At Dynasty, we have historically preferred to place most of our clients’ offshore investments directly with offshore funds and asset managers rather than placing these instruments on global administration platforms and, in the process, adding an extra layer of fees. But with a recent sea-change in regulations and the industry, we now feel that it makes more sense to leverage our diligently selected global investment platform to reduce red tape, transactional delays, and costs for our investors.
An effective game changer that has necessitated a rethink in our stance is how the Financial Action Task Force’s decision to grey list South Africa in February 2023 has shifted the investment landscape. Along with a global trend towards more rigorous Know Your Customer/Anti Money Laundering (KYC/AML) requirements, grey listing has made it more difficult, if not impossible for us to deal with offshore asset managers directly.
Among the frustrations our investors have encountered in recent months is the need to continually update their KYC/AML information and potential long delays in redeeming funds from “non-compliant” accounts as flagged by our providers. In addition, as a result of grey listing and increased money-laundering and fraud risk, more than one of our offshore providers have indicated that they will not open accounts for new South African investors, making it obligatory that an investment administration platform be utilised to house their investments.
Furthermore, some providers no longer accept our discretionary investment mandate that allows us to sign on behalf of clients. Getting ‘wet’ signatures and couriering them offshore causes delays and frustrations to clients. Finally, we are facing onerous probate issues on some of our funds into which we have invested clients directly, such as the Fundsmith Equity Fund and the Smithson Investment Trust.
All of those complications are mitigated by some good news. Over the past few years, we have seen global administration platforms reduce their fees substantially. Now that the costs of dealing with these platforms are at attractive levels, the financial case for investing on a direct basis is no longer as advantageous as it was in prior years.
DMA/Saxo—our preferred global administration platform
After conducting an extensive due diligence exercise over some eighteen months, we have decided to utilise Saxo as the default global administration platform of choice for our clients. Saxo is a licensed, regulated Danish bank and offers the most competitive pricing among the providers we short-listed. Saxo has appointed DMA as its South African partner to facilitate easier access to its global offering.
The Saxo/DMA platform operates on an open architecture basis and accommodates a very wide range of listed funds, ETF’s, and individual securities. It supports an electronic KYC/AML process, removing the need to get wet signatures. With a limited Power of Attorney, DMA will also accept our signature to transact on behalf of our clients. Clients’ investments are ring-fenced and held off balance sheet and thus do not face any DMA or Saxo Bank credit risk.
Once housed on the platform, switches from one fund to another can take place within days rather than weeks as can occur under Dynasty’s existing direct arrangements. Another benefit is that the DMA/Saxo platform reports into Dynasty’s reporting system. Furthermore, probate won’t be applicable on our selected funds and individual holdings, including the Fundsmith Equity Fund and the Smithson Investment Trust, thereby obviating the necessity for an offshore will in most circumstances.
Due to the institutional pricing available for the fund management fees on the platform, we hope to be able to offer each client a total cost across the fee chain that, including the DMA/Saxo fee, is in line with their current cost. Importantly, where the existing holdings are retained, there will also not be any CGT incurred in switching the units and instrument from the existing providers to the new arrangement.
We are therefore excited that we now have a viable solution that provides several benefits to our clients whose investments are currently housed on a direct basis. However the migration exercise will not necessarily be applicable to all of our clients (for example, non-SA individuals) and neither will it be relevant to our proprietary Ci Global Funds. For this reason, the merits or non-applicability of platform migration will be discussed with each client at an individual level. In the interim, please do not hesitate to contact us in the event that you require additional information.
