Part II: My take on StashAway

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Source: StashAway

In Part I of this Article, I described what I disliked about StashAway. In Part II, I will mention what I liked about this roboadviser.

1. Insolvency Risk

What happens when StashAway goes bust? On their FAQ, they state that:

Technically, the ETFs are owned by Saxo, our broker. Asia Wealth Platform Pte Ltd (our legal entity) is a beneficiary of Saxo. Similarly, you are a beneficiary on our ledger. So in short, you are the owner of the ETFs in your portfolio(s).

I emailed them to find out more, and you can take a look at the exchange below, emphasis in bold.

Hi xxx,

I noticed from your FAQ that the legal owner of the securities is:

Technically, the ETFs are owned by Saxo, our broker. Asia Wealth Platform Pte Ltd (our legal entity) is a beneficiary of Saxo. Similarly, you are a beneficiary on our ledger. So in short, you are the owner of the ETFs in your portfolio(s).

I wanted to clarify the operation of this “beneficiary”. Are the securities owned by Saxo, and Asia Wealth, segregated into different portions, with each individual security linked to a specific investor? Or is it a case where all the individual securities are placed together in a pool and owned collectively by investors, and the individual securities are not tagged to specific investors?

Response:

The securities are owned by Saxo and Saxo has a ledger that has Asian Wealth Platform’s name listed on all the ETFs which we purchase. In turn, StashAway has a ledger with all our customer’s name on it, detailing which ETFs belong to whom. 

In short, it is the latter, but we are able to tag each security to each customer due to the ledger records. All securities are accounted for, by number and by ownership.

The rational behind having an omnibus account for our clients is so that we are able to purchase fractional shares, allowing us to maximum every cent in the portfolio.

To further reassure you, StashAway is Singapore’s first and only robo-advisor that has obtained the Capital Market Services Licenses for Retail Fund Management from the Monetary Authority of Singapore (MAS). We have fulfilled the very strict criteria laid out by the MAS. Thus far, the regulators are sufficiently satisfied with our record keeping and how we segment the accounts. There are multiple layers set in place to ensure that the customer funds are protected and accurately reflected.

In addition, please be assured that StashAway is built on very solid foundations, and as part of MAS requirements needs to always have a significant capital base; it is therefore unlikely that StashAway will face insolvency.

In the unlikely event that StashAway faces insolvency, following MAS strict regulations, StashAway has ensured that customers’ funds are protected by the custodian relationship with SAXO (brokerage) and their custodian institutions (HSBC and Citibank), such that those funds are kept separate and un-mingled with StashAway’s finances.

Long story short, Saxo is the legal owner of the ETFs. Saxo has a ledger that states which ETFs belong to StashAway. StashAway has a ledger that states which ETFs belong to you.

It’s a bit tricky because in an insolvency situation, the legal position depends very heavily on how detailed the ledger is, what information the ledger has and how well segregated the securities are. StashAway’s response didn’t give me sufficient information to determine the exact legal position, but the fact that they have a CMS license does indicate that MAS is comfortable with their record keeping practices.

What we want to avoid is the gold bullion cases, where investors invested in a gold investment scheme. It turned out that the gold was all stored in a warehouse in a giant box, and was not tagged to individual owners. This meant that once the company was insolvent creditors were able to seize the gold for repayments, and the investors lost all their money. A similar problem happened with wine investors, which really illustrates the importance of tagging each asset to its original owner.

I am going to give StashAway the benefit of the doubt here because of their CMS license, and assume that the records are done such that in an insolvency, the securities can be traced back to its owner (ie. you). Fractional ETFs are trickier because 3 people could own the same ETF. However, even disregarding fractional ETFs, you could probably get back a decent portion of the original equities in an insolvency situation.

So a plus for StashAway here, though it’s really a bit grey.

2. Tailor Made Solution?

When setting up the investment plan, StashAway asks a whole host of question such as your income, your savings, your goals, your risk appetite, your marital status etc. This gives you the impression that the investment plan is really being tailored for you, which I really enjoyed. I can easily play around with an answer to one question and see how that changes my asset allocation. It sure beats speaking to a financial adviser in person!

The problem though, is that at the end of the day, you are still investing in the market. All the fancy questions and charts don’t change the fact that once you put your money in, your money is at the mercy of the market. It’s easy to get lulled into a false sense of security by the pretty interface and the myriad of personal questions, but the simple truth is that StashAway cannot guarantee your returns. You are basically investing in underlying securities, and if the markets turn ugly, you will suffer huge losses.

