Add to this the massive cost increasing onslaught of legislation that has expanded the middle office faster than Ricky Hatton’s waistline in between fights. So you can see why we bankers are all looking at a slightly smaller Mercedes for our next purchase, might actually have to forego the leather interior for an Alcantara one. These are indeed hard times.
There remains however one thing we still have that remains firmly under our control. One thing in which we set the fees and you the client are none the wiser, it’s FX rates, foreign exchange currencies.
Have you noticed your private banker take a more active interest in currencies and FX markets for your portfolio recently? Perhaps he is recommending taking on currency exposure of this sort and that sort.
There’s one very simple reason for this: You don’t see the fees. Spot foreign exchange transactions do not qualify under MiFID. Meaning we private bankers can place a hefty margin in there without you knowing how much you are paying.
On your confirmation you simply see the rate at what the exchange was done at, the margin is in the price. The best thing about it is that if you ask your average retail bank, their quotes are much worse than ours. So even if we are taking 0.5% per transaction, compared to other avenues on offer to you, we are still cheap.
This is one of the few “old school” tools left for us to make those all important extra earnings and we do use it. Nothing inherently wrong in this, any good portfolio should have currency diversification, but you need to be aware of it.
So what can you do? Firstly use a good online FX converter and FX calculator. You want to watch FX online and not just follow it through what your banker tells you. Finally the thing you need to do is ask your banker straight up what his margin is. If he starts mumbling and talking in circles, then he’s been a naughty boy. He should be able to come out and say it, fair and square.
What’s a fair margin then? Depends on many factors but it should come between minimum 0.05% maximum 0.50%. Anything above that and it’s just not fair play.