Foreign exchange is a pretty boring subject. It is a fascinating job to have, but, the focus of the profession does not translate well into scintillating dinner party conversation.
For that reason and others we've concluded that the more imaginative ways in which one might use a foreign exchange broker can sometimes get overlooked. It is not that big a shame, but, it does mean people waste money where they needn’t.
In our opinion the bottom line is largely that if there is a different currency involved, at all, then speak to Prime Cap to see if you can save yourself a bit of money. It may be that you can’t, but, at the very least you’ll have had a riotous currency conversation
1. SCHOOL FEES:
This one is very simple and incorporates two of the most usual foreign exchange contracts to assist parents who have sent their children to a school abroad - whether that be in the UK or outside of it. It is equally applicable, we suppose, for those entering tertiary education as overseas students and paying school fees.
Were we to say that one pays fees on a termly basis, so, every 3 months or so, you might wish to consider one of two solutions…
a) you can simply buy the amount of sterling (I’ll assume you’re child is being schooled in the UK) you need to pay for that term’s tuition.
A broker can shave quite an attractive margin off your home currency spend here because he can provide a better rate of exchange than you are likely to receive from your domestic bank when sending.
The GBP amount you need to send the school does not change, of course, but the number of EURs, HKDs, USDs or SGDs you pay is reduced.
b) you can buy the whole years’ worth of currency ‘forward‘.
The merits of doing so are enhanced when and if the rate of exchange is favourable.
At the time of writing this post the pound is at a distinct low vs USD and EUR.
Now would be the time, as we approach the summer holiday, to lock in the rate for next years’ tuition and just sit back happy in the knowledge that you don’t need to worry about the rate of exchange until this time next year.
Your broker can even diarise to contact you as and when your termly draw downs (payments) are due.
Your just send the correct amount of your domestic currency and the broker can credit the school directly.
For the past two years we have been sending the odd £500 to £1400 over to Italy for a couple who intended to wed there.
They will need to pay their suppliers, venues, caterers etc. with euros and they simply do not want to use debit cards as and when.
By setting up a EUR account the groom in this tale made a very shrewd move.
The groom and his fiancé could convert money whenever the rates was considered good and just deposit it for safe keeping in their own EUR account for withdrawal nearer the wedding day.
Alternatively the couple could ask their broker to send payments directly to the supplier if they wanted.
It gave them the utmost flexibility in terms of access to their wedding savings.
If you are going away with enough people, whether it be to a villa in the South of France, a chalet in the Alpes or a honeymoon in South East Asia, you can use a foreign exchange specialist for the payments and save yourself a bob or two.
Now, it must be conceded that commercial foreign exchange, such as that done by specialist non-banking institutions, does benefit you more the greater the amount of currency you convert.
We estimate our savings on a percentage basis. Whilst they are consistent savings, it could be that on smaller sums things like the associated costs of sending a payment are more competitive when done through a bank.
By way of example:
I need to send £500 to Wee Jimmy in Australia.
My bank offers me an exchange rate of 2 to the pound.
This means my £500 equates to $1000.
But my bank may charge me £15 for sending those funds.
Hence, in reality I am paying £515 for $1000. Simple maths tells us that this is actually a rate of conversion of 1.9417 (roughly a 6% margin).
So, not as competitive as we thought?
Take an FX firm. Most big FX firms task their currency dealers with making a minimum amount of margin per transaction.
A former employer of one of our brokers, now a competitor, used to demand £20 be made on each exchange. Straight away this means that, regardless of any fee this FX firm might charge, they have to quote a rate of exchange with a 4% margin just to make £20 profit off the rate.
Assuming that your bank was marking up their rate by 3%, a 4% margin would be a rate of worse than 1.99 even before we get to the cost of sending a payment.
It is almost not worth it for the company to compete with your bank here.
So, they likely wont.
But, consider a payment of $10,000 for our honeymoon. Or the fact that 10 of you could easily spend £1000 if not more for a week skiing.