3. Passive Investing

StashAway is great because from an investor point of view, the robo-adviser does everything for you. All you do it pick your plan, and transfer in the money. They handle the purchase of assets, the rebalancing, and the deduction of fees all without you having to lift a finger.

It’s really easy and convenient, and all at a relatively low fee. Which bring me to my next point.

4. Low Fees

This really depends on your profile as an investor. If you are a DIY investor who spends your time lurking on stock trading facebook groups (definitely me), the StashAway fees are going to look absurd to you.

If you are a mum and pop retail investor who is picking between a unit trust, a financial advisor and a robo, the robo fees are actually much much cheaper, and may actually provide superior returns net of fees.

Understand your profile as an investor, and know your limits and risk appetite, before picking a robo.

5. No lock-up period

The lack of a lock-up period is a double edged sword. While I can redeem my securities anytime, it also means that when the markets crash and I lose 50% of my net worth, I can panic and sell them all at the bottom.

This means that you still need to train your discipline as an investor, to always remember that you are in for the long haul. In the short run, you may lose 20-30%, but as long as you keep going and keep up regular investments, in the long run you will make outsized returns. StashAway does make it easier to do so, because all you have to do is refrain from selling, and continue transferring the same amount of money every month. You don’t have to think about what securities to buy, and you don’t have to look at share prices every morning and wonder why are you still buying when shares are falling 5% a day.

Closing Thoughts

StashAway, and robo-advisers, are a very interesting proposition. To me, they sit on a spectrum of investment products, somewhere between actively managed unit trusts and pure passive investment via an ETF.

Personally, I don’t like Stashaway because of their outsized allocation to US bonds, and opaque reoptimisation technique. The 30% withholding tax for all dividends and bond coupons is something I cannot stomach as well. The fees are also on the high side as 0.675% on the first S$100,000 is quite a lot, when most US robo-advisers charge 0.2% – 0.3%.

But there is a lot to like about StashAway. For retail investors who have no interest in financial investments and want a cheap product to put their money into the markets, this can be a decent choice. The fees are much lower than that of a unit trust or insurance product, and you get far more control over your asset allocation. If you are choosing between buying an insurance product from AIA or StashAway, my recommendation is to pick StashAway. If you are choosing between buying the SPY and QQQ direct or StashAway, buy the SPY and QQQ instead, but then again, if you are the latter you probably wouldn’t even take my advice.

Whatever financial product you pick, at the end of the day you are investing directly in the market. The market has made fools out of men much smarter than myself, and it will not hesitate to do so again. Never forget that despite the pretty charts and myriad of questions posed, StashAway does not guarantee your returns. They pick an asset allocation for you, and invest on your behalf, but when the markets crash, it is your money that you are losing. StashAway as a company will survive because they will continue to charge you annual fees.


 

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46 COMMENTS

  1. Nice article, i enjoyed the read. Have you thought of writing an article to compare the 3 robo advisors currently operating in sg? Considering Autowealth’s fees are at 0.5%

    • Hi James, thanks for the comment. I actually wanted to start with StashAway since they did a Series A recently, and I’ve heard a lot of good things about them and their management. Let me take a look at the other 2 advisers and see if there’s enough material for a separate article.

      Cheers 🙂

      • Hello Financial Horse, i have noticed and read the article. Once again very nicely written with great details. Have got to say your content is much more detailed and informative as compared to some other financial blogs out there. Well done!

        • Hi James,

          Thanks very much for the kind words, and I am glad that you are enjoying the content. Welcome to Financial Horse (formally)! 🙂

  2. That sounds like an inferior system compared to Personal Capital where all investments are held by Pershing Bank in your name in an idividual account.

    • Hi Steve, yes you are right. Personal Capital’s segregated accounts would be safer in an insolvency situation, since the assets are clearly segmented and tied to individual investors.

      Cheers. 🙂

    • Hi Elena,

      Thanks, I am always open to reader comments. Able to share what model this would be in your view?

      Cheers.

    • Hi LoneRifle,

      Thanks for pointing this out. A full account ledger may be sufficient in an insolvency situation, but it really depends on how the securities are segregated by Saxo and how they are individually tagged. I noticed that AutoWealth does a fully segregated custody account, which would be far more clear cut in an insolvency. Extracted below for reference.

