How to invest in offshore shares

Not all brokers are created equal. Here’s a Eureka guide to the fees and features of some common providers.

Summary: When choosing an international broker, issues to consider include brokerage fees, foreign exchange fees, custody fees, customer service and the range of available markets. The W-8BEN form for US-listed equities is also worth enquiring about, as different brokers handle it in different ways.

Key take-out: It’s not difficult to get started in international equities and there’s no shortage of platforms available but it’s worth understanding a broker’s costs and features before diving in.

Key beneficiaries: General investors. Category: International investing.

We’ve been saying at Eureka Report that it's time to get overseas – the Australian share market has been playing with investors' heart rates over the past few months, and with concerns of a weakening Australian economy, it makes sense to look beyond the ASX and consider the other 98 per cent of the global share market. There's no shortage of platforms to get started in international equities – and while signing up is by no means difficult, there are several things to consider before diving in. 

We’ve previously outlined issues such as currency moves (see Buying overseas stocks: A Eureka guide, July 28, 2014) and taxation (Buying shares offshore: Tax issues you need to know, January 21, 2015). Now let’s consider the features of some of the most commonly used international brokers.

Opportunities

There are plenty of investment options for foreign exposure and Eureka Report keeps you up to date with new trends. If you're looking to buy shares, Clay Carter's model portfolio is a good place to start. The portfolio demonstrates another benefit of international exposure – the ability to buy into the world's biggest companies and brands that you use each day. From Disney and Facebook to Harley Davidson, trading international equities gives you access to multinational corporations otherwise inaccessible on our local markets. 

If you're looking for overseas exposure outside of direct share ownership, ETFs and LICs listed on the ASX can give you access to new markets through funds that make decisions for you. Review Mitchell Sneddon's LIC model portfolio to get a sense of markets covered in the LIC sphere. 

The W-8BEN 

One of the questions we get most frequently at Eureka Report is how to negotiate the W-8BEN form. Non-US citizens are required to provide this to avoid being taxed 30 per cent on US dividends (investors should still expect to pay 15 per cent tax on US dividends though). We asked the customer service centres of the following providers how they process this form for clients. Some lodge on your behalf, others require you to go through an accountant. The W-8BEN lasts for three calendar years and then needs to be resubmitted. 

Fees, fees, fees

Most Australian trading platforms link a bank or cash account with a trading account so that you can place orders to buy and sell in foreign currencies. Brokerage fees vary significantly, with online trading costing less than phone. It's worth checking whether the platform you're considering offers online trading for all markets, or just the US. 

A broker will also charge foreign exchange fees each time you place an order. These vary from 0.2 per cent to 1 per cent of the trade value, and usually apply both when you place the order to buy and sell or receive dividends that need to be converted back into Australian dollars. 

It's a multi-step process: a charge to convert Australian dollars into the correct currency, a charge for brokerage, and a charge to get the funds back into local currency. Crunching the numbers on some hypothetical trades will give you a sense of the differences in charges. 

For example, if you want to buy 100 shares in Walt Disney Corporation: 

• At $US108.00 per share, the total trade value would be $US10,800, or about $14,893. 

With CommSec: brokerage would be $US65.00 ($89.65), plus exchange fees determined at time of trade. 

With nabtrade: brokerage would be $14.95 plus a foreign exchange fee of up to 0.8 per cent of the trade value. 

With E*Trade: brokerage of $59.95 plus a foreign exchange fee of 0.6 per cent of the trade value. 

Research and advice 

Just like local brokers, there are full service and no-frills options, but personalised advice is thin on the ground. Most offerings provide in-house market updates, newswires from providers like Thomas Reuters, and company profiles. 

The following information was gained from calls to the customer service desk of each platform: 

CommSec

The product: 25 markets, including New York Stock Exchange, Nasdaq, LSE, US Exchange Traded Options and ETFs. 

Sign up: online process, links to a pre-existing CommSec Australian equities account. You will need a cash account or pre-existing bank account linked to your trading account to transfer money into different currencies. 

W-8BEN: fill it in on sign-up and CommSec will lodge on investor's behalf.  

Brokerage: US equities: $US65 or 0.75 per cent of transaction, whichever is greater. All Other markets: $US65 – $US130 plus market fees and charges. 

Other fees: $68 custody when you make no trades in one year, $2 per month for each non-US security. 

Phone or online trading: Online trading for US, all other markets phone trading only. 

Research: CommSec’s own international markets research, no individual advice.  

Customer service and hours: 24 hour phone service (on US trading days). This is customer service, not individual financial advice on trades of stocks etc. This includes information and clarification for prospective CommSec users. In our experience didn’t take very long to get through to a fast-talking, knowledgeable assistant. 

E*Trade 

The product: Buy and sell across 11 markets, including NYSE, Nasdaq, HKSE, LSE, PAR, BRU.

