Industry Content Series The Growing Opportunity in Cross Border Wealth Management for Independent Financial Advisors

Transcription

1 Industry Content Series The Growing Opportunity in Cross Border Wealth Management for Independent Financial Advisors Table of Contents Introduction 1 The Rise of the 2 Cross Border Niche Market Size and Segments 2 Financial Planning and 4 Investment Needs About Maxim Global 6 Wealth Advisors

2 Introduction This white paper is the first in a series of financial planning industry content pieces from Maxim Global Wealth Advisors designed to help financial professionals better understand the opportunities available in the cross border marketplace. Globalization is increasing and the world is becoming ever more connected, driven by companies expanding globally, technology companies importing specialized talent and a growing open border policy by nations around the world. This globalization is also driving the growth of a large and underserved market niche for wealth management, known collectively as Cross Border Families, which is comprised of the following three sub-groups: International professionals living in the U.S. American expatriates International families with assets in the U.S. These individuals and families have specialized needs and are subject to numerous and complex tax, legal, currency and planning issues. Furthermore, there are very limited financial planning and investing solutions available to this group, or professional advisors available with the knowledge, skills and experience needed to offer appropriate solutions. The opportunity to serve these individuals and families is attracting attention due to the sheer size of the marketplace. However most advisors do not have the tax, legal or cross border experience to provide a fiduciary experience. Maxim Global Wealth Advisors, founded by financial services veterans with a deep expertise in the tax, legal, financial planning and investment management issues of cross border investors, have developed a specialized wealth management platform that can be a key partner to advisors in providing the necessary experience and solutions. Accordingly, this white paper will provide the key details on this growing market segment, identify the top financial planning and investment management solutions these investors need, and provide an actionable plan to help advisors participate in this attractive segment. Page 1 of 6

3 A Compelling Market Opportunity Most cross border professionals with a connection to the U.S. feel extremely frustrated with the unique complexities brought on by the worldwide tax system of the U.S. In addition, international financial institutions are hesitant to serve their citizens who have a connection to the U.S. This unique situation has led to an occurrence where cross border professionals have very limited options for sensible investment and financial planning help. Most investment firms and large banks (U.S. and foreign) choose to avoid this market completely because they are ill-equipped and not staffed appropriately to service these clients. Banks and investment firms will often cite the fact that relative to their core client base, the number of these client opportunities is small and they come with a higher level of risk and reporting complexity. Because of these structural issues, this underserved segment presents a compelling opportunity for independent financial advisors who can partner with a specialized firm with these capabilities. The cross border niche is a growing and thriving market segment. While there are few estimates that have been developed to quantify the total investible assets owned by this demographic, many industry experts believe it is in the trillions of dollars worldwide. What is contributing to this growth? There are a number of factors, however, Globalization is the driving force, with international corporations expanding overseas quickly, and as a result they are sending executives to manage their international operations, and likewise they are bringing more talented professionals from their foreign operations back to the U.S. Additionally, there is a strong magnet in the U.S. technology sector for global entrepreneurs, attracted by the opportunity to launch their new businesses in the thriving ecosystems of technology hubs in San Francisco, New York, Boston and other regions rich with technology talent and available start-up capital. Some estimates show that as many as 50% of the founders of new Silicon Valley startups are foreign citizens. The challenge and opportunity for the wealth management industry is that there is a lack of solutions for these investors. Historically, financial advisors who are not skilled or knowledgeable about the proper tax implications, legal and titling issues, and appropriate investment structures, have serviced these investors, simply because they were the only available option. As a result, cross border investors have been given improper or limited advice, leading to sub-optimal results. Compounding this lack of solutions is the movement by custodians and banks to exit this part of the industry due to the complexities involved, regulatory concerns and other issues. New policies and procedures put in place as a result of new regulations are not allowing them to service these accounts, and many are ultimately restricting all accounts that have a foreign address or a foreign citizen owner. There is also the trend of growing government transparency and information sharing leading to new regulations and rules globally; foreign financial institutions are now required to identify all clients with a connection to the U.S. and to report details of their financial holdings to the U.S. Treasury. As a result, investors are rapidly changing their offshore and undisclosed accounts to onshore and fully disclosed accounts, which is only contributing to the rapid growth of investible assets in the cross border niche. Market Size and Segments There are three primary demographics within the cross border wealth management niche, which combined is estimated to number between million individuals with as much as $6 trillion in U.S.-based investible assets, based on Maxim Global Wealth Advisors research. 1) Cross Border Professionals These are international professionals living in the U.S., such as a high tech engineer from India working for a U.S. technology company. They are foreign-born individuals who are well educated and work in a professional capacity in the United States. There are estimated to be over 40 million adult foreign-born immigrants in the U.S. based on U.S. Census Bureau data. Approximately 29%, or 11.6 million, have a bachelors degree or higher according to the Center for Immigration Studies. From a wealth management perspective, we focus on the group with income greater than $100K per year or net assets greater than $500k. Through that filter, the size of the market is approximately million people. When combined, the total Page 2 of 6

