Globalization. We hear the term over and over nowadays yet it’s often hard to define succinctly because it encompasses myriad issues. At its core, globalization means to make worldwide, and as we know, virtually every industry–particularly financial services–is conducting business around the globe. As part of that financial services community, advisors–whether they’re attuned to it or not–are being touched more and more by globalization. Advisors’ failure to embrace and prepare for the ever-increasing changes that globalization will present to their businesses will ultimately determine their future success.
To get a better handle on exactly how globalization is affecting advisors, consider these variables. While the world has, in essence, become flat, in the phrase popularized by New York Times columnist Tom Friedman, with technology making it easier for advisors to communicate and carry out their global affairs, clients, too–for personal or professional reasons–are increasingly on the go. As Leigh Basha, an attorney who is a partner at Holland & Knight’s Private Wealth Services Group in Tysons Corner, Virginia, points out, advisors control only one piece of a client’s “overall financial puzzle,” since many clients have “multiple financial relationships in different countries”–from banking or investment accounts to real estate.
Everybody these days “is mobile,” either for business reasons or a personal “desire to spend part of their time in one country versus another,” says Basha, who also specializes in international tax and estate planning.
Indeed, adds Barry Glassman, a senior VP at the wealth management firm Cassaday & Company in McLean, Virginia, it’s increasingly the case that “our clients don’t always come from within our borders.” Advisors are noticing, too, that as the dollar’s value has plummeted, U.S.-based clients are looking to diversify their assets among better-performing currencies. The flipside is also true as well in that international investors are seeking to take advantage of the favorable exchange rate in the U.S. “There are so many deals to be had for European investors given the exchange rate that they are snapping up real estate properties” in the U.S., Basha says. “They’re thinking that if the markets in the U.S. have bottomed out, now is the time to buy.” (Our friends from north of the border are finding opportunities, and facing planning issues, in the U.S.; see “Canadian Invasion” sidebar.)
Advisors and money managers are also noticing that institutional and even retail investors “are understanding that to get any kind of exposure to the new world, if you will, you need to be allocating a significant portion of your portfolio to non-U.S. companies and investments,” says Uri Landesman, head of global growth at ING Investment Management. Non-U.S. markets, he says, “have outperformed U.S. markets the last five years, and so the evidence is fairly compelling.” This implies “that there’s been a funds flow from the U.S. markets into non-U.S. markets, with the emerging markets, from a proportionate basis, seeing the most in flows. Emerging markets have outperformed mature markets probably for the last three or four years running.”
It’s important for investors to have exposure to emerging markets like Brazil, Russia, India, and China (known as the BRIC countries), Landesman adds, because “the growth prospects for the intermediate and long term will be much greater” in these countries than they are in the U.S.
Five years ago, Brett Ellen, president of American Financial Network in Calabasas, California, was investing 15% of clients’ portfolios in overseas markets, but today that’s been bumped to 25% depending on a client’s risk tolerance, age, and goals. “At a younger age with a more aggressive platform, we want to see [clients] in 25% offshore investments,” he says.
Tim Kochis, CEO of the giant wealth management firm Aspiriant (formerly Kochis Fitz/Quintile) in San Francisco, says that his firm is “very strenuous in our encouragement to clients to adopt portfolio strategies that have substantial overseas exposure–in the neighborhood of 30% to 50%.” While he doesn’t try to make regional bets, Kochis says “if we had to, we’d bet more on East Asia than other parts” of the world. “But we look to the world as a whole–Europe, Latin America, Asia, the Mideast.” Landesman of ING believes that the “places to go” are Asia and Latin America. ING “will be increasing our investments in those fast growing regions.”
Models and Standards
Another trend that’s pushing globalization of financial planning is the fact that countries across the globe are interested in adopting the financial planning model that’s used in the United States as well as the Certified Financial Planner (CFP) mark, says Noel Maye, CEO of the Financial Planning Standards Board (FPSB) in Denver, which promotes the CFP mark globally. “The trend in the States 10, 20, 30 years ago where people were looking for a shift from working with someone who’s selling a product to really working with somebody who could advise them–and not in only one area but advise them across all areas of their financial life–those trends are emerging around the world,” Maye says.
As it stands now, 20 countries around the world offer the CFP mark with another three countries “preparing to offer it,” he says. Maye was in Bangkok promoting the CFP mark during an interview in early June, and said that Thailand plans to offer the CFP mark by the end of the year. “We have about 112,000 CFP professionals in those  countries and around the world.”
Kochis adds that the CFP mark’s “common regulatory scheme is the unsung development in the industry, and it’s gone a long way to make financial planning perhaps the first universal profession–a profession that looks to a common set of international standards that I’m not sure is true of any other profession.”
The host of issues that are driving the need for advice in the United States are also contributing to the need for financial planning around the globe, Maye says. “More complex products, people living longer, people having to take care of their own financial futures, uncertainty of the marketplaces, and a need for people to have advisors who are looking out for their interests–those are the major drivers for financial planning globally.”
The traditional family-based cultures in the emerging market countries where families have typically relied on multiple generations “as a way of investing in the future or protecting their retirement” are dissipating as “those markets emerge and you see a lot more mobility among young people,” Maye says. More and more people in those countries, as in the U.S., are “faced with having to take care of their own financial futures more thoughtfully.”
Unlike in the U.S., however, some emerging market countries’ citizens are actually saving too much, as is the case in India, Maye says. In India, “it would be very common to save your money and buy gold and then have that as part of the family wealth, but it’s not something that will accumulate and grow the way the stock market would over time,” he says. So the government of India is looking to “turn the population from a nation of savers to a nation of investors. With that comes increasing financial literacy of the population and ensuring there are advisors on hand to work with them and put their interests first when giving them advice on strategies and products.” (For more on planning overseas, see “Shrinking Planet” sidebar.)
Yet another trend that’s “growing significantly” around the world is cross-border CFP certification, Maye says. A planner working for a major global bank in Zurich recently asked Maye how he could become CFP certified in the U.S. and Switzerland. “Clients aren’t being stopped by borders,” Maye says. “People are looking across borders, families are living across borders, and people are investing and holding assets across borders. So as they start looking for financial planners they can work with in various jurisdictions; the CFP certification is one of the ways they are identifying who’s competent and who’s ethical.”
Kochis of Aspiriant says there will be some cross-border practice activity–like with the U.S. and Canada and in “the three Chinas,” Taiwan, Hong Kong, and the People’s Republic. He doesn’t see cross-border activity taking hold as much in Europe because of language and cultural barriers (though some companies, like Allianz in the Netherlands, seem to be ahead of the curve: see Dutch Life Planning sidebar on page 48). Advisors who don’t believe that globalization will really affect their bottom lines need a wake-up call because more investors are accepting the CFP mark as a “global standard now for competence and ethical practice,” Kochis says. “If one realizes that your competition is not necessarily the person on the next street corner but that it’s a worldwide profession that’s setting a standard that you need to comply with–your potential clients are going to become aware of the global standard.”
That’s not to say, of course, that only CFPs will prosper in the global financial planning world. Whether an advisor will need to hold the CFP credential is a “function of the regulatory environment in a particular country,” Kochis admits. However, “increasingly what will be demanded or expected by the marketplace [in various countries] will be the CFP credential.”