I notice on your invest able universe spreadsheet (on “US stocks and ETFs” tab) that you have a number of US domiciled ETFs, which you plan to offer some time after launch, eg “VT - Vanguard Total World Stock ETF”
I thought with the rollout of MIFID II, all ETFs sold to EU customers had to have a KIID (Key Investor Info Doc), and most or all US ETF providers did not or could not provide these for US domiciled ETFs.
So how are you going to offer these US ETFs without a KIID?
Agreed. I just wasn’t going to be the killjoy that asked that question! Glad someone else had the same thought.
The answer, sadly, is freetrade won’t be able to. I’m guessing the spreadsheet will be updated at some point and US ETFs will disappear. Better still (maybe) point/guide you towards a near equivalent Irish listed variant.
Just checking my other brokers and I can get ‘some’ US ETFs but only in some wrappers - Pensions predominantly. I can’t seem to buy any in GIA or isa.
I love regulation! That 2 page document stops you buying US ETFs. Thanks MiFID.
The ISA restriction on US ETFs isnt surprising, my understanding is the ETFs need to be UK reporting from a tax perspective, and I don’t think any of the US -domiciled ETFs would be.
In general buying US domiciled ETFs in a GIA can be a bad idea (for UK tax residents), because usually they are non-UK reporting ETFs from a tax perspective. This means you can’t use your CGT allowance or preferential CGT rate, and instead get taxed at income tax rates on the gains.
Which ironically is the exact opposite situation Irish residents find themselves in - EU domiciled ETFs are treated punitively, and US domiciled ETFs get much fairer treatment.
None of this is tax advice, and always consult a tax professional
Not sure etfs need to b reporting - as you say, you’ll just get taxed at different rates. A kicker, but doable if you’re maverick.
Key reason not to offer them to uk/eu residents is the lack of KID produced by the distributor. Not sure there is a way around this yet. You could make your own but I’d imagine that option is killed off by a clause in mifid/kid/priips somewhere.
Conclusion: stumped. I can’t see US ETFS being available in Freetrade or another platform.
Correct - I meant they need they need to be UK-Reporting ( I think) to be ISA compliant. You’ll notice “ISA Compliant” and “SIPP Compliant” on a lot of ETF factsheets for UK customers. I’m assuming (and have noticed its true on any I’ve looked at) that UK reporting = ISA compliant.
You are of course free to buy non-UK reporting in GIA, and deal with the bigger tax bill.
Does anyone from freetrade have an opinion on my original question?
As we often mention, the Stock Universe is fluid and subject to change depending on all sorts of things. Mostly user demand, but also the regulatory landscape and operational factors like overly-juicy corporate actions.
The KID issue arises from PRIIPs rather than MiFID II, but needless to say - yes, this does affect UK brokers’ ability to offer ETFs without KIDs to retail clients. They remain in the stock universe notwithstanding because we have always known there is a lead time between the regulation entering force in January and when we will be in a position to offer them. This gives us time to let the compliance dust settle and assess our strategic options for making it happen. Frankly, we really want to offer them, but you guys are correct in identifying that this is an uphill battle short of a major shift in the behaviour of issuers, which hasn’t materialised since January. This is disappointing, but we are continuing to try to find a way.
We want to do things differently, and we don’t plan on giving up easy. But, apologies if their inclusion to the Stock Universe created expectation.
Interested to get @freetrade_cal thoughts and update on US ETFs as there has been some discussion on the NinetyNine forum suggesting there is a way for UK brokers to offer US ETFs. I’m unclear on how the postee thinks it possible but hoping Freetrades super knowledgeable Compliance guru could shed some light?!?!?
Here’s the discussion, it looks like the OP got the impression that offering US ETFs was possible based on the fact that NinetyNine showed that they would offer them. NinetyNine then clarified that they won’t.
Cal’s response to this question pretty conclusive & it looks like nothing has changed here
Cool. Still reads to me like the postee thinks there is scope to offer US ETFs even if 99 say no. Just curious if anyone understood his/her rationale - as I certainly don’t!
Is Cal still at Freetrade? Seen a lot of compliance recruitment ads and he’s not logged into the community for over a month now. Don’t tell me he’s jumped to the dark side and joined Revolut too!?!?!? Who’s steering the compliance ship for Freetrade these days?
Their comment doesn’t seem particularly ambiguous to me but I guess you could ask them if you wanted to check
Cal’s moved on to work elsewhere (not Revolut) & we have a new Head of Compliance joining us in February (who previously worked at the FCA ). In the meantime Rob is taking care of compliance for us.
Isn’t there a workaround over the KIDs for PRIIPs?
I know at least two EU brokers who do offer the US ETFs on their platforms for retail investors. Also, as mentioned on https://www.justetf.com/uk/news/etf/us-domiciled-etfs.html, there is a (not easy to implement but possible) workaround:
Sophisticated ETF investors
A potential exception exists if your platform allows so-called sophisticated investors to buy US-domiciled ETFs. You may qualify if you can demonstrate that you are a professional investor, or are otherwise highly qualified, with the knowledge and experience to understand the risks of the product.
Qualification under this exception depends on your broker deciding that you meet the UK definition of a sophisticated investor. You may also need a very large portfolio (over £500,000). Many popular brokers don’t even allow for this workaround so it’s no magic bullet.
So maybe FreeTrade could add its own definition of sophisticated investor (maybe another tier of membership for that, like a
super alpha account?) and then give access to the US ETFs this way?
It would really be a competitive advantage to be able to somehow offer these products, I think.
In the EU it’s known as being an “Experienced Investor”
You can self-certify that you meet the EU Experienced Investor Rules and get access to US ETFs without the KIIDs (ETFs currently would fall under the UCITS banner therefore have KIIDs as opposed to KIDs under PRIIPs. ETCs do however fall under PRIIPs - just to confuse matters!). Either way, yes, there is a workaround. I’ve been buying US ETFs on other platforms and it works fine (sort of - had a few issues!)
Exactly. I also have another platform where I can do this, but it would be so much nice to have in free trade.
Thanks for the update Viktor
Hey Finki & Chris, could yous ggest platforms were you can self-certify that you meet the EU Experienced Investor Rules and get access to US ETFs without the KIIDs? Thanks
It’s the best and easiest I know of to get US ETFs by self certifying you’re experienced/accredited.