Prime Cap is not in the business of advising on the where(s) and when(s) of buying a property abroad. Cliche abounds when it comes to the next hot-spots for international movers and shakers, speculators and red blooded capitalists. However, we know a lot of trusted and experienced friends (of the business) and partners who are happy to take you through a 'property search' and it serves us well to make 'string free' introductions to these professionals should introductions be of use|interest to those wanting counsel in the tricky and emotive world of international real-estate.
Our work is to maximise the buying power of someone who holds a currency different to the one in which their intended purchase is priced in; to reduce, if not remove, someone's exposure to sudden or unexpected changes in rates of exchange during the buying process, and to ensure that someone servicing a mortgage or maintaining a foreign currency balance for their activities abroad pays as little as possible in order to achieve the biggest amount of foreign currency they can. Simple!?
In order to do what we do successfully, we need clients to do it for.
We come by these clients by aligning ourselves, both formally and informally, with businesses and professionals who work directly with families and individuals doing what has been outlined above, and more.
At the most fundamental level, getting someone to introduce you to their precious and hard won customer|client boils down to a couple of key things.
It is hard to write an objective post about referral of private clients largely because the actual practise of referring has subjective preference at its core.
Generally money trumps good will when it comes to referrals from the property sector, but, as a relationship evolves, the latter overtakes the former in forming a lasting a reciprocal bond between the parties involved.
Please do not mistake us as cynics. We do not consider commissioning an agent to refer work to you|us|one to be a bad thing and nor do we think less of agents for whom this is the overriding factor when it comes to selecting a firm...furthermore, we compete readily and aggressively to be the firm on the receiving end of such referral.
Assuming that every FX broker pays a commission to an introducer and that every agent receives one will allow us to broaden the topic and truly establish what differentiates one broker from another when the playing field is in fact levelled.
Principles and idealism do not pay the mortgage and, whilst Prime Cap is lucky enough to receive a larger number of non-commissioned referrals than most, we do have to work hard at reminding our partners just why, if not for the commission, we are best in class at what we do and therefore should be top of their list of 'valuable contacts' for internationally engaged individuals.
Reasonable Margin
Our head of business development remembers a conversation (some years ago now) with the CEO of a recognisable UK based high street estate agents. Although working with numerous foreign buyers bringing non-sterling capital in to the UK, the reason the agent did not refer a currency broker is because, in the words of said CEO, incorporating or recommending any specific third party for currency services was "too fraught".
Reading the room, it was clear the agent wouldn't be moving to recommend a foreign currency company. The reason being that the agent had concluded that their former partner for currency services did not have a unilateral approach to pricing foreign exchange transactions. Individual brokers working for their erstwhile nominated partner were at liberty to dictate the rate|margin the client received. Hence, the agent had found on a number of occasions that their client had not received the most competitive rate and, in instances where profit had been generated on a transaction the margin applied was disproportionately weighted in favour of the broker.
So, the margin the erstwhile partner of this estate agent had been applying to the rate of exchange had in fact resulted in negative feed back which over time compromised and undermined the integrity of the relationship between broker and agent and agent and client. "Too fraught' refers to an inability on the part of the agent to be able to rely on the broker firm, and their staff, to deal with the referred client reasonably.
Needless to say, the degradation of trust in this case and the shortsightedness of the broker, or indeed the greed prompted by a purely commissioned operating model, means the agent feels unable to complement their own suite of services by referring those of another foreign exchange business. And who can blame them.
Personal connections and knowing someone beyond the merely professional paradigm tends to be the main reason why one is referred.
It is therefore not surprising that our brokers try to position themselves in the right places at the right times so as to meet appropriately connected potential introducers. We tend to be successful when dealing in the wealth management and legal spaces, probably because of where we are geographically located.
Being referred to a client is one thing; the client engaging one's services is quite another and so it is again understandable that a referrer might seek to introduce a firm to whose value, style and motivation they can relate.
What makes Prime Cap different is that so channeled and personal is our network, we often find ourselves able to offer that which most estate and search agents really want - a referral in kind.
