OFFSHORE INVESTMENT So
OFFSHORE INVESTMENT So now you can take R206 500 (after-tax) directly offshore or R350 000 (pre-tax) into an RA. How long will it take to make back the 41% paid in tax? The second scenario is to withdraw as much money as possible out of your retirement funds and take the proceeds out of South Africa as soon as possible. We will use the extreme example of a full withdrawal of a preservation provident fund. We will assume there is R10m invested in the fund. We have chosen this as you can access all the funds in this vehicle, which are then taxed according to the retirement withdrawal table. Preservation provident fund withdrawal (100%) Capital withdrawal Tax rate % Tax paid Capital withdrawn R0–R25 000 0% R25 001–R660 000 18% R660 001–R990 000 27% R990 001–R10 000 000 36% Total R3 447 000 R6 553 000 In summary, you have to take a -34% loss to take retirement money offshore. This is equivalent to the bottom of the stock market crash in 2008 or March 2020. Now here is the point. Assume you are invested in a run of the mill balanced fund. Every manager in the country has already taken 30% directly offshore. Conservatively, they are invested in large rand hedge stocks that do not count towards the 30% offshore allowance (Naspers, Richemont, all commodities stocks, BAT, etc). You could assume there is another 20% invested in these types of shares, granted to varying degrees of success. If this is true you could have had 50% (R5m) in your RA or preservation fund offshore already. You would have had another R5m exposed to South Africa and, yes, potentially to prescribed assets. The question to ask currently is: are global equity prices presently quite high? Are global bond markets overpriced? Is the dollar very strong against most currencies? Most commentators believe all of these to be so. Is history about to repeat itself? RULE 5 | You never know what is going to happen This article does not suggest that you should invest all of your clients’ money in South Africa. It is not saying that you should invest all their assets in South Africa. It is not saying that South Africa, as a country, is a certainty to bounce back. What we are saying is that if you as a financial planner get caught up in the fear of the moment and are listening to the herd, then the numbers show that you better get this one absolutely right! You have created a stock market crash in your clients’ retirement savings that you will never ever recover from, unless, of course, South Africa INTERGENERATIONAL WEALTH MANAGEMENT is doomed forever. Wisdom in financial advice If your client wants to live in South Africa and/or has very little chance to be able to afford to move overseas, then we think that you should approach this with a solid framework. As a CFP® Professional, you need to find out how much capital the client will need in his or her retirement funds to afford their lifestyle. (Remember these funds will have 30-50% in offshore assets.) You want to make sure your client will be able to meet their liabilities in South Africa and to do this you as the advisor need to have assets facing this economy. When giving advice to clients we have found that it is not about binary moves (eg choosing between leaving or staying) it is about knowing you don’t know and then leaning into a move rather than jumping completely. Once you know the client has enough assets in South Africa, then build up any surplus savings in offshore assets slowly over time, whether feeder funds or directly offshore. RULE 3 | You should also learn from history Your client will have achieved your goal of getting the money offshore, but hold on, could they be running into other trouble? You might remember 2001 when Thabo Mbeki was president. He thought that some players in the ANC were plotting against him, and there was a run on the rand. It was a scary time to be in South How do you hold on to the next Africa. The rand went to R13.53/USD. The brightest generation of business your client people base? bonded their big houses to the hilt and took the money offshore. Phew, you are safe now. Or are you? RULE 4 | Never sell at the bottom From that point they bought into offshore equity, primarily US equity (S&P Index: 1140), and then, surprisingly out of nowhere, the rand strengthened (December 2002 – R8.58/USD), the offshore equity cycle turned and the dollar prices collapsed (December 2002 – S&P Index: 899). It took around nine years for the S&P to recover these losses. It took the rand 14 years (September 2015) for this market PLANNER® certification, would help. to recover to the same dollar basis. The rand also strengthened to R5.68 in December 2004 (a 42% loss in currency and a stock market loss in dollars of -4%). Just to rub more salt in the wounds, interest rates on home loans were at 15% at the time. 44 www.bluechipdigital.co.za can get money to work for them instead of the other way around. It is the ability to help them steer their way through the information overload and show them what all the various options ultimately will mean to them – beyond their bank balances. Listening. Giving the impression that you are saying to a young client “Now listen here boy” ain’t going to cut it. You need to listen to the client and treat him or her with respect. Energy levels. Speaking to a young client who has still not inherited assets can be difficult. If you feel you are unable to relate to a younger client or lack the empathy and energy to do so, you need to bring in someone who is more suited to this role. A younger advisor, someone doing their CERTIFIED FINANCIAL Learn a different approach. See it as a challenge to understand this generation and how you can be on the cutting edge in your interactions. Go out and understand how the 22seven app works. Read Sam Beckbessinger’s Manage Your Money like a F*ckin Grownup to give you an insight into how this generation is thinking and Get the call right! approaching money. It also shows you the the constitution, but economically tying Although a terrible idea, we don’t think prescribed assets can lose as tools available out there. More importantly, people together is where my issue lies. much this as sense a permanent that you yourself 35% are now growing cashing Bring them out up or as best not you contributing can and then is empowering. That enthusiasm will be set them free! to a retirement fund. After watching the news about state capture endearing to the younger generation. Multi-generational planning is a highly and mismanagement Fee income. Consider of state charging enterprises a creative activity it feels and like should you energise need you to take monthly swift action service fee as payable some by people debit order suggest. and your But team. you If it don’t doesn’t, necessarily then the end for the advice you give them until they is nigh! have grow to their make asset big base calls. with you. You might just need Administration. to adjust We your are witnessing tactics, how more and more product providers knowing full well that you do not are moving towards electronic, paperless know implementation what is about of advice… to happen. Hallelujah! It Don’t is important make the mistake to first of doing unpack this yourself; it is not your business. Let others what spend the the money client and is the feeling time on this, and then wants choose to the achieve. best solutions Your as they job emerge. as a professional is to try to take Family offices and family constitutions the I fear am aware away of a for trend a in while. which wealthy Put a decision-making families are advised process to create in a place family constitution which spells out the values and of then family make as the the patriarch incremental or matriarch adjustments sees them and needed. sets certain Don’t rules for concentrate on the right call, rather Barry O’Mahony, Founder, future management of wealth. I have a personal bias against holding focus adults on the and best future call. generations to a Veritas Wealth Management particular course of action and conduct that denies them the freedom to make their own choices. I support the values of Barry O’Mahony, CERTIFIED FINANCIAL PLANNER® professional and founder of Veritas Wealth Management www.bluechipjournal.co.za 31
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