than Finpension 3a. If the management fee of True Wealth 3a comes into action in the future, Finpension 3a will become much cheaper than True Wealth 3a.
On the other hand, the portfolios by Finpension are better diversified than those by True Wealth 3a. Indeed, the portfolio from True Wealth 3a is heavily biased towards Europe.
Also, True Wealth 3a forces you into a lot of currency hedging. This hedging will eat your returns. At Finpension 3a, you can make a portfolio without hedging, while True Wealth 3a has a limit of 65% of foreign exposure. The amount of hedging is a very significant disadvantage of True Wealth 3a.
For me, the disadvantage of currency hedging is enough to tip the scale in favor of Finpension 3a, which will generate higher returns in the long term. So, overall, Finpension 3a is better than True Wealth 3a.
If you are interested, I can write an entire comparison between these two products. Let me know in the comments below.
True Wealth 3a vs VIAC
VIAC is another great third pillar provider. So, we can also quickly compare VIAC and True Wealth 3a.
VIAC uses only index funds, while True Wealth 3a uses a mix of ETFs and index funds.
VIAC fees are at 0.40%, while True Wealth 3a is at 0.34%. So, True Wealth 3a is cheaper than VIAC. The stamp duty taxes may add a little to the fees of True Wealth 3a since they use ETFs.
VIAC has a foreign exposure limit of 60%, while True Wealth’s limit is 65%. So, True Wealth 3a will let you invest more aggressively in foreign currencies.
As long as the extra management fee is not included, True Wealth 3a is better than VIAC! The fees are lower and allow you to invest more aggressively.
What is True Wealth 3a auto top-up?
Auto top-up allows you to automatically send money to your True Wealth 3a account in priority and spread the balances over five different third pillar accounts.
Will True Wealth 3a remain free forever?
We do not know. Currently, True Wealth 3a is guaranteed to be free until 2024. The 3a foundation has the contractual rights to add 0.225% management fees on top of the assets. True Wealth will try to maintain the zero management fee as long as possible.
How much foreign currency can you have with True Wealth 3a?
The foreign exposure is limited to 65% with True Wealth 3a. So, at least 35% should be in CHF or hedged into CHF.
What is the minimum to invest in True Wealth 3a?
You can invest as little as 1 CHF in your True Wealth 3a.
Can you customize your True Wealth 3a portfolio?
Not really, True Wealth 3a is tied to a global portfolio in the account, shared between free assets and the 3a. Therefore, changing your portfolio results in changing it for both your untied and 3a assets.
Can you use a different portfolio for each 3a account?
No, each 3a is tied to the same global portfolio.
How many third pillars can you have with True Wealth?
You can have up to five (optimal!) third pillars with True Wealth 3a.
True Wealth 3a Summary
True Wealth 3a is a robo-advisor third pillar, created by True Wealth. They allow aggressive investing at a very low price.
Product Brand: True Wealth
True Wealth 3a Pros
Let's summarize the main advantages of True Wealth 3a:
- You can invest 99% in stocks
- No management fees
- Holistic interface for your free and 3a assets
- Automatically create and balance five accounts for you
True Wealth 3a Cons
Let's summarize the main disadvantages of True Wealth 3a:
- Foreign exposure limited at 65%
- Impossible to change the portfolio of the 3a independently
- Cannot have a different portfolio for each 3a
- Use ETFs and not index funds
- Management fees could be added in the future (but TW is not planning to)
- Default portfolio heavily biased toward Europe
- Adding a 3a can change your global portfolio
I am impressed by True Wealth 3a fees. I was not expecting them to cut down fees to zero. Generally, commission-free has a big catch, but that does not seem to be the case here. The fees may change in the future, but until that happens, True Wealth 3a is the cheapest third pillar in Switzerland.
Even when factoring in the inefficiencies of ETFs for a third pillar, True Wealth 3a is still very affordable.
On the other hand, I also see several issues with True Wealth 3a. First, the foreign currency exposure limit is 65%, forcing investors into hedging. And second, the portfolio proposed by default is heavily biased toward Europe. On top of that, customization is limited since the portfolio is shared between the free and 3a assets.
The low fees do not make up for these issues. I would rather pay a little more in fees and have better returns in the long term.
Nevertheless, if you already have a True Wealth account, having a 3a with them may make sense. However, I would not recommend opening a True Wealth account to use their 3a. Instead, I still recommend Finpension 3a as the best third pillar available in Switzerland.
If True Wealth manages to remove the 65% foreign exposure limit, they are going to be much more interesting, and I will reconsider at this time.
To learn more, read about the best third pillar in Switzerland.
What about you? What do you think about True Wealth 3a?
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