Last week I saw a question on Twitter about investing for Finnish residents and a request for advice. While answering, I decided to put my experience together in a single post to share with the recently relocated immigrants and expats interested in the subject. In this post, I’ll try to highlight only tools for investments (not trading) and what you should pay attention to based on my experience, and what I found helpful to learn. I won’t cover topics on why one should or should not invest or what asset classes there are and which one is for you— you can find plenty of answers to that online.
Note: this post is neither financial nor taxation advice; it’s simply a set of tools and principles I’ve found helpful and working for me. Make sure to re-check the updated terms of service for brokerage and up-to-date taxation regulations before making your own decisions!
Initially, I thought of gathering details about all the available brokers in Finland into a comprehensive guide, but in the process decided to change the perspective a bit, as it would require too much effort, but in the end, result in little value with yet another comparison table similar to the many existing out there. Instead, I decided to cover the brokers I know well and use on a daily/weekly basis, rationalizing them with the principles I followed when choosing. And, of course, I will list the outsiders for you to explore their features on your own.
Let’s start with the principles defining how I’ve chosen brokers.
I try to diversify not only assets and their classes but brokers and banks as well, as brokers are financial institutions that can potentially go bankrupt; or make specific changes in terms of service that won't allow people of particular origin to continue being their clients; or they can go offline when you need them — we all are used to 24/7 working services, but, it's been just a few years since the Finnish branch of Nordea bank was shut down for a few days. I couldn't even use their card to buy food. Anyway, the more diversified my portfolio is, the better I sleep.
Guarantees of Assets Protection
This is pretty straightforward: no one likes to lose their assets. So don't I. The deposits and brokers I use should provide guarantees of assets protection insurance in case of becoming insolvent. I recommend always checking brokers' insurance in advance. So, for example, Trading212 covers up to €20,000 via Investors Compensation Fund and up to €1M with private insurance from Lloyd's of London. Degiro protects up to €100,000. Interactive Brokers covers up to €20,000 with certain conditions.
It is also pretty simple — I seek the best value for money; that's why I typically don't use local banks for investing, as their fees are way bigger than investments-oriented brokers. I invest regularly and keep diversifying my assets, making several transactions at a time and in small amounts. In this case, paying 5 euro or even more for a transaction doesn't feel reasonable to me as the commission would diminish the profits tangibly.
Little Management and Usage Efforts
Nowadays, Finnish fintech is already at a decent level; however, you can still meet hard-to-use services, bad UX, non-English apps, and other exceptions. On the other hand, local services often provide implicit tax reporting included in the service.
In contrast, regional (US/EU-wide) services like Degiro, Trading212, Interactive Brokers, and Revolut offer good-to-perfect usability and design but can't provide automatic tax reporting. That is a trade-off everyone has to deal with in Finland. I value day-to-day experience and know how to report taxes, so the choice is obvious. You may think differently until you know better how to report taxes (spoiler: it's just four numbers to fill in your tax card).
Before comparing the brokers, it's crucial to mention common business models that brokers utilize to gain profits. It's common for brokers to earn money by these methods:
- fees (commissions, maintenance, custody, withdrawal, etc);
- price spread — when the commission is implicit for you and included to the securities prices, and a broker makes money by selling the asset to you for more than they paid to buy it;
- shares lending is when the broker lends out your shares to borrowers and keeps the interest gains.
The price spread is the least measurable for the end user because it is implicit, so assessing can be challenging. However, when I checked last time, all the brokers I used had similar or very close prices for my control tickers, and the deviation was relatively small to include in the calculations.
But, shares lending is a vital aspect to consider when you choose your broker. Essentially it's often explained as "the shares you've bought and own can be lent out to others (for example, for short-selling) to compensate for the low or zero fees." The concept implies that the broker will resolve the situation smoothly in case of a sale, buying out the shares from you. However, it's worth checking the terms to ensure you know all the legal aspects and possible scenarios. For example, Degiro and Trading212 utilize the share lending concept a lot. Degiro has it as a basis for a separate account type (Regular), keeping the Custody-type account clean of securities lending. The fees on the Regular account are much lower though they have a right to lend out your shares.
Trading212 has no option to opt-out at the moment, but significant changes are coming up to the platform on 5.7.2023 for UK and later this year for the EU entity, that will bring an opportunity to opt-out or opt-in for getting securities lending interest. Personally, I'm excited about these features and appreciate the company's transparency and fair approach.
The fees are easily comparable on the one hand. Conversely, they vary greatly depending on your trades' frequency, amounts, and composition. Again, I decided not to collect all the numbers here but more subjectively evaluate the fees based on my perception and manner of investing. I'm building a diversified broad-market portfolio, primarily investing in ETFs once in 1-2 months. So, I make 10-20 regular transactions once in 1-2 months. Here's how I see the fees and other features of the brokers that I use:
As you can see, I can't tell you much about Nordnet as I still need an account there. Although I've signed up for it, the estimated wait time is 1-2 weeks now, which is a metric we can compare to the other listed brokers — it's closer to bigger banks like Nordea or OP and doesn't even stand close to 1-2 days of account opening in T212, Degiro or Revolut.
One of the main questions is how to report taxes on capital gains. In Finland, as in many countries, there are two ways for tax reporting: the broker can do it automatically for you, or you have to do it manually via vero.fi. It's possible to report taxes during the fiscal year while the tax card is active, or after the year has ended, you can request a correction for the last year until May next year. It's pretty easy to report profits and losses. At the same time, the tax card is open and active — you have to report four numbers: acquisition expenses (fees), selling prices, total gains, and total losses. You'd need to request a report from each broker for the whole year and sum up numbers to get these numbers.
And the dividends, of course, in a separate section.
However, even if the fiscal year is ended and you still need to report something, you can still report the gains and losses via vero.fi account through making a correction to the pre-filled tax return. You'd need to collect all the reports for the taxable year together, sum up the numbers and attach the reports to the correction request. Usually takes up to 30 min for me to complete this procedure once a year, which is not a big deal.
Deductions, optimizations and benefits
There's a list of possible deductions from capital income — I won't repeat vero; you better check it on your own from their pages. Some optimizations can be done if you've seen losses. As capital losses can't be deducted from other income types (such as earned income), there seems to be a possibility for a carryover to be deducted later from capital income. More information is available on vero.fi.
There's a concept of equity saving accounts, which allows you to forget about taxes on individual sales or dividends in the meantime. The profit from an equity savings account is only taxed when you withdraw money. Check out vero.fi for more details. I've yet to try this concept, but it seems to be available with local brokers only.
There's one more interesting concept in taxation called Deemed acquisition cost, which, in some instances, by pumping the acquisition cost up, can lower the taxable profits and lead to lower tax payments. Again, you can find more information on vero.if. I don't know how this can be used in the case of regular investments to a few broad-market funds as it's pretty hard to track down the duration of ownership, but it can be helpful in the case of rare transactions such as private companies' equity.
As to the benefits, there's a local program by Suomen Osakesäästäjät that a few local brokers support. Membership costs 15-38 euro annually, giving you access to investment-related magazines and special service prices. For example, you automatically get a level 3 account upgrade on Nordnet if you're a community member.
That's all I've found helpful for investing as a Finnish resident. If you have any questions or suggestions for edits, please, feel free to reach out via contacts on the About page.