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Wealthy Foreign Nationals Can Make Challenging Clients

By Joan Warner May 24, 2013

As business gets increasingly global and the Internet makes physical distance less relevant, more people are hopping between countries for career or other reasons. Especially in “gateway” cities like Miami, San Francisco, New York and Houston, it’s not uncommon for financial advisors to have clients with income or assets in more than one nation, or clients with dual citizenship.

“Our wealth advisors are bumping into these situations more and more,” says Gavin Leckie, head of the Cross Border Advisory team at JPMorgan Private Bank.

Such clients frequently have the same goals as U.S. citizens: to put their kids through college, retire comfortably or pass a family business to the next generation. But they often have concerns that locals don’t share. For instance, foreign nationals who become permanent U.S. residents are often stunned to learn that Uncle Sam takes a cut of income they earn outside the country as well as what they earn on American soil. High-net-worth individuals with green cards are taxed virtually the same way wealthy U.S. citizens are. “This stuff is not intuitive,” says Leckie.

Checks and Balances

Experts say rich people from other countries invest in the U.S. for many reasons. Some want to shelter assets from volatility back home, says Karen Wilson, a CPA with Mowat Mackie & Anderson in San Francisco who works with wealthy foreigners. Such clients may want to put their money in a safe currency, or in U.S. real estate. For others — such as French entrepreneurs, upset by their government’s revenue-raising tactics — the U.S. is a tax haven.

And sometimes non-U.S. investors are looking to expand their portfolios. “We often hear diversification desires,” says Maggie Mitchell of ING U.S. Insurance, head of a team that caters to non-U.S. citizens, among other markets. Advisors need to be knowledgeable about the regulations in the client’s home jurisdiction, especially regarding sales of U.S. financial products.

That’s why it’s a good idea for wealth managers to work with other professionals on behalf of foreign clients, says Meg Green, principal of Miami-based Meg Green & Associates, which has about $330 million in assets under management. “Get together with an accountant and an attorney,” she advises, and set up a team with checks and balances. That may happen without much effort — advisors who cater to foreign nationals say the vast bulk of their business comes from referrals from lawyers and CPAs with similar specialization.

A huge area for financial planners working with foreign nationals is the “accidental American syndrome,” says Leckie. Take, for instance, a prosperous Brazilian couple who own a business in Rio de Janeiro. Their son goes to Harvard Business School, marries a classmate and five years later brings her back home, along with two children. “It’s like a cuckoo in the nest,” says Leckie. “You’ve suddenly imported the American tax regime into your family.” The advisor’s job then is to try to minimize the impact of U.S. taxes on the Brazilian business. One solution, Leckie says, is buying out the American relatives’ share in the company.

Patience Needed

Intergenerational wealth transfer can also be challenging for foreign nationals. In the example above, the Brazilian businessman who wants to leave assets to his grandchildren will pay estate taxes at the 40% U.S. federal rate rather than Brazil’s 4%. A trust can help — but trusts are treated more harshly under Brazilian tax law than in the U.S. “Often, by living in the cross-border zone, you will have a higher overall tax bill than if you lived in one country,” says Leckie. “There’s not a perfect result where you don’t pay taxes anywhere.”

Advisors who work with foreign nationals need extra patience explaining such unfamiliar financial rules to their clients, says Green. “Capital gains and losses, tax-loss carry-forwards — these are strange things to people who haven’t dealt with them before,” she says. “And they are a big drag on investment income.”

Green says she has served many clients who were previously exploited by unethical financial professionals, and a big part of her job is to rebuild their trust in advisors. Such clients need coaxing before they believe that “smart, nice and honest advisors really do exist in the new world they’re in,” she says. “They need to be protected against the charlatans who say, ‘Oh, you don’t understand English? You have a lot of money? I’ll take care of you.’”