Special Cases

The complex wealth of globe-trotting executives and entrepreneurs comes with unique considerations, requiring specialized understanding and advice.

Fichaux, HSBC: Much depends on the client’s attitude toward taxation and the financial stability of the country they reside in or originally come from.

Senior executives working abroad face a distinct set of challenges when it comes to managing their wealth to meet their long-term aspirations. So, too, do the rapidly expanding ranks of entrepreneurs—many of them from Asia—who have established their businesses in a foreign country or countries. Tax issues, access to credit and the transfer of assets from one jurisdiction to another are concerns that figure far more prominently among expat executives and CEOs than with their stay-at-home peers.

An expatriate career path almost inevitably creates uncertainty about future tax liabilities. “These clients typically don’t know where or when or if they will settle in any one country,” explains Sabine Fichaux, head of International Banking USA at HSBC. “Tax then becomes a major issue, as some clients can be subject to exit taxes when they leave, lower estate-tax exclusions due to non-citizenship and home-country tax consequences—all of which impact the type of advice we can give and products we can offer.”

Access to credit can be a problem for newly arrived expatriates to the US. “Many are very creditworthy in their home country,” observes Fichaux, “but everyone starts out at the bottom in the US credit system and has to spend time building up a score before they are eligible to get loans for homes, cars, etc. This means they need more liquidity for large purchases.”

The makeup of the world’s expat community and its direction of travel have changed radically over the past two decades. “In place of the old model, where qualified people from richer countries went to work mainly in emerging markets and then returned home,” explains Kendra Thompson, managing director at Accenture Wealth and Capital Markets, “now it is multidirectional, with younger workers from India going to Silicon Valley or Chinese going to Los Angeles and then, most likely, on to further destinations. It’s a new kind of global mobility.”

Roaming Charges

This means that today’s private banker has to respond to a far wider spectrum of client needs—from assisting in access to start-up capital to reinvesting the proceeds of a business sale. It has also seen the rapid rise of newer Asian players, such as China Merchant Bank, that are more familiar with the specific home-country conditions and can tailor their offerings to this new wave of expatriate high-net-worth individuals (HNWIs) accordingly.

Brass, Berenberg: The wealth management industry in London will face rising competition from new “resident nondomiciled” regimes in continental Europe.

The increased mobility of today’s top executives, many of whom can expect to work in several counties as part of their career progression, has likewise had an impact on how private bankers advise expatriate clients on their allocation of assets. “It’s a huge consideration,” says Fichaux. “The client may have a 10-year time horizon, but if he or she leaves for a different country in three years, then local laws and regulations in that new country could force them to liquidate the portfolio at that point. Each situation and circumstance is different, but future mobility is an important consideration when helping the client to make an investment choice—especially in the US.”

Richard Brass, head of Wealth and Asset Management UK at Berenberg, agrees that for many private clients, flexibility is key. “We find that clients are looking for an international and diversified investment approach, together with a flexible booking platform. Typically, clients are interested in bespoke investment strategies with segregated portfolios, and our direct equity investment philosophy fits well here. For the platform, it is important to have the ability to separate capital and income with the versatility to provide bespoke investment reporting.”

A richer and more diverse cultural mix also raises differences in perspective. “Attitudes toward investing vary from country to country,” says Fichaux. “For example, forex trading is a popular form of investing in the UK, whereas in the US, investing in equities is very popular.”

A New Generation

Alongside changes in the global expatriate community’s composition and flows, the digital revolution has had a profound impact on younger millennial expatriates, a generation of digital natives who often see themselves as global citizens. “They go to where the opportunities are. Many of them work in tech-driven businesses, and a far higher proportion are entrepreneurs or entrepreneurial in spirit,” Thompson notes. “With wealth management, traditional home-country models developed to support expatriate baby boomers or Generation Xers do not address the complexity of global mobility today or meet the needs of the millennials.”

Those digital world travelers don’t have the same loyalties as their forebears, and non-bank financial innovators are eager to pick off these potential clients. “Traditional wealth management firms should up their digital game,” Thompson says, “not only because millennials demand it, but also because nontraditional competitors offer more in the digital arena.” Accenture’s research found that 45% of millennials are open to using alternatives like Google’s investment options, having grown up with tech brands at the center of their consumer lives. Among the digital functions expected by roughly two-thirds of millennials are a self-directed investment portal with adviser access, computer-generated recommendations as a basic component and a platform incorporating social media and sentiment indices to assist in financial recommendations. Older clients are half as likely to want these capabilities.

Some of the more innovative private banks, such as South Korea’s KEB Hanna bank, offer interactive investment advice online to their expatriate clients. But on the whole, “incumbents are digitizing what they already do rather than rewriting the book, so that they can offer millennials what they want,” Thompson comments.

Thompson, Accenture: It’s a new kind of global mobility: multidirectional, with younger workers from India going to Silicon Valley or Chinese going to Los Angeles and then on to other destinations.

Many expatriate HNWIs also face a choice of where to make their permanent home—their country of origin, where they have been working, or an offshore or low-tax jurisdiction. “This really depends on the client’s needs and future mobility,” says Fichaux. “It is not a one-size-fits-all. Much depends on the client’s attitude toward taxation and the financial stability of the country they reside in or originally come from. The latter is a key consideration for some clients who may be more willing to place their assets somewhere familiar or safe and pay a higher tax-rate premium for it.”

Brexit has certainly focused the attention of many UK-based high-net-worth individuals on their next move, whether they are British citizens or not. “London will keep its appeal as an international hub for a number of reasons: a diverse community, great career opportunities in various industries (particularly in technology) and a lifestyle that’s appealing to younger generations,” says Berenburg’s Richard Brass. “Nevertheless, the wealth management industry in London will face rising competition from newly created ‘resident non-domiciled’ regimes in continental Europe where expats may be attracted.” The UK itself has long offered “non-dom” status, which can deliver significant tax benefits for the wealthy. Portugal and Malta, increasingly popular among retirees, have more recently allowed non-dom status.

Down the road, Fichaux sees problems arising in the pension world as a result of increased labor mobility and a key trend of employing expatriate employees on local-country contract terms.

“These employees, depending how mobile they are, can end up with multiple pension pots in various countries, making it difficult to organize a steady stream of future income,” she says. “Having a wealth adviser conscious of these challenges and the unique situation of these international clients goes a long way in setting up the right wealth solutions.”