Offshore Investment Management

 

Offshore investment management made easy

Are you looking for offshore investment management to be made easy for you? Find out what your options are when it comes to moving your money offshore.

Managing offshore investments are seen to entail a high level of sophistication.

The act of safely moving and keeping money in a jurisdiction other than one’s country of residence can easily be achieved by the average person when making use of a professional fee based advice service.

Paying a fee to be advised gives you peace of mind knowing that you are not being just sold a product so that the person “advising” can earn a commission. The process of moving funds offshore is admin intensive and often no financial product or investment is needed that a commission can be earned on.

You may just want to know where and how to open an offshore / international bank account without paying an arm and a leg for banking fees.

So, what are your options when it comes to moving money offshore?

How to move money offshore

The act of opening an account can be a relatively simple process when you have experience in working with international banks and institutions. There is a common misconception that you require large sums of money, but this is not necessarily true depending on what you want to achieve.

Professional advice is crucial if you don’t want to “burn your fingers” and make an expensive mistake.  How you move your money offshore will greatly depend on what it is you want to do and why you want to do it.

We believe we need to understand you and your goals to make a tailored recommendation for your offshore investment strategy.

It starts to get a little bit more complicated when we move onto the aspect of moving funds offshore; the act of getting your funds into your new offshore bank account or offshore investment.

In a nutshell and broadly speaking, you have a choice between 3 main options; which option you decide on will depend on your personal circumstances.

Option 1Direct Offshore Investment: This option involves opening an offshore bank account and / or an offshore investment account then physically taking your money offshore/sending Rands overseas into the currency of your choice.

You may do what you please with your money once it is offshore.

Investments made directly offshore can be paid out into an account offshore that is in your name.

Direct offshore investments can be structured to be more tax efficient and private.

You are less exposed to local regulation and legislation changes than other methods or gaining offshore exposure.

In order to make a sound choice of what to do with your money from then on, we recommend you consult with your Certified Financial Planner. This will help with making the decision less intimidating as well as provide professional direction.

Option 2Local Offshore Exposure: Entails investing in Rand-denominated investment options, which means that you invest in Rands and get paid out in Rands in a South African Bank Account.

The investment manager will buy offshore assets (Shares, bonds, cash and property) but when you withdraw from the investment those assets are sold and converted back to Rands for you to receive here at home.

Note: you are investing in Rands, but your investment and currency exposure is foreign. This means that when the rand devalues your investments do better. They also do worse when the Rand strengthens.

In South Africa, there are many asset managers that offer offshore unit trust funds. The funds are priced in Rands, but you still reap the rewards of foreign currency exposure and global diversification.

Due to the fact that your investment is made in Rands and paid out in Rands, you do not need a SARS tax clearance in order to invest in these funds.

This is a cheaper way to get exposure to offshore assets and to hedge against Rand devaluation.

You are NOT however protected from the effects of local legislation, taxes etc. An example would be the legislation regarding Pension Fund and Retirement Annuity investments.

Regulation 28 prescribes how much exposure such investments may have to Foreign Assets as well as Equity and Property locally. You are thus less flexible in these specific investment vehicles.

How foreign interest and dividends are treated is not always the same as with local interest and dividends. This affects Direct Offshore investments too but there are structuring strategies that can be used to mitigate against this. These options are not so available locally.

Locally managed offshore fund investments have less privacy associated with them than certain options that can be used internationally.

Option 3 Indirect Local Offshore Exposure: This is the cheapest method to gain the benefits of offshore exposure and refers to investing in South African listed companies that earn the majority of their income offshore and / or are Dual listed on offshore exchanges.

Due to the concentrated nature of the South African Stock market and our economic environment it is not surprising to see that the largest and most “popular” shares are all companies that mostly benefit from offshore earnings.

You could gain this by either investing in the companies directly through your stock broking / share trading account OR by investing in a fund that invests in the Top 20 / 40 shares of the JSE since this will then have a large component of companies that are earning or listed offshore.

Keep in mind though that there is an extremely large concentration risk associated with this method, but it might be a good place to start if you are limited in terms of your available capital.

Which option is best for you?

The sheer size of the investment world, consisting of numerous products, risks, service providers, regulations, asset classes and jurisdictions can make the decision to invest offshore rather overwhelming when trying to do it on your own.

As you take a more in-depth review of your personal banking and investment planning, the best choice for you should become clearer when advised by your Certified Financial Planner.

In saying such – if your primary concern lies within political risk, option 1 should be at the front of your mind. The reason we recommend option 1 in this case is because you never have to convert your investment back into Rands if you don’t want to. You can also structure for Tax efficiency and privacy in need be.  

On the other end of the spectrum, if it is a currency hedge you are after and you do not have a large lump sum of money, then we would suggest option 2 or 3. We are always happy do discuss these offshore investment management options with you.

Keep in mind that when you are making use of offshore bank accounts and / or offshore investment plans it is imperative to consult with a professional to ensure that you are abiding by tax and disclosure regulations. 

What are the current advantages of using offshore bank accounts and investments?

Ever wonder why many people and companies use international bank accounts?

There is an array of benefits to having an international bank account;

Various currencies - Having an international bank account enables you to bank in different currencies; this plays to your advantage if you have financial commitments in more than nation. Say children studying abroad, paying bills on offshore properties etc.

Risk prevention- High inflation, currency devaluation and (war) - These are risks associated with unfavourable economic climates; with an international bank account, you are able to prevent yourself from exposure to said risks.

We are all aware of some of our neighbouring countries and some South American nations where citizens are unable to get cash out of a local ATM or their rate of inflation is so high that prices for goods change by the hour.

Certain tax savings – can be achieved NOT through a international bank account but through the use of correctly structured investments. Interest earned abroad is still taxable in South Africa if it is from a bank account in your name.

Flexibility – International bank accounts come with a high degree of flexibility in that you can access your money anytime, from anywhere with the ability to open many different accounts for various currencies which you can switch between internally as your needs change.

Why fee-based is best for your offshore investment management?

Adopting a fee-based approach in our opinion is beneficial in the world of financial planning and wealth management for various reasons. Below we list some of the reasons why fee-based advice is best.

The fee based model opens up a wide universe of investment options from various different institutions; as opposed to being limited to a small amount of investment / account options offered by the employer of a commission based representative.

This way you will be able to choose from the options that best suit your circumstances and lifestyle.

Fee based advice offers the value of professional guidance that doesn’t necessarily have to result in the implementation of a product and exposes you to a host of benefits that only an independent professional planner can offer.

Going fee-based opens the door to long-term relationships where your interests are aligned with those of your Financial Planner. You can gain peace of mind knowing that your investments are in good hands and being taken care of with the concern of whether the advice given was for your benefit or if it just resulted in a larger fee to the “advisor”.

These days, people want to know about the management of their money. They want to be provided with an explanation into the workings of how their investments are being chosen. The process followed, the providers considered and who was chosen and why.

This makes it easy to see why choosing a fee-based approach makes a lot of sense since only a properly qualified and registered planner (CPF) is able to charge a professional fee. Consider only working with an individual who has a Postgraduate qualification in investment management.

After all, would you trust your doctor’s prescription if he charged no consultation and only earned a fee on medicine sold?