At the begging of July 2016 we received this email from a prospective client introduced to us by one of their employees. The employee in question did and does use our services for their personal international payments - sending money between the UK and their base in Fort Lauderdale, US.
This post relates to our response, what we suggested to the prospective clients, what solution we think they may elect to implement and why they may not choose to opt for a couple of our suggestions.
From our (prospective) client:
We manager a number of yachts and the crew’s payroll. While the yacht’s travel the world, generally the yacht pays wages in 1 currency, whether it be USD, EUR, GBP, and the crew have bank accounts all over.
Some crew have inquired about currency brokers for better conversion rates. For example John Doe receives $10,000 per month, but his home bank is in Spain and denominated in Euros, and the bank just converts it into Euros at their rate of the day, usually not something very competitive. Are you able to offer a platform where we could wire their monthly wages into an account you offer, and the crew can login and transfer it to their home banks when they want?
This is something outside the scope of our management agreement, so ideally I would like to refer someone for our crew to contact for situations like this.
The problem outlined by this prospective client is a common one, but, dare I say it, this is a particularly compassionate employer as most would simply leave their staff to work this out for themselves. The currency ‘exposure’ is not that of the client (the yacht company) here because they are contracted to pay their staff in USD, so, aligning themselves with Prime Cap as their recommended FX broker is a conscientious add-on they may well be thanked for.
An additional plus side for this prospective client is the potential revenue stream referring an FX broker could represent. We wrote not that long ago about the ethical issue we have over providing ‘kick-backs’ to affiliates who refer us business. In a somewhat contradictory manner we will go into why, in this instance, the commercial advantage this offers the client is what in fact cements the relationship and secures the business over and above the excellent service and supreme rates the client could expect for their staff from us.
So, our very straight forward answer to this yacht charter/broker firm is ‘but of course, please do recommend us to your crew’. In this instance the crew register as individual clients with us. Prime Cap can receive funds either directly from the yacht company or from the personal USD accounts held by the crew member. Given that most of the crew members do not hold USD accounts we will likely find funds coming in directly from the employer.
In each case we simply need something that confirms the whys and wherefores of the funds. Why, for instance, are they coming to us from a business who is not our client rather than from the individual who is. It is not that we are suspicious, it is simply that our transaction partners and regulators will want to make sure we know where the money is coming from. A contract, invoice or pay slip will easily satisfy us as to the probity of funds.
Another way of approaching this question is for the actual yacht firm to register as a client of Prime Cap. This is the route we would prefer because the activities of this company may not be limited to sending out dollars for their staff. The yacht world sees a lot of foreign exchange payments, whether that be the buying and selling of the vessels or in fact their production and design aspects. These activities and facets can be spread globally.
Here is our response to the initial email inquiry – it is long, but such is the nature of some referrals and the importance of a first impression that we may only have the one chance to address the concerns raised in the initial inquiry:
First thing to say is that this is a very common situation for companies with staff who bank globally. We deal with this primarily in the legal sector when international firms pay in one single currency to their global staff, so this is familiar territory.
My concern is that detailing my thoughts on your options isn’t going to be a short email. So, bear with me and if you would prefer to discuss directly then do give me a ring on +44 2031957136.
There are a couple of ways of approaching this.
At the moment your crews are bearing the brunt of both poorer rates and fluctuations in the rates themselves; although they will actually be benefiting from being paid in USD at the moment because of its relative strength.
Your crews’ banks are the main problem. You paying USD to their foreign currency denominated accounts leaves the crew members at the mercy of their banks conversion rate and in fact the actual timing of the conversion too.
We can certainly register crew members you refer to us. If they do not hold a USD bank account themselves they can collect all their USD (from you) in one place, namely our USD segregated client account, and convert it as they wish. If they want to be paid the moment their salary is transmitted then they can leave instruction with us to flip the USD into their preferred currency and we credit them same day. We would already have established with them the basis of the commercial margins we use in our conversions so they can be assured of the best rates and marked improvement over that which they bank currently offers them.
By way of indication our rates tend to undercut most retail banks by no less than 1.5% and sometimes as much as 5%…so they will be operating within the slimmest of margins through us on the conversion…
…Alternatively, and this is something that is becoming increasingly popular from a payroll point of view…setting put as a client and you instructing us to make USD equivalent payments to the various crew members is possible. It would not commit you to paying them a specific currency amount, but it would/could be an option you to offer your crews…for example: ‘would you like us to pay you the FX equivalent of your USD salary using our broker?’ or ‘would you like us to put you in touch with our broker?’.
We have found most employees paid in the way you currently do opt for the former scenario because it is less hassle and they know their salary is paid consistently each month at a very competitive rate without them having to do anything. It places no extra work load on you and your team either – I do appreciate that you might want this to be purely something the individual crew members deal with though, so it may not be a goer.
Following this message we were informed that the company involved wanted to remain at arms length as far as the conversion of currencies was concerned. This basically means that the individual employee would be the client. Practically that might mean a little more work on the compliance and registering side of things, but in terms of an addition to our portfolio Prime Cap tend to think a private client is ‘worth’ more to sales propagation than a corporate client.
We did not bring up the notion of paying a referral fee to the yacht company for their endorsement of our services. We have little doubt that, had we mentioned it and offered a profit share, they would have agreed. Why wouldn’t a company take you up on an offer to pay them for business they put your way? But, the reason we did not offer this type of incentive is because the yacht firm already had a solid recommendation from one of their staff members. It could have been seen as a conflict of interest if they, whilst electing to not ‘get involved’ in the FX, then profited from the referral.
So, the focus of this post is the fact that, no matter how elaborate the business structure or how broad the variety one might see in the business that could come from it, using a specialist firm can in fact serve your staff very well. It doubtful whether many FX companies get asked about how best to convert the salaries of their corporate clients' staff. Corporate clients tend to ere on the side of it being the concern of their employee personally, and the employee probably doesn’t think to look into it…but it is a rich vein of business for us and we are always on the look out for conscientious HR and accounts departments who want the value add for their teams.