No, it’s not eToro.
People keep asking me what’s the best brokerage if you live in Europe.
Maybe you want to buy stocks or ETFs so that you can grow your wealth or earn passive income.
But to buy a share of Apple, you can’t just go to Apple.com and click buy.
You need to use a brokerage. And if you’re new to investing, choosing the right brokerage is hard, especially in Europe.
- Who can you trust with your money?
- How do you avoid expensive fees?
- And what’s the best brokerage for taxes if you live in Germany or Spain or a different country?
The problem is, most videos on YouTube either recommend American brokerages which aren’t available here in Europe, or they are actually advertisements that use affiliate links to make money when you sign up with the recommended brokerage.
So it’s hard to find reliable information, and you get stuck.
If that sounds familiar, then this is your lucky day, because this article is the ultimate guide to picking your brokerage for Europeans.
I’ve invested hundreds of millions of euros as a professional investor, and I’ll give you my 5 step process for choosing the best brokerage wherever you live in Europe.
At least one of these steps is totally counterintuitive, it’s the exact opposite of what everyone is doing these days, but it’s essential.
This process could save you a lot of money, prevent tax problems, and even protect you from scams, so don’t choose your brokerage before you’ve read this.
Step number 1 – Safe beats cheap any day
A lot of investors jump immediately to the cheapest brokerage they can find.
But would you choose the cheapest car seat for your kids or the cheapest materials to build your house?
Choose a brokerage that you can trust.
I don’t mean a brokerage you trust today when you have a few thousand euros to invest.
I mean a brokerage you will trust with half a million euros 10 years down the line.
Because you will invest for a long time, right?
So how do you choose a safe brokerage?
Well, first make sure it’s regulated by a competent financial regulator like the FCA in the UK or BaFin in Germany.
Second, read the brokerage annual report. Okay, at least glance at it.
I want my broker to be financially stable. That means plenty of money in the bank and strong profitability.
And third, investigate the owners and the management. Do you trust these people?
Now, listen, regulated brokerages on the whole are extremely safe.
Your investments are held separately from the brokerage’s assets so if the brokerage runs into trouble, you should be fine.
But scams and exceptions do happen.
And even when the protection mechanism works, it can still take months or years to get your money out.
Just ask the clients of MF Global which went bust in 2011.
So it’s best to pick a brokerage which is really stable and reliable.
Step number 2 – Learn to stop worrying and love your taxes
Investment taxes are THE biggest problem for European investors.
There are more than 30 different tax regimes across Europe.
In each country the best investments and the best brokerages are different.
Don’t be like my friend Robert who started buying ETFs and then asked me two years later,
Hey, Tom, shouldn’t I be paying taxes?
Uh-uh. No good. Very bad.
Figure out your taxes before you start investing.
I actually have a separate article on this.
But when it comes to your brokerage, here are two reasons taxes matter.
First, local brokerages may offer tax advantaged accounts which let you save a ton of money.
This happens in a LOT of European countries including the UK, France, Denmark, Sweden, Hungary, Poland, Romania and others.
Second, in almost all European countries, local brokerages are more convenient for tax reporting.
In fact, in some countries like Austria, you’d have to be a masochist to use anything except a local brokerage.
In short, local brokerages tend to be better for taxes.
Unfortunately, they also tend to be expensive and clunky.
So it’s a tradeoff you have to consider.
All right, so here’s step number 3 – Be careful with Fintechs
Okay, a lot of people will tell you the exact opposite.
But listen.
Imagine this scenario.
You’ve been investing through your brokerage for years.
Maybe your account size is fifty thousand euros or a hundred or half a million.
One day you get an e-mail:
Your account has been frozen pending an investigation.
Crazy, right? It’s a nightmare.
Accounts get frozen all the time, and in many cases it’s totally unjustified, just an algorithm acting out at a fast-growing FinTech or Financial technology company.
So what do you do if that happens?
Well, if your brokerage has strong customer service, you can hopefully talk to someone and get a real human being to look at your case.
It’s still going to be difficult, but at least it’s doable.
If your brokerage is a fast-growing Fintech with automated chat support, then good luck.
It might take weeks or months to resolve anything.
So here are two things you can do to reduce this risk:
First, use a couple of different brokerages so if there are issues at one, all your money doesn’t get frozen at once,
Second, prefer older, more established brokerages with a proven track record of good customer service.
Just make sure you don’t overpay – I’ll show you how in a second.
Okay, step number 4 – Check product offering.
Some brokerages are like enormous shopping centers, others are like boutiques where you get a few select brands.
So check that your brokerage offers the investments you need.
For example, if you live in Europe and want to buy ETFs, make sure your brokerage offers plenty of ETFs domiciled in Europe.
If you don’t know what that means, read this article on the best ETFs for European investors where we discuss why the big famous American ETFs are not available in Europe and what you should buy instead.
This is where eToro falls down, by the way.
eToro is possibly the most heavily advertised brokerage in Europe but it sucks for ETF investing.
Because the selection of ETFs is poor and the platform runs on dollars, not euros, so you spend a lot on currency exchange fees.
Okay, so that’s step number 4 – make sure your brokerage offers the products that you need.
So before I get to Step 5 – which almost everyone gets wrong, by the way. Step 5 is really important if you don’t want to overpay your brokerage, here’s a quick note.
If you’ve still got questions about picking a brokerage or if you’re wondering which ETFs are best for your country in Europe or how to build a passive income portfolio, or how to deal with investing taxes, I’ve got a training for European investors called The Index Masterclass.
It takes you from 0 to invested in your own passive ETF portfolio in just a few weeks, no matter where you live in Europe.
And it includes a lot of resources like detailed brokerage reviews which make your life easier.
It has helped over a thousand people all across Europe, and you can find out more at go.indexmasterclass.com.
All right, now let’s cover the next step, which almost everyone gets wrong, and it’s this:
Step number 5 — Go cheap (but do it right)
Remember how I said – don’t choose the cheapest broker you can find?
Wel, that’s true, but fees ARE important.
Every euro that you pay in fees is a euro you can’t spend on caviar and champagne when you retire early on your yacht.
Now here’s the part everyone gets wrong.
People get hyper focused on transaction fees.
If you pay 10 euros every time you buy or sell an ETF, that’s your transaction fee.
And it matters. If you’re an active trader who buys and sells stocks every day, keeping transaction fees low is essential.
But for long-term investors who only make a few transactions per month, there’s a different kind of fee that is more important.
That’s the custody fee.
Custody fees grow with the size of your account.
If your broker charges a custody fee of 0.1% per year, that’s only 1 euro when your account is a thousand euros but a thousand euros when it’s a million, and that sucks.
So you don’t want to pay custody fees.
Also avoid inactivity fees where brokerages punish you for doing the right thing and not trading too often.
There are some popular brokers online which pull investors in with low transaction fees but then hit them with horrible custody or inactivity fees.
Saxo, I’m looking at you. Do better.
My advice to long-term investors is simple.
Pick a brokerage with no custody or inactivity fees.
So that’s step number five – go cheap, but do it right.
To learn more, check out my training program!
Leave a comment and check out this article about the best ETFs for European investors!
