What are the most common financial planning issues facing expats?

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Moving is a stressful time for anyone – let alone people moving from one country to another.

Expats have a mountain of issues to face when moving abroad. One of those is financial planning and wealth management.

International Adviser recently reported on how potential expats are not coping with how to deal with their financial affairs before moving and when entering a new country.

HSBC’s international survey of 7,000 expats working, living and studying abroad as well as prospective expatriates found 46% of respondents planning a move abroad expect a cash flow crisis upon arrival.

Some 45% who plan to relocate have no idea how they’ll manage their finances between locations when they move and 59% of potential relocators are concerned about the implications of paying taxes in a new country.

In another HSBC survey, 62% of potential expats who are planning a big move said finding the “right financial services” to suit their needs was a worry.

IA has spoken with Robert Paul, partner and head of US family office at London & Capital to discuss a variety of issues facing expats.

Question 1 – What are the big stumbling blocks for clients looking to move abroad?

Paul said: “I think if I’m answering this from a wealth management perspective, the main stumbling block is that different countries interpret different assets or structures or investments in different ways. So just because you are moving from country A, which has savings accounts, retirement accounts, investment vehicles that are either tax efficient or sensible for planning in that country, don’t think or assume that country B is going to view those assets in the same way.

“It’s a common mistake that we come across all the time. People make the move assuming that their assets will stay in country A where they’re absolutely fine, and then suddenly realise that country B views them in a whole different light, potentially punitively, and suddenly they’re facing a big tax bill on the asset and even worse, needing financially painful solutions to make changes and get out of those assets.

“Another, more broad structural stumbling block, is assuming that your investment manager, wealth manager, bank, etc. in country A, will be happy to deal with you once you have moved to country B. And this is something that has been a growing trend as a result of the legislative landslide landscape has changed significantly in the 10 years. This covers everything from US legislation around Fatca, Common Reporting Standard, The Alternative Investment Fund Managers Directive in the UK, the change in Europe, the changes to the UK non-Dom rules, the sensitivity around the Panama Papers, etc, etc.

“Most recently, Brexit has caused the wealth management and banking industries to assess what clients they want to look after, and ultimately has driven a more provincial approach.

“And so, when families are moving between jurisdictions, it’s really important to understand and make sure that your incumbent bank, wealth manager or investment manager is actually able to deal with you in a new country. We’ve seen a lot of this historically between the US and the UK given the extra requirements on UK institutions who have US clients. Many UK institutions have just said “No, not interested in dealing with Americans, it’s too much of a headache”.

“We’re also seeing a lot more of this happening in the reverse where US institutions who have clients in Europe don’t want to go through the regulatory requirement to report those clients in Europe or be seen to marketing to those clients in Europe without being regulated. And so, they’re saying, ‘Look, we don’t deal with European resident clients’.
And these are not small shops either. This is JP Morgan, Merrill Lynch, Wells Fargo, etc. It’s been a steady, steady trickle over the last 10 years.

“The most recent changes that we’ve seen is as a result of Brexit, right on our doorstep, where families are moving between the UK and Europe, or Europe and the UK. Obviously, we are no longer on the same financial passporting agreements as we were before. Therefore, if the UK businesses haven’t gotten European licenses, then they can’t deal with European resident clients.

“So, your straightforward bank in the UK can’t deal with you if you’re now based in Spain or Portugal or Italy or Germany or wherever, and vice versa.

“But it is a simple structural change that has happened quite significantly across the wealth management financial services industry as a direct result of legislation. So for me, those are the two big stumbling blocks that the client should be looking out for when they move abroad. And as ever, you know, forewarned is forearmed.

“So, before anyone moves it is very sensible to ask these questions because it’s much easier to reverse what you have in place at the moment whilst you’re still in country A in my example, because once you’ve arrived in country B it can become quite painful.”