TAKING IT TO THE BANK
Brickell Bank Chairman and CEO G. Frederick Reinhardt shares insights on wealth management opportunities in Latin America’s $5 trillion market.
JUNE 2016 – With a total private wealth market approaching $5 trillion, Latin America is a significant market for U.S. companies that offer wealth management services. One such company is Brickell Bank, which is based in Miami. Brickell provides wealth management solutions to high-net-worth individuals throughout the LATAM region, but particularly to clients in Brazil and Venezuela.
G. Frederick Reinhardt, Chairman and CEO of Brickell Bank, shared insights with American Lawyer’s Howard Stock on the challenges and opportunities for businesses providing wealth, tax and estate planning services to clients primarily based in Latin America.
HOW BIG IS THE WEALTH MANAGEMENT OPPORTUNITY IN LATIN AMERICA?
REINHARDT: The opportunities to provide wealth management services to Latin American clients are significant. With increasing geo-political concerns in their respective home countries, many wealthy individuals are looking to transfer their wealth to safe havens. This desire to work with U.S. institutions comes as a number of institutions are stepping away from serving Latin America or have limited their scope on the markets and the clients they are willing to work with. This pullback in interest comes at a point where the market is expected to grow in the range of 3% to 4% over the next five years to $8 trillion, all despite the slow pace of legislative and economic reform, as well as continued government transparency issues, particularly in Brazil, which represents one-third of the total wealth market in Latin America.
“Latin American clients are looking to maintain their assets in countries that offer mature banking and investment markets with a robust regulatory environment that can help safeguard their assets.”
—G. Frederick Reinhardt, Brickell Bank
WHAT IS THE IMPACT ON CROSS-BORDER WEALTH MANAGEMENT BUSINESS OF ACTIONS BY THE U.S. TREASURY TO MAKE OFFSHORE LOCATIONS LESS ATTRACTIVE?
REINHARDT: The Foreign Account Tax Compliance Act (FATCA) and ongoing investigations by the Internal Revenue Service and U.S. Treasury has created a greater flow of asset information and has pierced the veil of secrecy for a number of traditional offshore domiciles. This sharing of information between governments has leveled the playing field and has diminished some of the legacy benefits of maintaining accounts in offshore accounts. Without the component of secrecy, clients are now looking to maintain their assets in countries that offer mature banking and investment markets with a robust regulatory environment that can help safeguard their assets.
The attractiveness of offshore is transforming away from a traditional rationale of secrecy (additional pressures are anticipated on this front as a result of the recent Panama Papers). However, ongoing political and economic tensions are expected to continue to drive the demand for offshore domiciles that offer high levels of safety and stability – generally, money moves from where it is nervous to where it is safe. Jurisdictions with proven skills and expertise across the wealth services spectrum will continue to benefit from the migration of money cross-border.
HOW DO THE NEEDS OF WEALTHY LATIN AMERICAN CLIENTS DIFFER FROM U.S. CLIENTS?
REINHARDT: Wealthy Latin American clients have traditionally sought to open accounts in the United States as a way of protecting their assets from political risks in their home country. This speaks to the clients’ needs for an organization to help diversify their assets and limit exposure to risks associated with both home country and primary source of income. In addition to investment needs we are now seeing their needs evolve to include credit facilities including real estate financing, import/export financing and letters of credit. Lastly, as their children are attending universities in the United States, looking for employment opportunities in the U.S, and becoming residents of the United States, clients now need to develop estate plans to allow for the protection and the efficient transfer of their wealth to future generations.
WHAT ARE THE ADVANTAGES FOR THOSE CLIENTS IN DOING BUSINESS WITH AN ASSET MANAGER IN THE U.S.?
REINHARDT: For clients seeking to protect their wealth, working with a U.S. asset manager provides a greater level of protection due to a more stable political environment and greater regulatory oversight. In addition, the size and stability of the custodian platforms used by most U.S. asset managers offers additional security due to their size and ongoing reviews by regulatory bodies. Brickell Bank has differentiated itself from the competition by a value proposition that hinges on providing a flexible, boutique feel that allows for portfolio construction to be truly tailored to client’s needs.