4 investible assets are approximately $2 - $3 trillion, assuming average investable assets of $250k. This demographic generally has more complicated financial affairs than a typical American. They tend to be accomplished high-income professionals, and they also save at a considerably higher rate than their American peers. As a result, their planning and investing needs are more complex. These investors struggle with understanding our unique tax code, along with the various retirement and investment options offered to them here in the U.S. Most have very little experience with investing as many foreign countries have much less developed and readily accessible investment markets. Further, there are very few financial institutions or advisors that are qualified to help them. This group generally feels very alone and overwhelmed when it comes to investment and retirement decisions, even though they save a much higher share of their income and thus have fairly secure retirement outlooks. 2) Americans Living Abroad American expats are estimated to number over 8 million people, according to the State Department, AARO 2015 report. Of these, about 3 million are considered to be working professionals or HNW retirees with income greater than $100k per year or net assets greater than $500k, according to research conducted by Maxim Global Wealth Advisors. This segment represents between $500 billion to $1 trillion in investable assets, assuming average investable assets of $250k. Among American expats, there is a considerable amount of confusion surrounding personal finances and retirement. Much of this revolves around U.S. taxes and how it integrates with whatever foreign tax they pay in their resident country. As a result, they too have very complex financial planning and investing needs. Effective retirement readiness planning and investment management are major challenges, as there are very few places to turn for answers or advice. Also, self-managing one s accounts back in the U.S. can be very difficult, given the administrative red tape and because many U.S. financial institutions would rather not take the risk of serving expats. Many brokerages and banks are systematically closing accounts with a foreign address. Likewise, most foreign financial institutions are also not disposed to serve American expats, with the cause being compliance Case Study #1 How Maxim helped an international professional in the U.S. A long-time client of ours is a French national, with a wife who is dual South African and British citizen. The husband worked for 10 years in London for a large American multinational in the technology sector, before he was offered an opportunity to move his family to the U.S. headquarters of the firm for a 3-year work assignment, with an agreement that he would have an opportunity for promotion to VP at the end of this time. His initial assignment was tax-equalized, which included special allowances for housing and children s private school expenses, and he would be working on a temporary visa. He did eventually receive the promotion to VP, which required that he transition to a local hire in the U.S., and accept his company s help in securing permanent U.S. residency (green card). In the time that we have worked with this client, we successfully guided them through many unique planning decisions, including the following: The decision to move foreign investment accounts to the U.S., improving returns and also obtaining more favorable tax treatment. A review of foreign qualified accounts, which could not be moved to the U.S. and had been performing poorly due to the insurance structure of the plan (very common in Europe). We were able to reallocate the holdings into a more aggressive and lower cost program. Review of foreign real estate holdings, which included a family vacation home as well as a former residence that had been converted to a rental. We explained to them the unique tax shelter properties of income property in the U.S. due to depreciation, which they had not seen before. Review of new employer benefits available upon localizing in the U.S., including options, deferred compensation, 401(k), ESPP, disability and life insurance, etc. Navigating the death of a parent and inheritance of foreign assets. Review the decision to seek U.S. citizenship after being in the country for more than 5 yrs. General planning for a retirement future likely to include partial residency in multiple countries. Page 3 of 6

