A weakening rand and the attractiveness of global equities sees investor interest in offshore products grow
There is increasing interest in offshore investments among South African residents, according to intermediaries in the country. This follows the completion of the Foreign Exchange Amnesty and a weakening of the rand.
Professor Sakkie van de Merwe, chief executive officer of the Financial Planning Institute of Southern Africa (FPI), said: "Investors have realised it is time to think about diversifying their investments again. This is because of the risk reduction benefits of diversification, the weakening of the rand and the increased attractiveness of overseas equities.
"Now that the amnesty has collected a substantial sum of undeclared offshore holdings by South Africans, people can focus on using their offshore allowance legitimately. Each adult can invest up to R750,000 overseas."
However, one IFA who did not wish to be named said advisers have been criticised for recommending offshore investments following the strengthening of the rand.
He remarked: "When there was 14 rands to the dollar, we were recommending diversifying investments into overseas markets. The currency subsequently strengthened all the way to R5.5. Now it has weakened to around R6.50 but we see its true value as around R7.50 to the dollar.
"The problem for IFAs is that because of the stronger rand, South Africans were losing 45% of their assets even though the actual investments were delivering positive returns. Clients need international diversification because South Africa only represents 1% of global assets. We put many clients into low volatility assets overseas to try to limit the risk."
South African intermediaries have said that the new regulatory environment for advisers has increased the cost and time spent on compliance. It is predicted this will lead to IFA firms merging or brokers leaving the industry.
Professor Merwe said there has been no significant number of people leaving the industry yet but this may change in 2007. "Of 8,500 members of the FPI, only 25 have left since the licensing of advisers. But advisers need to gain the minimum qualifications by 2007, so this may see an increased number of departures or mergers of adviser firms.
"We expect there will be greater differentiation between advisers with advanced qualifications and those with the minimum exams and training after 2007. This will, however, require greater consumer education to understand the differences between the qualifications. What we have seen already are three firms, for example, sharing the cost of one compliance officer between them."
The Financial Services Board has revealed that under the Financial Advisory and Intermediary Services Act 2002, 70 intermediaries have been denied licences. These applicants can appeal to an independent tribunal, the FSB Appeal Board. So far, 10,346 licence applications have been approved.
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