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How can we help you 'get back to basics'?

According to the Chinese zodiac, when the Chinese New Year began on 5 February this year we entered the Year of the Pig. By all accounts this promises to be a period of success in all spheres of life. I've been told it's a great year to make money and to invest. So, without further ado, welcome to the Year of the Pig and to a year in which all those good behaviours and sound financial choices you've made over the years should hopefully come full circle.

Because 2019 brings with it all the potential for success, here at FNB Private Wealth we see the next 12 months as a 'back to basics' time - after all, the most auspicious events are always accompanied by good luck, astute planning and skilled guidance. For us, 2019 is a year of insights and information, 'how tos' and then, to top it off, decisive action in line with your specific goals, needs and wants.

Getting this right requires that we work hard to understand your needs and ambitions, so we can work together to find the right answers to your specific questions. This view is embodied in FNB Private Wealth's Solutionist Thinking approach, a philosophy that looks beyond bottom lines and account balances and delves deeper to unlock value and grow wealth in meaningful and tangible ways.

Over the year we'll return to this theme and provide you with articles that talk to issues facing our clients, themes of a global and local nature, and ideas and concepts shaping the world of wealth management as we know it. Just recently we witnessed two important local developments with the delivery of the State of the Nation Address by President Cyril Ramaphosa and the 2019 Budget by Finance Minister Tito Mboweni. Central to both was the Eskom conundrum, with Ramaphosa confirming the state-owned entity would be split into three parts, namely generation, transmission and distribution. Mboweni added meat to the Eskom turnaround plan, allocating R23 billion a year in financial support to the power utility without taking on Eskom's debt. He also confirmed Ramaphosa's statement that Eskom would be split into three independent components.

While wealthy individuals appeared to come of relatively lightly in Mboweni's 2019 Budget, with no increase in tax on investments, wealth taxes, capital gains or estate duty, tax brackets have not been adjusted for inflation, bringing bracket creep into play. Added to this is the broader impact of an economy that remains under pressure and debt levels that are expected to breach the 60% level for the first time in 2023-24.

These developments, along with global trends, highlight the need for a return to fundamentals; which is exactly our approach. Therefore, in this first newsletter of the year, we get down to business by focusing on the importance of service by outlining the place, scope and influence a family office has in the world of the ultrawealthy and the role FNB Private Wealth can play in this bespoke world. Then, having observed a trend towards offshore property purchases in recent years, we take a closer look at this development and highlight ways in which we can help you navigate this crossborder process.

We also examine the impactfulness of philanthropy, another driving force for many of our clients, and offer insights and invaluable tips. And, finally, we take a glimpse at FNB Connect and some of the exciting new offers on the horizon.

Certainly the Year of the Pig has started with a huge amount of noise, from load shedding at home, to Brexit abroad, the crisis in Venezuela to the shutdown in the United States. There will, undoubtedly, be challenges as this year unfolds and as we head towards elections in South Africa on 8 May, but a back-to-basics approach will provide the comfort and succour we all need to ride out the rigours of the year to come and emerge victorious in 2020.

Create lasting change through impactful giving

Giving is a deeply personal choice, one which motivates individuals to donate to causes that are close to their hearts. Given the intimate nature of giving, the act of philanthropy touches both the giver and the receiver. As Maya Angelou, the acclaimed author and poet, once observed: "I have found that among its other benefits, giving liberates the soul of the giver."

Just as the choice of cause is deeply personal, so too are the ways in which those fortunate enough to give choose to do so. One-off and even periodic donations have prompted FNB Wealth and Investments' philanthropy arm to think differently about the concept of impactful giving and the flexibility required by our clients. This extends to how we work with clients to plot their philanthropy journey and determine upfront the positive impact they hope to have on South Africa's social landscape.

"Conversations around philanthropy have intensified in recent years as individuals are increasingly looking for ways to influence and donate towards causes that creating lasting change," says Prince Siluma, Head of Philanthropy at FNB Wealth and Investments.

While Siluma is quick to note that there are no rules around donating, he points out that a central unifying intention remains the desire to create meaning through giving. "While donations to charitable causes create immediate relief from social issues; philanthropic giving ensures long lasting and positive change," he explains. "Being mindful of your choice of giving will ensure that the organisation that receives the funding will benefit and be sustainable in the longer term."

Social impact is based on addressing pressing social challenges and impacting personal behaviour; the outcome of which has the ability to address challenges being felt across society. There are several ways to achieve social impact, but the starting point lies in understanding the process of giving.

Siluma suggests applying a five-step framework to your philanthropic thinking to help guide you on this journey and ensure that you achieve the desired impact.

