a refuge from the us tax storm

The building, which is next door to Maseco’s London headquarters, is – as a blue plaque next to the front door states – the former home of Nancy Astor, who, 49 years after her death, remains one of America’s most famous expats. Among other claims to fame, she was the first woman ever to sit as a member of Parliament in the British House of Commons, having been elected in 1919.

Were Astor alive today, it’s likely she would be a Maseco client, given the wealth she and her fellow-American expat husband, Waldorf Astor, shared, and the myriad wealth-eroding complications that are increasingly affecting modern-day expatriate Yanks.

By all accounts a feisty character, Astor would also likely have approved of the activist approach Maseco has been taking in lobbying both the US and UK governments on behalf of American expats around the world.

Growing influence

True, Maseco’s efforts to warn the US and UK governments about the potentially damaging unintended consequences, for US expats, of new and recently enacted legislation have not always been successful, admits James Sellon, a co-founder and managing partner of the company.

But increasingly, he says, Maseco’s opinion seems to be being listened to by lawmakers and other opinion-formers on both sides of the pond.

“We tried to get the British authorities to carve Americans out of the UK’s non-dom legislation in 2008, but we didn’t get very far,” Sellon says.

“That’s why we had to come up with a range of special US/UK mutual funds that were tax-efficient in both places, so that US investors wouldn’t be disproportionately penalised by the IRS under its regulations for passive foreign investment companies.

“We had better luck in 2011, as a small cog in a larger campaign to get the Internal Revenue Service to allow US expats to offset the annual £50,000 non-dom remittance basis fee against their US tax.

“But our biggest success came in June, when the Financial Conduct Authority announced that collective investment schemes not regulated in the UK [Ucis] may only be marketed in the UK to sophisticated or wealthy clients. As a result of a number of conversations we and others had with them, they made an exception for US mutual funds.

“This is a huge benefit not only to our firm and our clients, but to all Americans living in the UK who have US mutual funds in their portfolios.”

AUM growth

If regulators are listening more closely than they were five years ago to what Sellon and his partner and Maseco co-founder Joshua Matthews have to say, it’s not hard to see why.

This year they expect assets under management at the London and Swiss company – which they founded just a few months before Lehman Brothers collapsed in 2008 – to touch $1bn. (Three years ago, AUM stood at just $245m.) And demand, they say, continues to be “consistently strong”.

From a handful of employees in 2008, Maseco currently employs more than 30.

The demand is not only coming from the UK and Switzerland – where the company has had outposts in Geneva and Zurich since 2010 – but increasingly, from such distant countries as Singapore and the United Arab Emirates.

“We started Maseco, essentially, in a small attic of a space, three months before Lehman’s went under,” Sellon, who is British by nationality, recalls. (Maseco – pronounced ‘Mah-say-co’ – is derived from the first two letters of their last names as well as those of a former colleague who was originally part of the business.)

The third Maseco current partner and co-founder is Emilia Chachulova – the three met at Smith Barney – who is now head of client services.

“If someone had asked me at that point whether I thought that in five years’ time we’d have $1bn in client money under management, and offices in St James’s Square, I would almost certainly have bet the farm against it.

“Our strategy never was to achieve phenomenal growth but, rather, simply to build a business that would be one of the most highly regarded in this area, and to maintain that position. We have done this, while making changes along the way as needed.”

Sellon and Matthews met in 2001 at Smith Barney, a Canary Wharf-based brokerage and wealth management operation of US-based Citigroup. Here, in around 2001, they helped to set up and run a desk that catered for high net worth US expats living in the UK.

Back then, they remember, the Smith Barney operation – initially called ‘Team America’ – was considered ground-breaking, as there were not thought to be any other investment advisory entities in the UK that specialised in looking after US clients, even though things, even then, weren’t straightforward for US expats.

That is mainly down to the fact that the US is one of only about three countries in the world to tax its citizens wherever they happen to live in the world and for their entire lives, even if they never return to the US for so much as an hour, as long as they have potentially taxable income of $9,750 or more, unless married and filing separately, then it’s $3,800.

As a number of media outlets have reported recently, it has emerged that many of the estimated almost 7 million US citizens who are believed to live abroad were not aware of these obligations, or at least the full extent of them, until the Internal Revenue Service began a couple of years ago to crack down in a big way on any Americans found to have failed to report their overseas income and pay tax on it.

As a consequence, quite a number have been hit with huge penalties, relative to their total assets, for failing to file returns, or for not filing foreign bank account reports (FBARs), a more recent and separate reporting obligation.

Expatriate websites have meanwhile been full of comment and advice about FATCA, the major piece of anti-tax evasion legislation that the US began introducing this year, which is also increasing the reporting obligations for expats.

Evolving to keep pace

Sellon says Maseco is evolving to keep up with these changes, and others, as fast as it can.

One recently introduced measure was to require many of the company’s advisers to become accredited Chartered Financial Planners – which at first seemed something of a departure from Maseco’s roots as an investment-led wealth manager.

Sellon says he doesn’t believe advisory firms in the UK have much choice in this regard, following the introduction of the Retail Distribution Review regulations earlier this year. These, he believes, are moving the industry in the direction of accountancy and similar professions in which having chartered status is required. In London, Maseco is regulated by the FCA and the Securities and Exchange Commission (SEC) while in Switzerland, by the SEC and FINMA (Swiss Financial Market Supervisory Authority).

Sustainable investing

Another change has been to adopt certain core beliefs about sustainable investing, on the assumption – increasingly held by many investment experts – that you really can do well, if not even better, by doing good.

“Investing for short-term, super-normal profits, the creation of which involves pouring hazardous waste into rivers, pumping CO2 into the atmosphere and so on, just isn’t sustainable from an investment point of view,” Sellon says, before launching into a lengthy technical explanation in which he quotes from various studies into how the economics of climate change and economic degradation interplay with corporate results over time.

Maseco’s sustainable investment strategy is not, he insists, aimed at attracting clients with tree-hugging tendencies, nor is it solely because the company’s principals fundamentally support it, although they do: the brand of bottled water served at Maseco’s offices  is One Water which, among other things, channels all of its profits into water projects in Africa.

Nor are clients obliged to invest sustainably if they’d rather not.

“Right now it [investing for sustainability] is the subject of a lot of talk and discussions, and there are lots of definitions which are confusing. What we are trying to do, as wealth advisers, is to distil this information and discuss it with our clients, few of whom, we believe, have really thought much about it. This is not because their values aren’t in the right place, but because no one until now has been able to intellectually articulate it and define it for them.”

Importantly, since they began introducing a sustainable option into the Maseco offering in around 2010, they say the performance has been “in line with the standard portfolios that we currently run”.

Another evolution of the original Maseco business model has been the introduction of an “institutional” business, aimed at helping other advisory firms around the world to accommodate expat Americans.

They began setting it up a few years ago, but it has been growing in size recently, Sellon and Matthews say. Assets under management on this side of the business have “more than trebled” in the past 18 months, and demand is strong.

Matthews says the growth isn’t limited to the highly regulated markets like the UK, the rest of Europe and Singapore.

“US expats everywhere are realising that they have to pay attention to the way they are invested, so they are not taxed inefficiently,” he explains.

Adds Sellon: “We give advisers who have never looked after Americans before the option of doing so.

“We give them American wealth management in a box.”