WHAT LEGAL AND REGULATORY CHALLENGES MUST A CROSS-BORDER WEALTH MANAGEMENT BUSINESS OVERCOME, AND HOW?
REINHARDT: With new information sharing agreements between governments linked to FATCA, the need to document and maintain records on all aspects of the client relationship has increased exponentially. This creates the need to continue to grow compliance capabilities and to foster a strong culture of compliance across the entire organization.
WHAT RANGE OF SERVICES DO LATIN AMERICAN CLIENTS LOOK FOR?
REINHARDT: Traditionally Latin American clients have looked to U.S. institutions to provide traditional banking and wealth management services. Now, as these clients become global citizens, they are looking for a wealth manager that coordinates with external professionals to deliver a top-tier, single point of service as they expand into multiple countries and transact across borders. Notably, we are seeing greater estate planning and succession needs, including life insurance, as their children may be schooled and later work outside of their country of birth.
WHAT ADDITIONAL COMPLEXITIES ARE THERE FOR A CROSS-BORDER WEALTH MANAGEMENT PRACTICE IN TERMS OF TAX PLANNING?
“As their children look to become residents of the United States, clients now need to develop estate plans to allow for the protection and the efficient transfer of their wealth to future generations.”
—G. Frederick Reinhardt, Brickell Bank
REINHARDT: Security selection plays a key role in the cross-border wealth management practice when it comes to tax planning. For those clients looking to minimize the tax impact on their portfolios there is a need for a highly developed estate plan designed to facilitate the transfer of wealth efficiently from one generation to the next.
WHAT ARE SOME OF THE MAIN GROWTH AREAS IN LATIN AMERICA NOW, AND HOW CAN A WEALTH MANAGEMENT FIRM POSITION TO MEET EVOLVING NEEDS?
REINHARDT: Mexico, Brazil, Chile, Argentina and Venezuela all remain key focal points within Latin America. We continue to see growth in Peru, Colombia and Ecuador. In addition to these growing markets, we would expect to see demand for wealth management services from those areas that continue to experience greater volatility and geopolitical uncertainties. As these political tensions ease, we see opportunities to provide credit facilities to these markets to allow for investment in new business endeavors and to reinforce and expand existing business interests.
HOW IMPORTANT IS IT TO HAVE A PHYSICAL PRESENCE IN LATIN AMERICAN COUNTRIES WHEN DEALING WITH WEALTHY CLIENTS? HOW MUCH TIME DO THESE CLIENTS SPEND IN THE U.S. VERSUS THEIR COUNTRY OF ORIGIN?
REINHARDT: It is always important to maintain close ties with the client base. Wealth management representatives will always have a need to visit clients in their home countries. That being said, we are seeing clients continue to invest in U.S. real estate assets and maintain vacation homes in the U.S. Those clients that maintain homes in the U.S. are spending an increasing amount of time in the U.S. over the course of the year.
WHAT IS YOUR OUTLOOK FOR GROWING PAN-AMERICAN WEALTH MANAGEMENT BUSINESS, AND WHICH COUNTRIES WILL YOU FOCUS ON GOING FORWARD?
REINHARDT: We continue to see opportunities to grow the wealth management business as the number of institutions serving the pan-American client base continues to fall. Brazil and Venezuela remain key components of our business but we are seeing attractive opportunities from other countries within the region. Peru, Colombia and Ecuador continue to grow and are in need of more robust investment portfolio products and credit products to further fuel growth. It is key to our business to continue to diversify into new markets and expand our offerings to meet the needs of an ever evolving client base. Just as portfolio theory calls for the diversification of investments across asset classes and geographical regions, we see the need to prudently expand into new markets to allow for continued growth of our business.