Here, Private Banker Chris Duck and Private Client FX Dealer Greig Tonks discuss how professionals with multiple currency incomes can manage their money, and how Investec’s holistic approach could help overcome some of the challenges you face.
What is the typical income profile of the clients we work with who have Foreign Exchange needs?
Greig Tonks: “We work with a number of clients who receive their income in more than one currency. For example, they may work for an overseas firm and receive some or all of their remuneration in US Dollars or Euros.
“For some, there is the added complexity having an income structure which includes profit distributions and a bonus on top of their monthly salary.”
Chris Duck: “Clients may also have income-generating assets, such as overseas property.”
From a lending perspective, we take a holistic view of a client’s income structure and will consider multiple currencies.
What financial challenges do these clients face?
Greig Tonks: “A particular example comes to mind. One of our clients is UK-based and works for a US law firm, so she is remunerated in US dollars. This means she has ongoing exposure to GBP/USD currency movements – both on an immediate basis and when it comes to forecasting her future income. Therefore, the challenge for this client is gaining some certainty over her future income, so she knows what she can expect to receive.”
Chris Duck: “An additional consideration for clients with multiple currency incomes is the ability to access lending. Individuals taking their annual distributions in a foreign currency can sometimes struggle to get a mortgage due to the complexity of their income structure.
“For example, some lenders may only look at income which is paid in Pound Sterling or might only consider a fraction of a client’s bonus or profit distribution, particularly when it is received in a foreign currency. Some off-the-shelf mortgage offerings may not take into account the bigger picture.”
On a day-to-day basis, our clients can hold up to 15 currencies in our Currency Access Account and view balances online in one place.
How can Investec help clients overcome these challenges?
Greig Tonks: “Coming back to the example of our client who works for the US law firm. Investec’s solution was two-fold. Firstly, we efficiently supported the client’s immediate requirement for currency conversion into GBP, aiming to capture positive movements in the rate.
“Secondly, we are looking to set up this client with a forward contract in order to reduce their exposure to currency movements. Forward contracts let you lock in your rate and fix the price on a future date for eligible trades. This means we would be able to secure the level of income the client is due to receive in the future.”
Chris Duck: “On a day-to-day basis our clients can hold up to 15 currencies in our Currency Access Account and view balances online in one place.
“From a lending perspective, we take a holistic view of a client’s income structure and will consider multiple currencies. Similarly, we’re able to take into account bonuses and profit distributions when assessing affordability for a client.
“Likewise, when a client is looking to sell an overseas property, having direct access to our team of specialist FX dealers means that we can help the client with their plans for the income from the sale. In these circumstances there can be a few different factors to weigh up when deciding when and how to convert funds, based on how currencies are fluctuating, so we understand the pressures to act quickly when a currency moves.”
Forward contracts let you lock in your rate and fix the price on a future date for eligible trades. This means we are able to secure the level of income the client is due to receive in the future.
How do you help clients to spot opportunities and manage risks?
Greig Tonks: “We can take short or long-term views based on client needs. This work encompasses much wider, macro-economic issues so our team of economists constantly monitor the global markets and provide regular commentary so that we can track the trends shaping currency movements.
“Over the last month, for example, supply chain disruptions and fears over the spread of the Delta variant have caused some volatility in the markets and though the global economic recovery maintains momentum, it’s crucial that we monitor the situation. Many of our clients are busy people so we try to act as their eyes and ears on the ground, and to make them aware of what’s happening.”
Chris Duck: “While the movement in the currency market may stem from much wider, macro issues, often they have very specific implications for our clients. For example, some US law firms will give larger distributions at the end of the year. So if you are a Partner working for one of these firms a key consideration might be: what’s the economic projection for this point, and what are our economists expecting the rates to look like by then? We’ll work with the client to explore what they might expect to receive, based on those projections. If the Dollar looks set to strengthen against the Pound, the client could expect a stronger return when they convert; however, if projections show the Dollar could weaken, they may wish to lock-in a rate in advance.
“But I’d also add that everyone is different. Some people are happy to wait and see what the rate is at the time they need their funds, whereas others seek a greater degree of certainty and want to lock-in rates in advance. It’s all down to how much risk an individual is willing to take – and we only get that information from knowing the client well, and truly understanding them and their income.”