  1. Setting objectives: Your objectives will help you establish and understand what your philanthropic vision and goals are. It will also help you unpack what impact you want to achieve through your giving.
  2. Develop a giving strategy: Your giving strategy should be your blueprint to achieving your objectives. It will help guide you in terms of how to approach, implement and review your social giving objectives. It helps, for example, to focus on specific areas of giving, such as education, women and bursaries, to name but a few potential avenues. You also need to give careful thought to the best legal structure that enables your giving strategy, and seek expert advice if need be to ensure that the right structure is in place.
  3. Giving tax effectively: You can maximise your donations by taking advantage of the allowable tax deductions and the different methods of taxefficient giving. Again, enlisting the assistance of philanthropy experts can help you navigate the best way forward.
  4. Selecting the right causes: With so many deserving causes out there, deciding who you give to and how much is the most difficult part. Begin by ensuring that you identify non-profit organisations (NPO) based on your interests and objectives. Make sure they have a good track record of implementing social projects that are aligned to your objectives and that good governance structures are in place.
  5. Assessing impact: Understanding the impact of your giving includes knowing how your funds are channeled through your chosen NPO by requesting feedback on what has been implemented and how this has impacted your cause.

Finally, positively changing the lives of others remains the key determinant of successful giving.

"Ensuring that there has been a positive change to the social challenge is key to giving effect to your impact giving," concludes Siluma.

Investing in property abroad

Reasons for going this route include wealth diversification, creating a base for children to study abroad, generating foreign currency via rental income, establishing a holiday home, or seeking foreign residency status.

However, acquiring an offshore home for holiday purposes is a priority for only a small number of South African buyers, notes Chris Immelman, Head of Pam Golding International. While these holiday homes are typically being bought in Mauritius or Seychelles, Immelman notes that "most people buy for more practical reasons, such as externalising funds or generating foreign currency"

Apart from the Indian Ocean islands, popular destinations for buyers include Portugal, Cyprus and Malta (all Europe) and Grenada in the Caribbean. The United States also attracts interest. Portugal, says Immelman, is by far the most attractive destination right now. South Africans like the fact that Portugal forms part of mainland Europe, he says, noting that proximity to major European cities is also appealing.

Immelman points out that Lisbon and Porto, Portugal's two leading cities, are both transforming themselves and "attracting young talent from all over the world as new developments and upgrades take place. The country still offers amazing value and quality of life."

Residency rights

Portugal's popularity is due, in part, to its Golden Visa programme, which provides an opportunity to qualify for residency for a minimum real estate investment of between €350 000 and €500 000 (about R5.5 million to R7.9 million). The country has relatively low tax rates of about 20% and no wealth or inheritance tax, or tax on overseas pensions.

Similar to Portugal, part of the appeal of the Mediterranean island of Cyprus is that a property investment can lead to residency rights and ultimately European Union citizenship, albeit at a heftier price tag of €2 million upwards (roughly R31.5 million and above).

There's the opportunity to disinvest after three years by selling your property, but with the requirement that you reinvest €500 000 (R7.9 million). According to Immelman, few of Pam Golding's South African clients who invest in a home in these countries are pursuing emigration in the short term, but they do see it as a good investment opportunity to diversify their asset portfolio.

Guiding you through the process

For RMB Private Bank clients interested in taking the offshore property plunge, there are a range of services which they can leverage to make their investment journey a smooth one, notes Chantal Robertson, Head: Global Wealth Solutions.

"When considering the purchase of property offshore, it is key that you have a bank account in the related currency. For this purpose, you can choose to have a Global Account with RMB Private Bank, or alternatively open an account with our Channel Islands branch. You can fund these using your Single Discretionary Allowance of R1 million* or your annual Foreign Investment Allowance of R10 million*, which is subject to tax clearance, as per the Reserve Bank requirement. It may be feasible to have both, as the Global Account is a simple mechanism for short-term saving, whilst the Channel Islands offering is a transactional account in a foreign jurisdiction that also offers an offshore savings solution.

Depending on your timelines, it may be worthwhile to have a discussion with a Wealth Manager regarding the various investment options available offshore," Robertson explains.

For those wishing to put their offshore property into a trust, FirstRand's Guernsey-based international trust company can facilitate this.

"We bring the best of the FirstRand Group's offerings into play to provide end-to-end cross-border solutions," explains Robertson.

The pitfalls

Of course, there are potential pitfalls to buying a home abroad. First and foremost, Immelman advises against going it alone, saying buyers should rather seek advice from a South Africa-based expert. "Your biggest challenge is to find someone on the ground who is trustworthy and has local knowledge of the property sector, otherwise you are going to end up either overpaying or buying in the wrong area," cautions Immelman.

"An area like the Algarve in Portugal looks like a great investment in mid-summer when it is full of visitors. But for much of the year it is dead. And if you want to attract a long-term local tenant for your property, it's pointless buying in an area far away from schools or with poor transport links. As an outsider, you probably wouldn't know these things." Potential buyers should first look at the full picture and be clear about their immediate property goals: Do they want to rent out the property?

If so, what is the expected return and how easy is it likely to be to find a tenant? Who is going to manage the property in the owner's absence? Who will collect the rent and pay the property taxes? Another consideration is whether there is a double taxation agreement between the country and South Africa.

