The first article of the Roadmap is about international Wealth Management.
At its core, wealth management is the process of maximising the effectiveness of your money to reach life ambitions. Taking the time to understand your current financial situation and using this as the necessary groundwork to formulate a roadmap will enable these ambitions to be reached more readily.
The key part to managing wealth is firstly identifying that any plan makes sense regardless of changes to circumstances and/or regulatory requirements.
Planning is never a linear process and with life often moving at a rate of knots, together with the emotional psychology of human nature, plans with the best intentions can often become too complex and incoherent to what was initially desired.
As an international American family, managing wealth gives rise to a unique set of challenges, with the additional complexity of dealing with multiple tax jurisdictions and currencies. What may be perfectly good planning in one jurisdiction will often create wide-ranging issues in the other.
What’s the plan?
The question I often ask families is – “what’s the plan?”
This is in no way designed to trivialise the conversation but rather point out that whilst they have been spending time accumulating wealth in a variety of different ways, often there hasn’t been a clear joined-up approach.
A typical American family residing in the UK will often have various accounts in the US (such as a brokerage; ROTH and/or 401(k)s); accounts held offshore (such as in the Channel Islands) and/or accounts held in the UK (such as an ISA and/or SIPP.)
All too frequently, these accounts are treated as mutually exclusive and managed independently from each other. This approach can make affairs difficult to keep track of and add unnecessary additional costs when filing multiple tax returns.
By looking at global assets collectively and creating a “singular” strategy, this will ensure that your money, in whatever country it is held, is working as hard as possible.
In addition, a coherent plan should encompass all facets of wealth management, putting in place provisions for tax efficiency; future income needs; risk-adjusted investments; protection and estate planning – all of which will be covered in depth during the series.
What does it look like in practice?
I’m going to stick with the example above and assume that this American family has been resident in the UK for over 20 years and is on the arising basis of tax for UK purposes.
To begin, it is important to understand accounts from a structural perspective and how they fit into the wider plan. This will give the opportunity to amalgamate accounts where possible, and begin building the foundations that will enhance returns and reduce admin.
Then, by treating the overall family wealth as joined-up, we will be able to ensure that any investment strategy underpinning accounts, complements each other. This means ensuring that the right level of risk is taken, and they are utilising tax wrappers in the most effective way, such as by putting more income generating assets within them. It is also key to understand the currency mix is correct, as any move in the rate could negate investment performance.
The next element is to think globally. The underlying holdings within the accounts need to be compliant from any jurisdiction in which they are required to pay tax on (in this case the US and UK). Any subsequent tax planning, such as offsetting gains with losses, must be conducted with an understanding of how those decision will be reported and treated in those relevant countries. i.e., looking at capital gains in GBP and USD terms, otherwise the currency movements may crystallise unintentional gains.
This is by no means an exhaustive process but hopefully gives a flavour of how to begin structuring a roadmap for international families.
