show image

The changing landscape of private wealth

There's been a seismic shift in the regulatory landscape for international HNWs, and the industry needs to adapt, writes Robert Paul

FATCA. CRS. The non-dom rule changes. Wherever you look, the regulatory landscape is changing. The common thread is that international borders are breaking down and transparency is increasing; the days of dealing with assets in isolation, only through the prism of the country in which they sit, are long over. The legal and accountancy professions regularly discuss these changes and have worked hard to keep up with the necessary planning, but what does it mean for those of us tasked with investing and growing the assets of wealthy US families?

Well, first it's important to know the kind of families we're talking about. They often have assets spread out across multiple jurisdictions as they globe-trot for personal, lifestyle or business reasons.  And you could argue that they've been victims of previous sloppiness from the profession: the process of managing international wealth is often done badly, without adequate oversight, which means their investment and tax planning may be inefficient.

US families living in the UK will have accounts in the US in the form of brokerages, IRAs or ROTHS and maybe some money invested offshore. They may also hold some investments in their local jurisdiction, often using efficient wrappers where possible. Most clients will have a similar strategy for their wealth: they want to grow their assets steadily over time without taking on significant risk.

But who has responsibility? Too often, investments across the world are treated as if they are mutually exclusive. The US investment manager looks after the US assets, a different investment manager supervises the offshore assets, while a local UK manager will cover the domestic piece. Each account is treated as a separate silo with no one taking a step back and thinking how it all fits together. It falls on the client’s shoulders to resolve the complexity it creates. We wouldn’t expect a family to splice together their own international estate planning, so why their investments?

Our approach is to gather information on the different accounts and the underlying investments, we can then go through a consolidation exercise. This involves looking through the various wrappers and the countries in which they sit, and just focusing on the investments the family hold globally, creating one simple schematic broken down by asset allocation and actual holdings.

The wealth of a family should be thought of holistically and there should be a single global strategy in place, with someone taking overall responsibility for ensuring it is maintained and implemented.

Equally, a global perspective has always been important for UK resident US families with overseas assets, but with the changes to the UK non-dom rules, it has become even more pressing. We live in world where currency is volatile and reporting is required globally. The recent appreciation in the US Dollar, for example, has left many US citizens with significant, and unexpected, capital gains. As wealth managers of international families, we must look globally and understand the implications of our investment decisions in every reporting country.

Investment managers must be able to provide all the necessary accounting information. Historically, wealthy US families in the UK have managed to elect the remittance basis, which avoids a mismatch of tax year ends and other reporting headaches. However, the non-dom changes are putting an end to this approach. As a result, for wealth managers truly to claim they can deal with the needs of international US families, they will need to provide consolidated reporting information on all the assets managed, regardless of the location or currency, in the correct format for both the US and UK tax filings.

This is not an exhaustive examination of the challenges inherent in managing global American families, but with transparency and compliance on the rise, it shows some of the key elements to ensure the wealth management for an international family is high quality and relevant, allowing the assets to be maximised in line with the original remit - ‘steady growth in a risk controlled manner’. Investing the money is just a part of achieving this goal.

Robert Paul is Executive Directive for International wealth management firm London & Capital, Robert sits in the US office.