Investing offshore should be part of any long-term financial plan. Diversification not only helps investors to spread their investment risk and optimise their portfolios, but offers reduced risk to currency fluctuations.
Ela Asset Management Director Faadil Moti says while offshore investment comes with several benefits, investors need to be cognisant of the costs and limitations involved.
“Investors need to ensure they have a solid understanding of all fees involved with offshore investment. Another key consideration is the type of investment. Investors must go for the most transparent solution available and aim to avoid layered investment structures.”
Costs involved with offshore investment:
1. Transaction/Brokerage Fees
Commission or brokerage charges when purchasing or selling an asset charged by the broker for executing transactions.
2. Transfer fees
Foreign exchange fees for converting Rands into the chosen currency for investing.
3. Custodial Fees
A fee that is paid for safekeeping services, minimising the risk of losing funds. This applies if the investor requires funds to be with an escrow agent before purchasing property.
4. Management Fees
When assets are professionally managed offshore, the investor will need to pay an annual management fee. This applies to exchange traded funds, mutual funds and property funds. Usually in the case of property, it is a percentage of net rental.
5. Bid-ask Spread Fees
This is the mark-up rate which is usually the difference in the selling price and buying price of an asset (Usual with most shares or products traded on the stock exchange.
6. Performance Fees
The fees an investment manager or advisor may charge a client for managing their assets and generating positive returns.
7. Admin Fees
Fees for setting up accounts offshore. Liaising with the client for his/her information usually only occurs with large scale transactions where it is admin intensive.
Whether you’re an individual or a business, investing offshore offers several benefits.
“The South African market comprises only one percent of the global market, meaning local investors are greatly limiting their investment growth potential by not spreading their investments across different economies and markets globally.”
But, Faadil says a common problem seen by Ela Asset Management, is that many South African investors taking money offshore are making costly mistakes.
“These mistakes completely compromise the potential benefits involved with offshore investments. It is therefore prudent that both individuals and businesses follow well-thought-out investment strategies with the help of a knowledgeable investment partner,” he concludes.
Contact Ela Asset Management for expert guidance and assistance on offshore investment as well as help with the necessary tax clearance certificates or special approvals.