International wealth diversification

South African resident clients today can benefit from international wealth diversification through specific exchange control concessions, meaning such individuals can apply for an annual allowance of ZAR10m per calendar year, a far greater and more flexible scenario than was the case some years back.  With the right advice and support from their trustee, or independent advisor, they can apply for a “tax clearance certificate”, production of which at their local bank will facilitate the external transfer of these funds to their trustee to position with their selected offshore asset manager, in their agreed and risk aligned international investment strategy. Such certificates are valid for a twelve-month period from the date of issuance.

International wealth diversification for South Africans

Today’s world is ever more challenging as the impact of Covid-19 continues to disrupt economies, lifestyles and earning power, and South Africa is by no means an exception. Because of this, the benefits of true international wealth diversification for South Africans are being increasingly recognised by clients and trustees alike.

South African investors seek out good quality, regulated and experienced advisors and trustees that understand both the South African and international implications of their intended investment path, and the use of tailored structures to hold fixed property, investment portfolios, intellectual rights and other assets remains a well-trodden path.

Trustees pay attention to several key factors when selecting a suitable investment strategy and provider, which include the following:

• Investment provider: Are they reputable, established, independent, and regulated in both their own jurisdiction and in South Africa? Are they of sufficient size in terms of assets managed and investment managers employed to provide substance and continuity, offer a range of suitable investment services, travel to SA regularly to meet clients and have deep knowledge & experience of both the SA and international investment and regulatory frameworks?
• Counterparty risk: Is the trustee placing full reliance on the investment provider’s balance sheet, or does the investment firm “ring-fence” client assets and place them with a large highly rated global banking group as nominee?
• Investment services: Are these accessible in terms of minimums, offer transparent and competitive all-in fee levels, and provide a range of currency options (USD, GBP and Euro)? Do they offer a range of risk-profiled investments from very cautious to growth-orientated mandates, provide daily liquidity, and cater for any short-term unexpected redemptions without penalty or delays?
• Relationship support: Is online access in place for both the trustees and if required, the underlying client? Will the investment manager meet the clients in SA alongside the trustees, or on request, to conduct regular portfolio reviews? How easy is it to contact the investment manager to get the information provided, SA tax reporting as may be required, or other statements, valuations and performance reporting? Can this reporting be tailored to meet the specific needs of the trustees or clients? Is a dedicated team in place at the investment firm with clear experience and knowledge of the region, and a commitment to ongoing and regular travel?

South Africans are besieged with offers to “invest” internationally, with some exploiting the demand for such opportunities by offering highly attractive sounding returns and often exotic and complex investment strategies. Trustees can help protect clients from themselves in such cases, and through their role to protect and grow assets for the beneficiaries of the trust, ensure that the best possible investment manager, strategy, risk profile and ongoing investment returns are all in play. It is often only in the long term that clients realise and appreciate the powerful benefits that can be delivered through a quality trustee working hand in hand with an independent, regulated and experienced investment manager.

Lindsay Bateman

28 September 2020