Sure, i can offer you a cut of the money i make on a transaction, but what if i could bring you someone who would use your services too?
Although not always possible, this is what the Prime Cap team aspire to do.
We never promise to be able to do this. Offering reciprocal introductions is not a standard part of our referral arrangements, but, over time and through close working practices with our partners it becomes easier to introduce trusted resources when we can.
When we offer a commission, what is it we're putting on the table?
As a broker, we make our money on the fractional mark up we apply to the rate of exchange we offer our client. Our reason for being is that our mark up is less than what anyone else would apply, so the client gets the best rate around. Prime Cap can undercut our competitors precisely because of the volume of referrals we receive. We can operate profitably on lower margins because we have more transactions and bigger value trades going through our books.
The more trades we conduct and the larger they are in size, the bigger slice by which we can undercut our competition and, in turn win business and attract new referrers.
It is a proportion of that fractional mark up that we offer, on occasion, to a referrer. So, the level of competition the client gets is not affected or altered because it is our profit that is shared, not their currency. The client benefits from the unique arrangements we have with our market counter-parties and our ability to scale down our margin in light of higher volumes transacted.
Here is a worked example:
An apartment in Chamonix costs €600,000.
Our client lives in the UK so will be paying sterling.
The market rate of exchange (which is what global banking institutions exchange between themselves at and is what someone might see if they Googled GBP to EUR rate of exchange) is 1.50, let's say.
When selling to our client directly, their bank pockets €0.05 for every pound out client spends (that is an approximation illustrative of a margin of difference and is by no means exact).
Therefore, our client pays £413,793.10 using their bank.
The banks revenue on this transaction is £13,793.10.
Prime Cap applies a margin of €0.01.
This means our client pays €402,684.56.
Prime Cap's revenue in this instance is approximately £2684.56.
Please allow for the fact that the rate of exchange between GBP and EUR is not 1.50 so the figures, costs and revenue are purely illustrative.
If the market rate is at 1.50 then it costs your bank a mere £400,000 to provide the client with €600,000 because they are exchanging at that market rate.
Prime Cap does not transact at the market rate, so some of the £2684.56 we might realise as revenue is in fact lost|taken|paid to the bank as they mark up the rate they offer us.
In the true meaning of the word 'broker', Prime Cap are arranging an exchange between a client and a banking institution (not necessarily the institution the client banks with themselves).
The client is able to benefit from the unique terms and relationship Prime Cap has with it's mark counter-parties (the institutions we have currency lines with). The bank recognises us as a broker and so offer us a better rate of exchange.
The sad fact is that the client could never hope to achieve the rates we offer were they dealing directly with a bank; for one thing, a bank does not view an individual in the same way as they do a business like us.
It is a percentage of our revenue that we pay to the introducer and, because that revenue is only realised once the deal has been executed|settled, the client's rate and exchange is not actually affected by any fixed arrangement with an introducer.
At Prime Cap we think it is important to a) acknowledge how we make our money and b) provide clients with an understanding of how an exchange is completed.
Much has been said about 'hidden charges' and it has been argued that the margin a bank applies is tantamount to an extortionate fee they do not declare. We do not think that is a fair understanding of the mechanics of foreign exchange.
Your bank has a profit margin just like any other business. Some banks apply less of a margin and every person is at liberty to decide whether to accept a rate or not.
Transparency is something we pride ourselves on delivering and, especially where our partners are concerned, it is one of the main reasons why we are referred as broadly as we are. Our margin is low and never withheld.
So, if you happen to be a property agent and you would like to discuss what commission percentage we offer, be assured that it will be a percentage of the revenue generated off an exchange priced in order to ensure, unequivocally, that a client gets optimum competition.
We are happy for you to negotiate with us to achieve a higher commission percentage, but we will not widen the margin the client receives as a means of offsetting the commission you expect.
If you would like to discuss any of the figures, terms, concepts or practises discussed above then please arrange a convenient time to speak with our management team by messaging brokers@primecappayments.com