Wealthy Africans take funds offshore for many reasons, ranging from foreign investment through to paying for a child’s education overseas, or buying a property in order to secure foreign residency status.
The ease with which funds can be transferred abroad depends, in part, on your country of residence and the foreign exchange (FX) control regulations in place, if any. Zimbabwe, for instance, has stringent forex controls which must be navigated, while in South Africa residents must comply with the annual allowances granted by the country’s reserve bank. Navigating these requirements can be a complicated and potentially fraught process. It can also prove costly if you go it alone or make use of the wrong forex partner.
Many people, therefore, take what seems to be the line of least resistance and use their bank to facilitate the entire process. But there is a better and more cost-effective way to handle foreign currency transfers - by using an experienced and credible FX professional.
“One of the advantages of using a specialist FX company is that they have access to the forex wholesale rate and pass that onto the client,” explains Anthony Palmer, Group Commercial Director at Carrick Wealth. “Banks typically use the retail rate, which range between a 1-3% more expensive. On a South African transaction of, say, R1 million, that’s a saving of between R10 000 and R30 000.”
An expert hand
Palmer adds that another advantage is that FX professionals handle this process constantly. So they understand the administrative requirements of the central bank and revenue service in question and know where and how to get the necessary permissions. In the case of South Africa, this means knowing how to use the annual allowances applicable to individuals, as well as any other exchange control matters that may be involved – such as the special approval application required to externalise amounts greater than the annual allowances.
“This makes for a quick and efficient process – certainly more so than if people try to handle it themselves, which they are entitled to do,” says Palmer. “There’s no charge as it is all part of the service that FX companies provide and you know that it will be done right the first time. If, as an inexperienced individual, you get the paperwork wrong and the authorities believe you have tried to deceive them, the penalties can be heavy.”
A forex professional should also be able to help you book forward contract rates (also called ‘hedging’). For example, if you plan to take funds out of the country, but your paperwork isn’t ready and you’re worried that the local currency is going to weaken, you can lock the rate in now. In South Africa, many clients use this option late in the year, when their annual allowances have been depleted but they want to take advantage of the current exchange rate for a transaction that will only occur in the new year.
Carrick Wealth partners with several foreign exchange companies in order to assist clients with their requirements, all well established and trusted by some of the biggest financial institutions and companies.
Should you wish to choose your own FX intermediary, Palmer advises some basic checks to ensure the company is credible. “Many FX providers are not forthcoming about their fees and charges, and this lack of transparency makes it hard to know whether you’re getting the best deal,” he says.
Among other tips is not to fall for promises of 0% commission or no fees. “While this may be the case, it just means they need to make their money elsewhere. So ensure that the fee from the exchange rate margin on your transaction is also disclosed, not just the commission or transaction fees.”
Another pointer is not to focus purely on price. “While it is tempting to simply look for the cheapest quote, you should also consider any additional value-add being offered,” Palmer says. “In addition to the aforementioned services, it is worth considering other important aspects such as ease of transacting, speed, security, reliability and personal service.”
In summary, sending large amounts of money offshore can be daunting, so choose an FX provider that is credible, experienced, saves you money, understands your requirements and is willing to cater to your individual needs.