Wealth Management and Foreign Investors in the United States
It was not so long ago that foreign investors avoided the United States in droves. But that is no longer the case. In recent years, a heightened emphasis on compliance and transparency around the world has leveled the global playing field and transformed the U.S. into a desirable destination for non-U.S. wealth, according to Amy Szostak, chief fiduciary officer of Northern Trust’s Global Family and Private Investment Offices.
These days, upwards of $500 billion in wealth flows into the U.S. annually, primarily from Latin America and Asia-Pacific.
The price of transparency
“Transparency is generally seen as a good thing, “says Szostak, “but for many wealthy families, it can carry a heavy cost if it compromises their physical security.” This drawback is especially true in countries with political uncertainty, strongman rule and hostility toward the wealthy, which has families worried about privacy, security and even physical safety.
“Given the global demand for transparency, clients are considering their jurisdictional options for reporting. Global private banking consolidation has, in part, been due to the rising costs of reporting, compliance and data security.
“Not all parties are created equal, however, in their ability to collect, store and transmit personal data. Non-U.S. families are looking for stable jurisdictions, so they can feel confident that firms have invested in the infrastructure, security and technology, making it less likely that their information will fall into the wrong hands,” Szostak says. Subsequently, many families have moved their assets to the U.S., drawn by the promise of political and economic stability and superior data security.
U.S. attractive in a global market
“The U.S. is appealing for many reasons; first being, in addition to historic political stability, investors get direct access to U.S. markets and a stable currency. There also are practical considerations, such as the ease of travel, sophisticated infrastructure, business-oriented time zones and, of particular importance, a broad range of professional resources with a deep bench of talent in accounting, valuation, attorney and advisory services,” says Szostak. Another draw to the U.S. is the favorable environment for interpreting trusts and other wealth-planning structures.
“We have a long history of trust enforceability, in contrast to civil law jurisdictions,” Szostak says. At the same time, foreign nationals also can feel assured that some foreign legal judgments in the U.S. are largely unenforceable. Szostak explains: “In some countries, ‘forced heirship’ confers preferential status on the first-born male child, excluding female heirs and young siblings. In the U.S., people are generally free to dispose of their assets as they wish.”
Advice that “transcends all boundaries”
By and large, Szostak says, international clients of U.S. financial institutions have the same needs as their domestic counterparts: fiduciary services, investment advice, asset servicing and banking. Like domestic clients, they also are looking for advisory services that extend beyond investing, including wealth planning, taxation and specialty assets advice. “One area that transcends all boundaries is that of family governance and education,” Szostak notes. Regardless of your country of origin, the dialogue around certain family dynamic themes can be very similar. For example, exposing young ones to their own balance sheet, encouraging early development of decision-making skills or navigating generational shifts in the balance of power are themes shared between parents and children across the globe. “We have had these conversations with our clients from Western Europe to South America; the United Kingdom to the Middle East,” Szostak says.
The push to simplify
The global trend is one of simplification. Often, families are hampered by outdated wealth-planning structures buckling under the layers of needless complexity. “We can typically guess a structure’s vintage year by the complexity of the diagram. Generally, the older the structure, the more complicated it will be with entities strewn all over the globe, each with its own reporting requirements,” Szostak says, stressing how such structures are costly to maintain and have a risk of noncompliance. “The goal is mono-reporting, meaning a structure will have very few, or perhaps even just one reporting jurisdiction.”
Paradoxically, “simplifying” a wealth planning structure is a complex undertaking, making it essential for families to work with experienced tax, legal, fiduciary and investment professionals to help streamline their wealth.
Replicating structures
Another noticeable trend is the development of contingency plans by way of replicating structures in several jurisdictions across the globe. With these plans in place, assets can easily flow from one jurisdiction to another at the flip of a switch if necessary. The U.S. is often on the list of qualified alternative jurisdictions. “Wealthy families are replicating their offshore structure here in the U.S. so that they can easily transfer assets should their legacy jurisdiction become less favorable either politically or suffer a reputational issue,” Szostak explains. All in all, the potential benefits of transferring wealth to the U.S. are plentiful, as long as steps are taken with painstaking care and with deep knowledge of both U.S. and local law. Fortunately, foreign nationals can draw support from U.S. attorneys, accountants and financial advisors in addition to their home country counsel.
In short, establishing a financial presence in the U.S. is not something you should do on your own, Szostak says. “The good news,” she adds, “is that you don’t have to.” Engage good advisors with the expertise to manage the issues you will encounter – they are there to help.