5 with the far-reaching information sharing requirements of FATCA regulations. As a result, this group is also facing very few options. 3) Non-Resident Aliens These are foreign citizens living outside the U.S., with no U.S. citizenship or residency, but with U.S. based financial assets. This group represents a large population of foreign citizens living abroad who have assets in the U.S., either through having previously lived and worked here, from actively transferring funds into the U.S. for investment purposes, or from a cross border inheritance. The size of this market is estimated to be 10 to 20 million people, based on estimates from Maxim Global Wealth Advisors. This segment represents investable assets of between $1 $2 trillion, assuming average investable assets of $100k. A large percentage of this segment are foreign professionals who previously worked in the U.S. and accumulated certain financial assets that remain there even after they ve left the U.S., such as real estate, bank and brokerage accounts, 401k and other qualified assets. Additionally, foreign citizens who have inherited various financial assets in the U.S. and have chosen to leave those accounts in the U.S is also contributing to the growth of this segment. It is becoming very common for high-net-worth (HNW) international families to purchase U.S. real estate, either as an investment or to establish a stronger connection to the U.S. for their families. This group also has fairly substantial and complex wealth management needs. However, the primary opportunity with these investors is to provide oversight of their qualified and non-qualified investment portfolios in the U.S., which would be nearly impossible to self-direct for a non-resident alien living abroad. Primary Financial Planning and Wealth Management Needs For clients in this growing niche segment, the primary financial planning and investment needs consist of several specific service requirements. Investment Portfolio Management Beginning with investment management, cross border investors need specialized investment portfolio management that Case Study #2 How Maxim helped an American expatriate We have worked with an American client living in Hong Kong for many years. He is originally from New York, and was working in Germany when he met his wife, a German citizen. He has since been posted in numerous countries with his long-time employer, and now finds himself running the Asia region from Hong Kong. The client has three children, who are all dual national citizens of the U.S. and Germany. The wife is not a U.S. citizen. In the time that we have worked with this client, we successfully guided them through many unique planning decisions, including the following: Oversight of U.S.-based investment accounts, which include qualified accounts and 529 plans. In-depth involvement in tax planning in conjunction with their various tax advisors, as they have moved among four countries during our time working together. Helped identify an inappropriate offshore investment, which was later liquidated. Organized the various foreign qualified accounts they own, and helped to evaluate the investment choices and reallocate holdings. Careful consideration of their employer pension in Hong Kong resulted in their decision to decline participation for tax reasons. We ve consulted on employer compensation negotiations, in particular reviewing cost of living allowances and the currency adjusted, net after-tax take home pay of two competing job opportunities. Helped analyze the wife s German property holdings, which were gifted to her as a result of her parents estate planning. Helped them find a suitable estate planning attorney to prepare a will and other estate planning documents tailored to their situation. Page 4 of 6

6 takes into consideration their specific situation. This includes establishing and funding brokerage accounts, investment portfolio construction and ongoing monitoring. Advanced Wealth Planning Additionally, many of these investors require specialized financial planning and wealth advisory services, delivered through a personal relationship with a knowledgeable financial advisor. Key areas of focus are: Coordination of 401(k) and IRAs with other international qualified accounts Personal risk tolerance Overall balance sheet review and asset allocation Stock option and equity compensation analysis Tax strategies and optimization of investment portfolios to maximize tax efficiency Retirement readiness and financial projections Review of real estate and other alternative assets Advanced retirement planning related to: estate planning, asset protection and insurance, charitable giving, and more Client Service and Administrative Support Because of the complexities involved, cross border investors also require advanced and specialized client service and administrative support. Examples include assisting in the movement of funds, management of various investment accounts, as well as handholding in the process of opening new accounts, transferring assets and executing foreign currency transactions. Other general service items can be complicated by foreign addresses and the lack of U.S. citizenship, thus a dedicated and specialized technology and service platform is necessary. Partnering with Maxim As a specialist in the cross border wealth management marketplace, Maxim Global Wealth Advisors provides a comprehensive approach to managing the needs of this specialized niche and is currently partnering with financial advisors to better service clients who fall outside of their expertise. These products and services include: One-Time Financial Planning Engagements An assessment of their overall financial picture and retirement goals, with advice on actions which can simplify their affairs, save money, increase returns, and otherwise maximize the odds of reaching financial goals. Investment Portfolio Management Professional portfolio construction and ongoing investment monitoring, with special focus on the unique needs of cross border families. Personalized Wealth Management Relationship Certain families (often those with larger net worth) desire a more personalized relationship with a financial advisor who has specialized knowledge in serving the cross border niche. Identifying Need for Other Professional Advisors Finally, rounding out their wealth management needs includes introducing clients to other qualified professionals when required, such as tax, legal, immigration, HR, and others. Page 5 of 6

7 About the Author Andrew Fisher, CFA, CPA President and Chief Investment Officer Andrew Fisher is Chief Investment Officer and a Senior Client Advisor of Maxim Global Wealth Advisors. With a broad base of experience in finance and investing, he enjoys helping clients find creative solutions to complex financial problems. Andrew has lived abroad and studied international languages, culture, and business, and enjoys the diversity of his client base. He is based in San Francisco. About Maxim Global Wealth Advisors We are an independent investment advisor to globally oriented families in the United States and abroad. We offer managed portfolios and retirement planning advice in an unbiased, fee-only, and client-centered environment. Our clients are located around the world, giving us a truly global perspective on the investment landscape. This allows us to better assist cross border professionals in aligning their U.S.-based assets for a worldwide retirement. Our mission is to build lasting client relationships based on a level of trust that is earned through wise counsel, investment results, clear and candid communication, and service that exceeds expectations. We formed Maxim in 2005 because we felt it was time for a new class of U.S. investment advisor one with a more worldly perspective. We welcome the opportunities to partner with independent financial advisors to help them better service their clients and prospects with cross border ties. For more information, visit Contact Us San Francisco - Portland - Amsterdam contact@maximadvisors.com Page 6 of 6