Factors to consider when investing abroad

Judging by the level of inquiries being fielded by Sable International, South Africans are nervous about the future of the country and want to have a Plan B in place. For them, emigration is top of mind. Others want to retire in a different country, while some want their children to have an overseas education.

Not everyone wants to emigrate, but they do want to preserve and grow their wealth. Many South Africans falsely believe the questions to answer are whether to invest in a passive or active fund, or some asset allocation that will help them achieve their longer-term goals.

While these are important decisions, there are equally important decisions that must be made before this.

Tom Barlow, group commercial director at Sable International, points out that investing abroad begins with an understanding of the basics.

“The reasons why people want to emigrate are very different, but no matter the reasons, I always start by asking clients what their objectives are in investing abroad. Is it so that their children can get an overseas education, or because they want to retire in a different country and maintain a similar lifestyle, or are they looking for a Plan B in case the country slides into chaos?

“The answer to this question has very different implications from an investment point of view,” says Barlow.

“There’s a huge amount of inquiry from people exploring moving abroad. It still amazes me how people are hiring investment professionals to guide them in this process, but these professionals very often do not consider the basics. It’s very different if you want to invest in the UK, Australia or the US.”

Most people emigrating want to maintain a lifestyle similar to that which they enjoy in SA. This is where the choice of location becomes critical. The cost of living in London is different to Cape Town, Portugal, Greece or Malta. Each jurisdiction, quite apart from the difference in living costs, has a different legal and investment process.

“There was a truism in the SA retirement industry that your retirement savings had to be 10 times your annual salary, now we are being told it must be 20 times or even more,” says Barlow.

“That reflects changing economic realities, which are realities that occur all over the world. Those realities are unique to each jurisdiction, and you need to have knowledge of on-the-ground conditions and the difference in laws, costs of living and the investment process. Investment advisors operating from SA often do not have that level of knowledge.”

Barlow provides the following list of questions that clients need to answer before investing abroad:

  1. Where in the world could I and my family move to?
  2. How much would I need to sustain my lifestyle in these destinations?
  3. What would be the optimal structure to hold these funds?
  4. What are my timeframes that I want my team to adhere to? Am I planning a month, year or decade into the future?
  5. Where can my children study, given their specific interests?
  6. What are the tuition fees?
  7. What are the living costs?
  8. What are the earnings prospects after obtaining their degree?
  9. Should my children decide to make a life in the country of their studies, what is the ability for me to join them in time?
  10. How do I structure my wealth to meet the potential need to retire abroad, or stay locally, or a combination of the two? (This could be done by way of a trust, in the client’s own name, or in a retirement fund structure, each of which have different after-tax consequences, with different capital gains and other taxes.)

Answering these questions will determine the next step in the process. If the preferred destination is the UK, this requires a detailed look at the options within the UK, as well as an understanding of the costs of living. For example, property and general living costs in London are considerably higher than smaller towns in the UK.

Another factor to consider is what investment structure to adopt, and this will vary depending on the location.

Certain jurisdictions frown on trust structures and may require an entirely different structure to be considered. “You may find upon emigrating to some parts of the world that you will be required to unwind a trust already in place, so you must weigh up the benefit of maintaining or winding up the trust,” says Barlow.

“Only when we have taken the client through this process can we determine what investment building blocks to put in place, such as decisions on types of investment and asset allocation. But that is the end of the process, not the beginning. Very few professional investment advisors in SA have a deep-level understanding of the intricacies of emigration and determining with the client the objectives for investing abroad.”

Brought to you by Sable International.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button