Head start to equity savings account market in Finland

One by one Nordic regions have adopted the equity savings account regime and Finland shall be the last in line. Each of the jurisdictions have adopted the regime with their own details regarding investments and taxation and so does Finland.

Based on the proposal of the government, the specifications of the equity savings account in a nutshell:

If the proposal gets an approval from the parliament, first equity savings accounts are expected to be opened at the beginning of the year 2020. That would be a giant leap towards more efficient capital markets in Finland and it would increase the awareness of stock markets and investing in general. The development is expected to attract more small investors and it would be a generous handover to the people who are already investing in stocks.

Even though the outline of the regime is ready, there are still questions left unanswered. Firstly, from technical point of view the proposal suggests that the capital gains are taxed at withdrawal. Technically it means that the fair value of the account must be valuated to that given moment when the withdrawal is executed. It pushes a lot of pressure to a back office system to be able to verify the market prices of that moment and calculate the capital gain tax of that equation. This applies especially system setups where the flow is automated all the way from the back office to the front and end-customer portal. Might be that the guidance regarding technical details will be specified later where this topic is addressed.

Secondly, from financial point of view, the proposal seems to jeopardize the commonly known free lunch of the financial markets and investing, diversification. The benefit of deferred taxation would direct investments towards equity savings accounts where investments would be limited to listed equities. This means that small investors are endangered to take unreasonably equity exposure to their net worth. Also, the outline excludes options where the portfolio management is embedded into the investment vehicle such as mutual funds and ETFs which both are fairly popular among Finnish small investors. Obviously, this makes cost-efficient index fund saving far more difficult and forces investors to change allocation strategies if they are willing to benefit from the equity savings account at the same time.

It is certain, that there will be more open questions and probably some clarifications as well before the implementation. It is also certain, that this market will be huge and there will be no time to waste if one desires to gain success in this gold rush. Therefore, FA Solutions is ready to discuss this further way ahead of the implementation timeline. We have gathered expertise across Nordic regions with ISK setups in Sweden and ASK setups in Norway. In addition, we have outlined solutions to ease the burden regarding these aforementioned questions. Our transaction-based portfolio management system is capable to solve the issues for you when it comes to tax calculations and valuation. For the diversification problem we cannot undo law, but we can build distinct rebalancing strategies to handle portfolio management and diversifications for your clients to mitigate the equity exposure if necessary.