W-8BEN: will provide an example form but we were told that lodging “should go through your accountant”. 

Sign up: online. The international portal connects to a domestic shares account so users can place orders for both ASX and international markets from the same landing page. 

Brokerage: $59.00 on all markets or 0.59 per cent of the trade value over $10,000.

Other fees: 0.6 per cent foreign conversion fee is taken on each transaction. Minimum trade for global shares is $2,000.

Phone or online trading: Both phone and online for all available markets.

Research: E*Trade’s portal of in-house market data, Dow Jones Newswires. 

Customer service and hours: Phone access 8am-8pm Monday to Friday. 

Nabtrade 

The product: trade shares and ETFs across US, UK, Germany, Hong Kong.

W-8BEN: Nabtrade does not require a W-8BEN for account sign up. For Australian residents, Nabtrade only requires proof of residency i.e. driver's licence/passport and a TFN. 

NAB says that the taxation rate on US security dividends is 15 per cent. Shares are held through the custodian HSBC.  

Sign up: Online or phone. 

Brokerage: 

• Transactions up to $5000 - $14.95

• Between $5000 to $20 0000 - $19.95

• All phone trading: $59.95 per trade or 0.55 per cent 

Other fees: NAB will charge a foreign exchange fee of up to 0.8 per cent on each transaction to and from AUD.

Market fees apply to each exchange which you can see here.

Phone or online trading: Both. Note that phone trading is about 3 times as expensive as placing an order online, and that the settlement for buy and sell orders is T 2 or T 3 days. 

Research: Nabtrade’s own in house market updates as well as access to content from Thomas Reuters, Trading Central, Morningstar and Columbine Capital. 

Customer service and hours:  general customer service enquiries and phone orders Monday-Friday, 8am-8pm. 

Westpac 

The product: 30 international exchanges and ETOs on US markets. 

W-8BEN: Form and instructions provided on sign up and should be sent back to Westpac with application form. 

Brokerage: US equities: $US57.95 or 0.65 per cent. Other markets: $US57.95 - $US115.00, or up to 0.9 per cent of trade value

Other fees: Custody fee of $63.50 $2.00 per month for each non-US holding.

Phone or online trading: Can trade US equities online, all others via phone.

Research: daily market updates and pricing information via online portal.  

Customer service and hours: 24 hour phone access on US trading days. 

Bell Potter 

The product: shares across UK, NZ, Europe, South Africa, US, Canada, Asian markets. 

W-8BEN: clients will be matched with a Bell Potter advisor who can give information on paperwork depending on individual circumstances. 

Sign up: through an initial consultation with a Bell Potter advisor. 

Brokerage: dependent on broker and investment goals – you’ll pay a brokerage fee, commission and other fees and charges. As an indication from the Financial Services Guide: US securities will be charged at least $US95, all other markets “an equivalent amount”, plus GST. 

Other fees: Foreign currency spread of 20-50 basis points (for buying and selling). All international accounts attract $150 fee per annum

Customer service and hours: Advisor phone access plus general customer service directed through to an office in your closest city, business hours Monday – Friday.

Note: Portfolios over $250,000 can pay an extra fee for the Portfolio Administration Service to have admin and yearly reports prepared on their behalf. 

Baillieu Holst 

The product: access via Credit Suisse to US, Europe and Asian markets. 

W-8BEN: should be filled out and returned to Baillieu Holst.  

Brokerage: Minimum trade $A10,000, brokerage $100-150. This is a brokerage-only service, no specific research or advice provided. 

Customer service and hours: Phone 8am – 5pm weekdays. 

Saxo Capital Markets 

The product: 36 markets online including ETFs, CFDs, corporate bonds and ETOs via SaxoTrader or with a tablet or smartphone device on SaxoTrader Pro. 

W-8BEN: Form is available on the website, Saxo will lodge on behalf of clients.  

Brokerage: different prices for Active (100 trades/mth) and Standard Traders.

Active users US Equities: from $US7 up to 1,000 shares.

Standard users US equities: from $US9.90.

All other brokerage here

Other fees: $US100 custody fee if no trades carried out over a six-month period, plus $5 monthly account fees.   

Phone or online trading: online and via tablet/smartphone. 

Research: rolling news, analysis and recommendations by Saxo Markets analysts via the Trading Floor portal. There's a subscription service for live pricing, details here.  

Customer service and hours: Sydney office service 7:30am-5:30pm weekdays, plus access to the group office other times. 

Notes: Saxo provides the clearest picture of the international trading experience because it lets users see the interface prior to starting. The ability to hold a cash account in a nominated currency outside of AUD could also be a bonus if you’re looking to avoid foreign exchange fees, and the set-up is made for active traders who are after live pricing.

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