There are not many businesses in the world that are happy to focus on US expats, US connected persons or Accidental Americans – but for Brown Advisory it is something which differentiates them from the rest of the market.
Brown Advisory set up its private client business in London in 2011. It serves high net worth and ultra-high net worth individuals, families, and institutions, running predominantly multi-asset mandates.
The private client business was in part created with the idea that there is a subset of people in the UK, specifically US connected or Americans, that were “incredibly underserved”. About a third of the private clients it serves in the London office have a US connection.
Billy Mathews, partner and portfolio manager at Brown Advisory, said: “While US expats are a differentiator, most of our business in London serves UK resident and domiciled clients, UK resident non-domiciled clients, as well as some offshore clients.”
“The US/UK operation is niche and an area where we think we’re quite differentiated relative to a lot of the market. I think a differentiator of ours is the concept of having a strategic adviser alongside the investment manager in every client relationship that we have.”
Georgina Guy is one of the strategic advisers. She is the only one outside of Brown Advisory’s US business. Prior to Brown Advisory, Guy was a director at EY in the wealth and asset management tax team.
Guy, head of international strategic advisory at Brown Advisory, said: “The role of strategic adviser is unusual in the market. It is not a wealth planner or a financial planner role. We all come from a professional background such as law or accountancy.
“Our role is to sit on the same side of the table as a client, and to be able to step back and take a holistic view of everything that is going on in their lives. This could include tax, estate planning, charitable giving, family governance, and more. I can talk about things with them through a tax lens, without giving tax advice. But what that leads to is a collaborative relationship with our clients’ other advisers such as lawyers and accountants.”
Brown Advisory is a rarity in the market in that it deals with US connected clients.
The lack of firms in the space is leaving a lot of people without help.
Guy said: “There’s a lot of known US connected clients in the UK. There are also a lot of accidental Americans and people who don’t realise that they are US connected. It has a huge impact on their portfolio because in some circumstances they are UK resident domiciled with a UK resident domiciled child who’s married to an American, so could end up with American grandchildren.
“Then they’re thinking about their succession planning. Their portfolio might be built perfectly for UK resident and domiciled people, but it is set to be inherited by US citizens and grandchildren. Those are exactly the issues these individuals need to think about, they need to go through the strategic advice process and then feed this through to the management of the portfolio.”
Mathews added: “We live and breathe the US expat community. It’s a fairly tight knit community of advisers, who all work very collaboratively to serve what we still believe is a very underserved market.
“From our cold email enquiries that come in every single week, it’s quite clear there’s still a lot of confusion about what you can and cannot do if you’re subject to both US and UK tax rules. There’s a lot of confusion trying to wade through that complexity.
“The number of new conversations that we’re having clearly to me shows that there is still a huge opportunity there, and that it’s still an underserved market. There are a handful of firms similar to us, which focus specifically on the US and UK, and have built their business only looking after Americans that are in the UK. We think we approach things a little bit differently.”
Most frequent issues
International Adviser asked Brown Advisory what are the biggest issues that face US expats and US-connected people.
Guy said: “Trusts or family LLCs are fairly common to come up with a US expat, where they are about to get distributions from either of those vehicles.
“The trustee back in the US hasn’t necessarily been aware that there’s now a UK taxable beneficiary. That comes up quite a lot, and there are frequent conversations on simple issues around understanding the basis on which our clients are taxed.”
Mathews added: “If you look at the average US expat, there are two camps. There’s the American who was born in America, and now lives in the UK.
“They often will have assets still in the US and investment portfolio or retirement assets from their old job. The question for them is – are those assets positioned appropriately from a tax perspective on a US/UK standpoint?
“Britain has the UK reporting fund regime and 99% of US fund vehicles do not have UK reporting fund status. Most of those fund vehicles are incredibly inefficient from a UK tax perspective once that person comes here.
“The other main group are the accidental Americans or an American who has suddenly been thrown into the situation. Those issues are more around ISAs because they are seen as a taxable account in the US and the US has similar fund rules, like the UK has, called the PFIC (passive foreign investment company) regime, where any non-US fund is taxed incredibly putatively in the States.
“This leads to a very small available investment universe for US/UK people. Most issues revolve around the fact that assets in their investment portfolios are not appropriate for their new or continuing world of being subject to tax in both countries.”
When dealing with US expats or US connected clients, there is one issue that every adviser and wealth manager has to deal with: abiding by the Foreign Account Tax Compliance Act (Fatca).
This requires these clients to share their financial and personal information with the Internal Revenue Service (IRS) for tax purposes. This is because the US has a citizenship-based taxation system.
Mathews said: “Fatca is a reporting issue, and one of the reasons why US expats are so underserved here is because most financial institutions don’t want to deal with the onerous aspects of reporting for any US based client that they work with.”
“As a US institution, we’re very comfortable working with Americans and dealing with the rules and regulations around Fatca.
“We’ve worked very closely with clients’ accountants to make sure that they are getting the right information in order to complete their US tax returns in the right manner.”
With all of these complications for US connected clients, how difficult is it to carry out succession planning?
Guy said: “It’s not insurmountable. It just needs very careful thought. In some ways, it pushes the point that people do need to think about it, talk about it, and discuss it with their family.
“I always divide my conversations between life and end-of-life planning. A lot of the issues can arise if there is no life planning, and instead there is just a will in place. Then everybody’s picking everything up after the fact.
“If thought is given to an appropriate strategy for the family during life planning, then a lot of the issues can be pulled through and sorted beforehand.
“Families that want to co-invest together in the UK quite often will do so through their family investment company.
“Then, if there’s a sudden realisation that one of those members of the family has got a US Green Card or is a US citizen, suddenly that family investment vehicle is a passive foreign investment company.
“People sometimes overlook these issues and do not think about how circumstances have changed, which means plans need to be reviewed.”