> Six steps to debt freedom

> Brighten their future

> Gold fever: here to stay?

> Nedbank goes green

> Evaluating performance

> Gold hits 18-month high

> Pay less estate duty

> Why lending will resume

> Positive platinum demand

> Breaking the habit

Today, 10 February 2010

Yesterday, 09 February 2010

› Strike three, Mr President

› Cooked head discovered

› Zuma apology 'unwelcome'

› 'Illegal' traps blasted

› Madiba to grace Parliament

Question:
I want to invest in offshore shares without using a local asset manager. What is the process for investing with an offshore fund manager in an overseas fund? I understand I need clearance from the Reserve Bank for taking money offshore. What do I need and how safe is it?

Answer:
You can apply for an offshore investment allowance yourself, just be warned that you will also need a clearance certificate from Sars saying that all your tax payments are up to date. The regulatory process for allowing offshore investment does not stop with Sars. Sars only checks whether the taxpayer has a clear tax record.

The Reserve Bank also needs to approve a request to take funds out of the country and would be very concerned about funds being invested offshore without proper compliance with the various exchange control regulations. Possible penalties for breach of these regulations could include fines and/or imprisonment. Under certain circumstances, the Reserve Bank may also attach assets illegally invested offshore.

I don’t know what your reasons are for not wanting a South African fund manager but there are a couple of risks. Many South Africans with funds overseas are squealing about the high asset management and administration fees but they are not in a position to do anything about it.

Turn a blind eye

It is no secret that many large financial institutions in South Africa have subsidiaries overseas holding billions of rands of investors' money. How the money got there is of little concern to them, as much was relocated before money-laundering regulations came into play. Prior to 1992 financial intermediaries were not required to declare suspicious money to the authorities.

Even though the large institutions are well aware that much of this cash is in fact grey money, they turn a blind eye. The reason for this is that they make fortunes out of managing the funds. A client who has their money invested in an offshore trust for example has to pay almost extortionate fees in comparison to what they would have to pay in South Africa. And of course these fees are earned in hard currency.

Once your money has legally left the country, you are not protected by local regulatory bodies. In other words if the fund manager you chose was a Fidentia-clone, then you would have to make your protests in the country where the money is invested. This could be an expensive exercise. In addition it is difficult to gauge the reputation of a fund manager remotely.

Media spin doctors

The internet can be a useful tool in getting an overall picture. This, however, is no guarantee, as investment firms are great media spin doctors. Unless you have a watertight referral from a trusted source in the country that you wish to invest in, you are taking a risk.

More importantly, if you have been contacted by an offshore investment company promising you fabulous returns, beware; they could be con-artists. They are very good at what they do, run a search on 'Mendes Prior' on Google to see how they can wreak havoc.

These companies have defrauded South Africans out of millions of rands. South Africa has many excellent fund managers with products that fully expose you to offshore markets. If I were you, I would strongly consider this alternative.