      “In accordance with the Financial Advisors Act, AutoWealth clients’ monies and portfolio assets are held in a personal and segregated custody account at HSBC through Saxo Capital Markets, our partnering MAS-licensed financial institution that is regulated to provide custody services. This means that monies and portfolio assets legally belong to the client and are fully segregated from AutoWealth or Saxo Capital Market’s own monies and assets. Clients enjoy full protection against the insolvencies of both AutoWealth and Saxo Capital Markets.”

  3. HI, I personally are considering investing in this platform (also because they contacted me) and like to ask two question:
    1. Insolvency risk, I think it’s the same with fundsupermarket funds which is under UOB? Is it a standard industry practice?
    2. I assume you have invest with stashaway for a while and I wonder how does it fare for you and if the re-optimization switch your allocation during the recent market swings?

    • Hi! Sure, my responses below!

      1. No, insolvency is a really tricky area of law that depends greatly on how the funds are segregated and tagged to individual customers. I think the safeguard here is that StashAway has a CMS license, and because they’re not engaging in leveraged or highly risky trades, I don’t see a likely situation where they would enter into insolvency. At the end of the day though, what happens in an insolvency would depend on how they structured their asset holdings. They told me that it’s completely safe, but I leave it up to you if you want to take their word for it. 🙂

      2. Unfortunately I do not personally invest in StashAway, for the reasons mentioned in the article! I prefer to invest in the ETFs directly and eliminate the middle man (and fees).

    • Hi there!

      Both ETFs are quite different. ACWI provides global stock exposure, while SPY will be pure US exposure. It really depends on what kind of exposure you’re looking to get in your portfolio.

      As to my personal thoughts, I think if your portfolio has US, China, and Singapore exposure, you should be quite well diversified globally. But of course, diversification does have its downsides, in that gains won’t be as big as that in a more concentrated portfolio. 🙂

  4. Hi FH,

    Just to share my thoughts on this: a key advantage of Stashaway at this point is the fact that SRS funds can be invested in it.

    To provide background, because of the peculiar traits of SRS (potential tax on capital gains, corporate action complexities etc…), I have opted for my SRS to be invested in ETFs.

    Thus, my choices for investing SRS were between (1) directly investing in ETFs myself, or (2) Stashaway. In evaluating option 1, I found that the choice of ETFs that I can buy with SRS is very limited, and largely SG based. Those that are global index funds have ridiculous management fees. As such, I chose Stashaway to give me that wider ETF exposure. It is almost like I chose it as a cheaper alternative to a unit trust, rather than a more expensive alternative to direct ETF investment. Of course this entire logic only works for SRS.

    Happy to hear your thoughts about this!

    • Hi Alaric,

      Interesting perspective! Why not just use your SRS Funds to buy Singapore shares, and use cash to purchase foreign ETFs then? That would be an easy way to sidestep the issue, and you save on the Stashaway fees.

      If you absolutely want to use SRS for ETFs, then yes, Stashaway might be the best way to do it currently. I dont know of any decent alternative.

      That said, I’m really not a fan of this strategy because the first 25k in StashAway incurs up to 0.8% pa, and after you throw in forex spreads and ETF fees, you’re probably looking at 0.9%, which is a bit too high for my liking. Over a 25 year timeframe, the 0.9% is going to kill your returns.

  5. Agree with you on the fees, which is the key reason for my deliberation at this point.

    The idea of using SRS funds to buy SG shares did cross my mind, but I decided against it because my current strategy for shares involves SG shares focused on dividend-generation (e.g. REITS). Thus, would not be optimal to use SRS to buy dividend shares (tricky when right issues, corporate action)

    Will continue to mull over it, and decide if this premium (fees) is worth paying for the increased global exposure. Glad we’ve kind of arrived at the same conclusion though, thanks for your thoughts!

  6. Hi, I am new to investing, aka I have never invested in my life! I am still pretty young, turning 19 this year. I want to start investing, because most forums and websites I have read said that it is good to invest early. However, I have no experience and knowledge on investing and I am often clueless even after reading about the how to-s. When I heard about Stashaway, I thought it would be perfect as there is no minimum amount needed and I don’t have to personally play with investing as I honestly don’t know how to. I am not afraid of risk, as I have set aside money for investing that might or might not be blown away. Problem is that I am not sure of whether I should use Stashaway. Also if you know any easy to understand introductions on how to invest/when and how to start and etc. PLEASE SEND ME A LINK!! I really want to learn more but every time I read a post I get so confused as to what the numbers mean!! please help! THANK YOU!