In closing, Robertson reiterates the importance of getting the right advice on how to move funds offshore, and how to manage them once they get there.

*SA resident individuals who are registered taxpayers, and over the age of 18 can make use of their Single Discretionary Allowance or Foreign Investment Allowance.

What are family offices? And do I need one?

For ultra-high-net-worth families with complex business and financial structures, the family office has long been a way to manage their affairs. Among the oldest is the family office founded by famous American oil baron John D Rockefeller in 1882 to administer his family's businesses and philanthropic initiatives. Other high-profile wealthy families who have embraced the concept include the Rothschild dynasty (the family business is now being run by a seventh- generation member) and the Fleming family, whose best-known member was James Bond author Ian Fleming.

In South Africa, family offices have also long been used by the affluent. Eric Enslin, Head of Private Banking at FNB Private Wealth, says there's no precise definition of who should have a family office, what size it should be, or what package of services it should provide. Similarly, there is no yardstick of wealth that dictates the use of a family office.

High complexity

"An office tends to come into play when there is a high level of complexity; when substantial wealth has been created that begins to span generations, and the family is involved in multiple cross-border business, investment and philanthropic activities," explains Enslin.

"Then you need a governance structure, a framework that will hold everything together. There is a saying that the first generation builds the wealth, the second generation establishes and looks after it, and the third generation spends it. A well-run office will ensure continuity, proper governance and ensure that the wealth endures across the generations," he says.

A high level of sophisticated administrative expertise is required when running family offices, explains Enslin. "Some families will have trusts, companies, investments and art collections. I know of one family that has an extensive art collection spanning the world. So just to manage the process of moving an expensive painting from Switzerland to Johannesburg, for example, requires a substantial amount of high-level administration and organisation."

Another important role fulfilled by such an office is to help resolve family disputes. The larger and more crossgenerational the family becomes, the more likely it is that there will be disagreements that have the potential to cause major disruption and lasting financial damage. Similarly, if a prominent family member gets divorced, the granting of a substantial divorce settlement to the departing spouse could have a wider financial implication for the entire family unless it is properly managed.

In South Africa, where ultra-wealthy families have greater concerns about political and economic stability than their counterparts in Europe or North America, for example, family offices may have greater responsibilities when it comes to offshore investing, spreading financial risk or pursuing foreign residency options. The office may also be called upon to assist younger family members to study at suitable international universities

Two forms

Family offices come in two forms: a multi-family office that is typically an independent service provider with several families as clients of the business; or a single family office that operates for the benefit of only one family and where all operating costs are paid for by the family.

Enslin says the advantage of going the former route is lower cost. There are economies of scale to consider since the cost of the staff and infrastructure is spread across multiple families. "Another benefit is that these advisors will bring to the table learnings from their work with other families," he adds. "Such offices will typically also have excellent infrastructure, administration and support, plus a wider pool of expertise to draw on."

The single family office is typically the option of choice for larger and wealthier families. They will appoint their own office head, who will then employ key staff based on the skills set required by that particular family - be it accountants, investment advisors, lawyers or philanthropy experts.

"The benefit is that the family has direct control, which means they set their own policies and procedures and avoid the extra layer of regulation that multi-family offices may have. The family gets 100% of the staff's time and focus. Many prominent families also feel it guarantees them more privacy. Ultra-high-net-worth South Africans often prefer this option because they get long-term continuity from people who share their deepest secrets," he explains.

The FNB Private Wealth offering

While FNB Private Wealth doesn't provide a family office service, it does work with many such offices to supplement their skills and expertise. "Especially if the family office is small, we will support them with services such as investment or philanthropy advice and help with strategic planning," notes Enslin. "We obviously provide private banking and may also be an independent corporate trustee."

Where an ultra-wealthy individual doesn't have a family office facility available, FNB Private Wealth can help by bringing to bear an assortment of FirstRand Group services ranging from succession planning to tax optimisation. "We don't offer bookkeeping or accounting services, which is not something that South African banks typically do. But we can provide 90% of the services that an ultra-wealthy client will need," he concludes.

Life and Times

How can we help you 'get back to basics'?

According to the Chinese zodiac, when the Chinese New Year began on 5 February this year we entered the Year of the Pig. By all accounts this promises to be a period of success in all spheres of life.


On generosity, investing and family matters

Create lasting change through impactful giving

Giving is a deeply personal choice, one which motivates individuals to donate to causes that are close to their hearts. Given the intimate nature of giving, the act of philanthropy touches both the giver and the receiver.


Investing in property abroad

For many wealthy South Africans buying a home abroad is becoming an increasingly popular way to invest for the future.


What are family offices? And do I need one?

For ultra-high-net-worth families with complex business and fnancial structures, the family offce has long been a way to manage their affairs. Among the oldest is the family offce founded by famous American oil baron John D Rockefeller in 1882 to administer his family's businesses and philanthropic initiatives.