Interesting development from Wise
You can now hold an account balance in an index fund with 97% instantly available for normal spending etc.
They’re certainly positioning themselves in a similar field to dozens.
Banks invest the money you hold with them to make money for themselves. They use it to fund mortgages, business loans and credit cards for other customers — you’re effectively supporting their business for free, and we don’t think that’s fair. So we built Assets to let you choose how to hold your money
One to watch - or beat?
Indeed, it is a welcome development that will help more people consider investing. That has to be a good thing for consumers.
What is less clear from what I’ve read is how exactly they will ensure that there is a suitable risk-assessment of customers to ensure they can afford this investment and how clear it will be that these are investments, not savings (and that the risk they are taking (even if on an all-shares fund) is pointed out).
Everything I’ve read so far has pointed out how ‘ready accessible’ the funds will be, which is finer as a feature, but if customers move funds into investments looking for short term gain expecting to be able to withdraw them at any time, they could easily be out of pocket.
So, to answer your question: watch, celebrate the good bits, but do better
(BTW, just for reference, Dozens Black platform fee is 0% … and there will be more features announced soon)
This step was minimal, to say the least, to the point that I’m not sure how they’re in compliance.
This is what confuses me about all these asset in payment account type products (Tally being another example). It makes no sense to hold ready money in long-term investments, yet plenty of people are committed to making it happen.
The interesting bit for me is that you can do this from £1 and deposit/withdraw as fast as normal transfers in and out. Great flexibility. I’m not entirely clear on how they manage currency conversion, as it looks like you can switch any currency - at least all the ones I use. I can’t think of another product that would let me invest and hold in EUR within a couple of taps…
Ha! Wise aren’t charging their platform fee during the beta, but then, yeah, it gets worse…
There’s two separate issues here: liquidity (including settlement time) and suitability.
For the liquidity part, there’s two different solutions - margin loan, or broker lending to the investor before settlement. Margin loans is the quickest way to access the money in the portfolio, and it doesn’t require selling the assets in the portfolio (and crystallising capital gains for tax purposes). The margin loan can be repaid by either selling assets at a latter time or topping up the account. The down side is margin loan usually charges interest and is marked to market. I’m fairly confidence that this is not what Wise is doing. Then, in order to allow spending money directly from invested assets, the broker (Wise) will need to lend to investors (most likely for 0% interest) until settlement (usually T+2). Since this is done at the cost of the broker, they usually will recover the cost from elsewhere (higher platform fees, commissions, etc.). There’s no free meal in this world.
For the suitability part, which I believe is your major concern, and I share the same view. It’s totally unsuitable to fund regular expenses from selling investment assets by selling assets at the time of spending. However, I must say that it’s totally acceptable to fund regular expenses from strategically selling investment assets in advance. This is exactly what pension drawdown is often doing. The big difference is, strategically selling usually also involves strategically allocating asset classes in the portfolio to allow drawdown during different market conditions. A portfolio in drawdown stage often looks very different than a portfolio in accumulating stage, for example, a portflio in drawdown stage often holds enough cash for many years worth of expenses, and this is unsuitable for the accumulating stage, because it will severely reduce the expected return and to achieve the same level of protection, an income protection insurance is much better than a huge emergency cash pot.
Try Interactive Brokers, within a few taps, you can borrow (e.g. use GBP as a collective to borrow EUR), trade (e.g.: spend USD to buy EUR), invest in (e.g. combine FX and buy/sell in one order) or hold (e.g. sell shares without converting back to your base currency) virtually any currency in your portfolio. Enjoy the ultimate flexibility, and say good bye to the unavoidable FX costs (in either the form of FX rate mark up or a fee, or worse - both) for converting the sell proceeds and dividends back to your base currency, only to pay the FX costs again to buy more shares a moment latter. The only down side is IBKR doesn’t offer tax wrapper accounts, such as ISA and SIPP. (Technically, they do offer SIPP, but you won’t be able to open an account directly with them). Other than that, it’s an inexpensive full featured investment platform, and will give you with all the ropes you need to hang yourself