    • Hello there!

      Haha thanks for dropping the note, it is great that you’re so young and already looking to start investing. At your age, you should focus more on building up investment knowledge, and understanding what you’re doing, rather than the actual investments.

      The Ask FH posts might be helpful for you, as I use that to address concerns from investors from all walks of life (some are beginners, some are experts). You can check out the posts via the link below. If you have any questions at all, feel free to just drop me an email or leave a comment!

      https://financialhorse.com/ask-financial-horse/

  7. This was a great read…thanks! So I’m a US Citizen in Singapore looking to take advantage of the SRS but would like to keep it globally diversified. Were you able to tell if the investments through SRS with Stashaway are the same as their regular account? Would it still invest heavily in US based ETFs and bonds? As a US Citizen I’m already paying the taxes on it so I don’t think it witholds? I’m afraid to click “accept” and setup my one SRS account with them if it ends up being more limited. My other thought was to do exaclty what you described if that’s possible through the SRS…invest in SPY and something like QQQ. It’s been hard to find info on exactly how to do that here. Thanks in advance.

    • Welcome to Singapore! Yep, their investments through SRS are the same as the regular account. You can still set your risk profile accordingly and decide what asset allocation you want.

      If you want to buy SPY / QQQ through SRS, the only way (for now) is through StashAway, the other brokers don’t allow overseas investments yet. That may change in the future though, I know a couple of guys are working on it.

      Cheers.

      • Thanks for the reply. In your opinion, is the tax savings worth the restrictions on investment allocation and multiple currently exchanges needed? Or, if I’m looking for aggressive investment in things similar to US ETFs just move the money over to a taxable account in the US now and lose out on the tax savings. For the sake of this conversation, say $25K SGD invested a year with a tax savings of $4K SGD and set the Stashaway account to it’s max aggressiveness. Ultimately, my expectation is to move everything back to USD eventually (although it may be a long time from now). However, I do appreciate the diversification in savings as well.

        • Hi! I think it depends on your income tax bracket. If you are in the 20%+ range (and based on your example it seems like you’re near there), I would say absolutely the tax savings are worth it.

          If you’re a foreigner you can withdraw your SRS tax free when you leave Singapore and return to the US eventually, though there’s some paperwork to fill up.

  8. Hi FH, comparing a DCA strategy with Stashaway and QQQ via Saxo, Stashaway seems to make more sense. Assuming under 25k, fee in Stashaway is 0.8% + 0.1% forex + 0.2% ETF fees = 1.1%. For Saxo, assuming $1000 DCA, 4USD=5.5SGD transaction fee works to be 0.55% + 0.5% forex + 0.12% custodian + 0.2% QQQ fee = 1.37%. SPY could lower this fee but it will still be higher than 1.1%. What do you think of this?

    • Hi! Why not just save up a few months and then DCA in? Let’s say if you wait 5 months and invest S$5k at one go, the equation will be completely different. Personally that’s what I would do. 🙂

      The 0.5% forex fee you’re buffering in for Saxo is also on the high side, the numbers you get in reality can be a lot better.

      If I’m not wrong, StashAway uses Saxo as well, so you’re probably getting the same forex fees with both.

      Cheers!

  9. Hi FH, I’m from Malaysia, and thanks to you I just found out about the withholding tax! Will the withholding tax be applicable to everyone, regardless of location?

    • It’s different for every country of course (depends on tax treaties), but Malaysia doesn’t have a tax treaty with US, so the position will be same as Singapore.

    • Yes, to my knowledge, they are subject to US Estate Tax. There are workarounds and exemptions up to a certain amount, so best to check with StashAway for the full details. 🙂

    • Yes, to my knowledge, they are subject to US Estate Tax. There are workarounds and exemptions up to a certain amount, so best to check with StashAway for the full details. 🙂

  10. Hi, I really enjoy your articles and how you can turn the complex to simple in layman terms. Can you consider to do a write up on the benefits of investing using the SRS account and in what circumstances should one contribute towards the SRS account to invest? There are other info out there but I believe hours would be much more Informative & constructive & you explain it so well. Thanks.

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