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

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This article is the first in a series of industry content from Maxim Global Wealth Advisors designed to help financial professionals better understand the opportunities available in the cross-border financial planning 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 expats
  • 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. 

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. and other countries. 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.

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 their executives to manage their international operations, and likewise 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, brokers that are not skilled or knowledgeable about the proper tax implications, legal and titling issues, and appropriate investment knowledge, have serviced these investors, simply because they were the default option. 

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 being put in place caused by new regulations are not allowing their advisors to service these accounts, and ultimately removing 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, causing the industry to increase their reporting by foreign financial institutions to identify all clients with a “connection” to the U.S. and 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, all of which are rapidly contributing to the growth of investible assets of the cross border niche.

There are three primary demographics within the cross border wealth management niche, which combined is estimated to number between 25 – 40 million individuals with as much as $6 trillion in U.S.-based investible assets, based on Maxim Global Wealth Advisors research.

Cross Border Professionals

Foreign-born professionals living in the U.S., such as a high tech engineer from India working for a U.S. technology company.   These 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 that target market translates into a group who has income of greater than $100K per year or net assets greater than $500k.   Through that filter, the size of the market is approximately 10 – 15 million people.  When combined, the total investible assets are approximately $2 – $3 trillion, assuming average investable assets of $250k.

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 of more 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.

Non-Resident Aliens

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, 401k and other qualified assets.

In our next article, we’ll highlight the specific financial planning and wealth management needs of the cross border market.

 

 

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