Managing your portfolio: how to choose a bank?

When it comes to managing sizeable wealth, choosing the right financial institution is an important decision. Different financial institutions offer different services and levels of safety.

To manage your account, you need both brokerage services to buy and sell securities and custody services to store and safeguard those securities. Some financial institutions, like banks, can offer both services, while others, like online brokers, offer only brokerage.

Risk comes from not knowing what you are doing.

– Warren Buffet

Here are the main factors to consider when choosing a financial institution:

1. The financial strength of the custodian.
2. The ability of the financial institution to provide you with a tax statement for your country of residence.
3. The investment products and services you need to manage your portfolio.

Financial stability of the custodian

If you have significant assets, ensuring that your securities are stored safely with a reliable custodian is crucial. The first question to ask yourself is which institution(s) your securities are deposited with, to assess their financial stability.

Some financial institutions, including banks, are not necessarily the custodian bank for your securities. For example, when examining the custody fees of a reputable Swiss online bank, a footnote indicates that a surcharge is applied for amounts above 1,000,000 to cover external custody fees. This suggests that this online bank may also use third-party custodians to hold your securities. Who are these custodians? How financially stable are they? Are your assets safe?

In general, online brokers pool client assets and hold them on their balance sheet. If the online broker goes bankrupt, the securities could be at risk.

On the other hand, a custodian bank segregates client assets and doesn’t keep them on its balance sheet. In theory, your securities belong to you (unless they have been lent under a securities lending contract), but how long will it take to get them back if the custodian goes bankrupt?

Tax statement

Before opening an account, ensure that the financial institution (whether an online broker or a bank) can provide you with a tax statement that includes the records you need to file a complete and accurate tax return. These records depend on your tax domicile.

Investment services

Once you have identified financial institutions where your securities are safe and which can provide you with a tax statement, you need to determine the services you may require to manage your portfolio. This will help you select the financial institution that best meets your goals.

You have three options:

1. Manage your portfolio yourself: the financial institution must have an online trading platform with advanced features and good research capabilities.
2. Receive investment advice: you can either use the advisory services of a traditional bank (online brokers or online banks usually don’t offer advice), or opt for the services of an unbiased investment advisor, while keeping your securities with the custodian bank of your choice.
3. Delegate the management of your portfolio: you have the choice between the discretionary mandates of a bank (choose one with a good track record) or those of a third-party manager. If you prefer to delegate the management of your assets to a third-party manager, your securities must be deposited with a custodian bank with which he has an agreement.

Conclusion

By defining your investment goals and doing a proper due diligence, you can make an informed decision that will bring you peace of mind. To choose a bank, you can also look at other features such as fees, interest rates, online tools, personalized services, and the convenience of a local branch.