On these amounts the amount of profit a foreign currency firms needs to make becomes a fraction of the percentage required on a smaller figure and could quite comfortably translate in £200 – £300, if not more, saved.
Prime Cap takes a different approach.
As a boutique, our brokers are not targeted to make a minimum revenue amount on an exchange.
We believe that incremental growth of our portfolio is more valuable than one off profit.
By this we mean that 100 clients who earn us £10 are more valuable than 10 clients who earn us £100.
Yes, the resulting revenue is the same however you spin it, but, we would rather have 100 voices willing to endorse us than just 10.
Our brokers have total autonomy over the pricing of their book of clients.
One of the most frequent questions we are asked is 'what is your minimum transfer amount?'.
Our response - we do not have one.
If our system means you pay less to use us, and it does not leave us at a loss to facilitate your transaction, then you are at liberty to use our services; no ifs, no buts.
If we accept that any business who holds a bank account can receive an electronic payment, then the fact that you can pay for a vehicle more competitively by negotiating the foreign currency price for it comes as no surprise.
Some potential customers remain just that, potential customers, because they think that their activities are so niche that they might not benefit from the same tools that are commonly used for more main stream dealings.
Vehicles, whether they are cars or combine harvesters, trailer or trains…if they are made and sold abroad, even if they are bought in the UK, can be paid for in a foreign currency and in such a way that is means you are paying less in your home currency for the same product.
Mentioning no names; a long standing client of ours, a solicitor, introduced us to one of his clients.
He was acting for a lady who stood to be awarded a sizeable amount of money.
What this lady didn’t appreciate was that, were our client's law firm entrusted with the transmission of her settlement to her own bank account (which was in Switzerland), she would get far less than she thought she might.
Factors worth considering here are that the rate of exchange undoubtedly changed during the course of her legal proceedings; was this taken into account?
She would be spending her time in more that one country, so, was it sensible for her lawyer to pay the full settlement amount into her primary country of residence, or, would she benefit from splitting it between certain currencies and certain accounts?
If she does not hold a sterling account at all then she might find it useful to have one and the sort of segregated facility that a non-bank FX firm provides.
We mention in the ‘earning in a different currency‘ post about a contact who inherited funds from Canada.
Well, it is not just Canada my friends – if your children or beneficiaries live outside the UK and you die, they will effectively be taxed to received whatever funds you may have left them because of the arbitrary exchange methods usually used; likewise you, were you to be sent a financial bequest over whose conversion you have no control.
Believe us, we are aware that the rate of exchange will likely be the very last thing on your mind in that circumstance, but, that doesn’t mean to say you should simply swallow the 3% you’ll lose because you’re bank trades at that margin by default.
Gosh this post just keeps getting jollier and jollier doesn’t it!
Gloom to one side, as we write this is occurs to us that the mundane and the niche are two things that many people overlook for FX.
There are tons and tons of tax planners who specialise in doing tax returns for resident non-doms or US citizens who have to send funds back home to please the authorities.
Very very few of these tax advisers will outwardly and opening advocate the use of an FX provider.
Does recommending a firm like Prime Cap present the perception of conflict of interest? The idea that you might be taking a kick back or a percentage in commission?
To that we feel justified in asking:
a) do you really think your client is going to care that you get a kick back if they receive the level of care and attention as well as the savings they can and should?
b) don’t take a kick back. We work with a couple of financial services providers who make a point of informing their customers that they benefit in no way, financially, from the relationships they have and the recommendations they make. T
This is sweet, but, personally we think it a waste of time and, frankly, disingenuous because if your reputation is enhanced by the introduction you’ve made; if the person you have recommended makes you look good; then we would say you have gotten something far far more valuable than a kick back.
You can very easily substitute your bank for an FX broker when you’re sending funds for things like taxes.
We currently have a few clients who send funds to Ireland using our services for their 'rates' etc. and it works very well provided they ask us to put the correct reference on the payment.
If you would like to find out how we would approach a more exotic or abstract currency matter then simply give our trading team a call on 02031728193.