Navigating Your Offshore Plan
A wealth manager once compared financial planning with plotting a course and then flying a light aircraft from Heathrow to Cape Town. You start with a good plan, but before you have even started out over the English Channel, you’ve been blown off course.
The secret is to stick to your plan by making continuous small course corrections. Your actual route might look very different to the plan, but keeping a level head and sticking to the end goal is a good way to increase your chances of achieving your financial goals.
As we seek for new ways to invest our money in the aftermath of a global pandemic, there are real and tangible reasons investors should consider offshore investing.
So why might you want to invest offshore?
- Diversification is the key to prudent risk management. You might have experienced first hand the rollercoaster your assets have been on with COVID-19 and understandably are looking for ways to minimise volatility in future. Including assets in your portfolio that don’t go up or down in value at the same time lowers your volatility relative to the expected return. Assets are most likely to be ‘uncorrelated’ if they are in different sectors and industries, located in different regions or countries, or priced in different currencies.
- Political risk is the likelihood that a government will attach your assets or force you to invest in a certain asset. For example, as the South African government contemplates amending the constitution to allow expropriation of land without compensation. Prescribed asset investments are another type of intervention that requires retirement funds to invest in government managed institutions. Holding your investments directly in a foreign jurisdiction is one way to mitigate political risk as they cannot be expropriated nor forced to purchase prescribed assets.
- Match your assets with future liabilities. There is a good chance that many of your current expenses, while you may pay them in Rands, are priced in foreign currency. We import many of our goods and services (like smartphones, vehicles, online subscriptions and clothing) so by investing in foreign currency, you reduce the risk of your income not keeping up with a devaluation in the South African currency.
The reasons presented above are all sound reasons for investing offshore, so what’s stopping you? You may have thought about offshore investing before and then thrown in the towel because it all seemed a bit too difficult. Times have changed and in this modern digital era, it is easier than ever to gain access to offshore opportunities.
So where to start?
In these challenging times where we can barely leave the house, you need to think differently. So, after you have consulted your financial adviser via Zoom or Skype, head over to your nearest app store on your smartphone and download Shyft, a standalone foreign exchange service by Standard Bank.
Moving money abroad has never been easier and you can achieve it from the comfort of your armchair. The Shyft app tracks your annual R1 million foreign remittance allowance and after loading your Shyft wallet via an EFT from your SA bank account, you can exchange your Rands for foreign currency in the app and input the details of your favourite offshore investment platform and voila – the app takes care of the rest.
If you are fortunate enough to be able to take more than R1 million offshore each year, there are many providers that can help you with your tax clearance paperwork and foreign remittance of larger sums for a very reasonable fee.
Another way to invest offshore is to use funds that are offshore already. Anecdotally, we hear of many clients with cash in their USD or GBP bank accounts earning next to nothing in interest and just never ‘getting round to’ investing to get a better return on their money. Now is that time to get round to putting your hard earned savings to work.
It really is as simple as an EFT.
But what should you look for in an offshore investment provider? Here are a few considerations before picking an offshore investment platform:
Where is it located?
To mitigate political risk you need an investment platform to be truly offshore, which means it must be domiciled offshore – but importantly, service support should be offered locally helping you and your adviser to open your account and transact easily. The investment platform must be domiciled offshore in a country with strong regulatory regimes and low levels of political risk, such as Jersey in the Channel Islands, the self-governing Crown Dependency of the UK.
Research and portfolio construction
Once you venture overseas, there are an overwhelming number of investment options available and your provider should assist you and your adviser with narrowing them down. A thoroughly-researched, guided fund range can help highlight the best fund managers across different fund categories and sectors. Your wealth manager might employ the services of a discretionary fund manager and your selected investment platform should be able to host their investment proposition equally well.
There should be complete transparency with regard to fees and any potential conflicts of interest. Independent platforms offer ‘best in class’ investment options from a wide range of both active and passive funds, rather than a narrow fund range biased towards one investment manager. In addition, it’s important to be able to make investment decisions unimpeded rather than worrying about how much the transaction will cost.
Ease of use and reporting
Any investment platform should be easy to use and have an intuitive online interface. It is helpful when offshore investment reports can be reported in the currency of your choice and integrated with reports for local assets.
Long term commitment
Finally, is your investment platform committed to the South African market? Their business model should be sustainable in order to continually invest in improving their service and technology. Offshore platforms that are owned by South African companies tend to be more familiar with our regulations and tax laws and are more eager to assist and resolve any issues that may arise.
Assuming you select INN8, the digital, independent, Jersey-domiciled investment platform of the future where your new offshore investment is setup and in the market in less than 48 hours, you may find yourself asking your old offshore investment platform: – why am I still completing forms and couriering my personal documents overseas? Sometimes the most difficult thing is just to start.
Speak to your wealth manager today to kickstart your flight plan and navigate your way to achieving your financial objectives.
*Sound familiar? A version of this article was published in Finweek’s 7th May 2020 edition.