By Frank R Suess
“Simplicity is the ultimate sophistication.”
~ Leonardo da Vinci
A few weeks ago…whoa, it’s July already! Ok, so two months ago, we held our annual Inner Circle Wealth Forum at the PGA Resort in Palm Beach Gardens, Florida with a wonderful group of clients, prospects and business partners. It was most enjoyable. And, as is often the case, I may have learned as much at the event as did our participants.
The Forum was focused on the topic of jurisdictional diversification. It was thus titled ‘Demystifying the complexities of offshore wealth management’.
At the Forum, we focused on clarifying and simplifying the elements of offshore wealth planning. And we also discussed a simple and straight-forward structure that would afford the benefits sought by most Americans looking to set up and maintain an “Offshore Nest-Egg”. In fact, we started referring to that structure as the ‘ONE Solution’; in other words, a single and standardized structural solution that achieves the goals sought by a majority of Americans seeking jurisdictional diversification.
At BFI, we have started working on precisely that kind of solution, one that affords a combination of asset protection, tax deferral, flexible access to international investments and minimal reporting. Furthermore, we want to create the solution in a way that leads to a simplified and convenient, no-travel-required application process. ONE Solution, although it may change in name, is on its way.
It was in that spirit of simplicity that our Forum offered participants an opportunity of saving a lot of time and money by joining me and a select group of international wealth planning and investment experts, for two days of practical guidance and personal support in formulating a good offshore wealth plan…safely, conveniently and in compliance with regulations.
One of the key learning points for me was the fact that wealthy Americans are growing increasingly tired of the cookie-cutter, retail-style service they encounter with the large institutions, banks and brokerage houses. They miss the personal and attentive service of smaller, independent advisors. Furthermore, despite the widely perceived relative strength of the US economy, the levels of concern regarding the fiscal health of America, rampant litigation, and the political stability of the country were still quite considerable.
Americans deal with a unique pattern of risk factors. For one, a growing number of Americans are concerned about the path their country has taken in terms of law, politics, finances and economics.
Moreover, the United States is without question the most litigious country in the world. Nine out of every ten worldwide lawsuits are filed in the United States. Certainly, America also houses the densest concentration of attorneys.
And Americans, no matter where they live in the world, cannot escape the taxation of the Uncle Sam, except if they decide to renounce their US citizenship (an option that is, in fact, being pursued by an ever-growing number of Americans). With an Internal Revenue Service that is known far-and-wide for their lack of humor and aggressive pursuit of tax dollars, in combination with tax rules so difficult even seasoned tax attorneys have problems giving decisive and clear guidance, Americans spend considerable time and money on making sure they’ve filed all the right forms, checked the right boxes, and answered all questions correctly. The penalties can be harsh if not.
If I had to sum up the concerns of our typical American client, it would sound something like this:
- I’m concerned with the direction America has taken – politically, economically, and socially.
- I’m looking for ways to protect what I own from uncontrolled litigation, rising taxes and the potential of implicit or even explicit confiscation.
- I’m tired of going to large conferences, listening to speakers and getting advice from so-called experts that end up leaving me with a heap of wonderful information but no specific solution or plan to move forward with.
- I’ve been researching and considering the options that might exist offshore. And, I have already taken some steps to jurisdictionally diversify my wealth. However, it’s more complex than I expected. And, I lack a trusted and competent advisor, someone who can guide and support me along that path.
You may not need a complicated structure, nor a large bank, to help you!
Many wealthy individuals and families are looking for ways to protect their assets overseas and, thus, are looking for guidance and help. In the past, they frequently turned to the largest and most prominent banks, which also provided a variety of wealth management services.
Traditionally, and particularly in times of rising markets and fewer regulations, this worked quite well. However, many American investors painfully learned over the past few years that international banks large and small tend to be corporate animals whose drawbacks show in times of change and turmoil.
International banks and brokerage houses represent an important and integral part of wealth management. Their role should be considered an important commodity primarily with regard to custody of assets and brokerage of transactions. But expecting them to also function as your overseas contact or advisor entails a number of problems easily amended by working with properly qualified investment advisors, family offices or attorneys.
Banking and brokerage institutions tend to be subject to a myriad of conflicts of interest. Their business models are built on (1) transaction revenue, (2) product sales and product margins, and (3) custody fees. If, in addition to these revenue streams, a bank or broker also generates a cash flow from investment management, it is clear how that may incentivize the organization to churn your account, i.e. buy and sell assets in order to generate additional transaction revenue.
Finally, when considering customer service, banks normally have relationship managers who deal with clients. These relationship managers are really sales persons who generally are not involved in the investment decisions of the institution. And a lack of continuity and client dedication is often a problem. Clients can be frequently confronted with re-establishing their relationships with new advisors and relationship managers. Important information and communications can get lost in the shuffle, even if previously recorded in writing somewhere. This makes consistency one of the key foundations in building, and keeping, trust.
The benefits of an independent advisor
In my view, it is critical to work with advisors that have their interests aligned with the clients. And, it is important to understand that custody, brokerage, and even the service of investment management is only one part of the overall picture. The importance of a comprehensive planning approach is paramount, particularly for Americans where legal structuring should receive just as much attention as asset allocation.
It is important to have someone who both helps connect you to the right “partners” (offshore banks, brokers, and trust companies), as well as provides you with ongoing guidance, reporting, and insurance the terms of custody or brokerage continue to be safe and fair.
This is where an experienced and independent advisor can make a big difference. A suitable advisor will be able to provide a variety of services that help to fortify their role as an independent counsel and partner.
Working with an independent advisor can afford a package of services to affluent investors, services that were traditionally reserved to ultra-wealthy families exclusively. They can help you with your tax planning, the reporting of assets, estate planning and protection of wealth.
A “family office” is a term today that is frequently used in a somewhat loose manner compared to the past. Some family offices are in fact independent asset managers that offer a more comprehensive set of sophisticated wealth planning and reporting services.
When you decide to turn some or all of your investment activities over to a qualified investment manager, you’ll want to know that you’ve made the best choice for you and your family’s financial future. The same applies to an independent advisor; finding one with a solid history, a competent network, and even one that speaks English (or your language) clearly is key. And just as with the banks, they don’t necessarily need to be the largest to fit the best.
Not a Do-It-Yourself, but it doesn’t need to be complicated
In conclusion, a comprehensive approach to offshore wealth management is, in my view, the only way to pursue the benefits of jurisdictional diversification. Doing so with guidance and under the coordination of an experienced advisor can save you a lot of time, money and headaches. Generally, I wouldn’t recommend approaching this as a DIY project – with no pun intended against our Home Depot fans.
Furthermore, while offshore wealth management for Americans will indeed entail a few complexities, I want to come back to what we talked about at our Forum: the solutions for most Americans seeking offshore diversification do not necessarily need to be complicated or expensive at all. For most “offshore nest-egg” projects, a number of simple structural elements will generally suffice. The Pareto principle, or 80-20 rule, applies to offshore wealth management just as it does to most other aspects of life.
So, don’t feel that you have to settle for multi-layered structures, no single point of contact, or staggering legal bills. In case of doubt, give us a call. We just might be able to help… and help with that ONE Solution.
Frank R. Suess
Frank R. Suess is a long-term associate and colleague of Q Wealth. To contact Frank’s office for more information on the ONE Solution mentioned in this article, or for guidance on wealth management, please email [email protected]