Global Clients Need Global Advisors

As technology makes the world smaller and investors reach for opportunities beyond their borders, advisors may find themselves with new challenges if they take on clients who live in other countries. Taxes, culture, time zones—advising a client a continent away, whether they’re there permanently or temporarily, is challenging.

Ozgur Karaosmanoglu and Aydin Tuncer lead the Global Wealth Management Group of Raymond James. Karaosmanoglu, senior VP and managing director, started the practice in the late ‘80s in Chevy Chase, Maryland, just north of Washington, D.C., and has been serving international clients ever since. Tuncer has been with the firm for 15 years and is first VP of investments.

Being so close to Washington has put the firm in close proximity to people from all over the world, as well as people who have relatives in other countries. “It’s a referral-based practice,” Karaosmanoglu told Investment Advisor. “In our office, we have about 50 flags representing where our clients were born.”

One of the big challenges for advisors to foreign nationals is that if those clients are invested in U.S. assets, they can be subject to U.S. estate taxes. For those clients, Karaosmanoglu said, “we invest primarily in offshore funds. These are funds that are not domiciled here, and they’re specifically for non-U.S. residents.”

If they invest in funds that are domiciled in the United States and own more than $60,000, when they die, “unlike an American, who has a $5 million exemption, anything over $60,000 would be subject to estate taxes, even if they don’t live in this country.”

When a foreign national does purchase a U.S. investment (assuming the fund company allows it, Karaosmanoglu said), they’re subject to withholding on the dividends. “We work to make sure if they’re allowed to buy offshore funds, there is no withholding. They’re not subject to income taxes here. We try to minimize any negative tax.”

In addition to offshore funds, Karaosmanoglu said foreign nationals can hold interest deposits and certain bonds. “We need to know what they’re doing and try to educate them because many of these people have no idea. In fact, many investment firms really don’t have an idea either. We work with CPAs in the area who are experts with both foreign nationals and U.S. citizens living abroad.”

It varies country by county, but Tuncer added that the “majority” do have tax treaties in place to protect investors from paying taxes in two places.

Karaosmanoglu added, though, that tax planning for foreign nationals can be tricky, and recommended advisors who are trying to expand their international clients partner with CPAs or estate attorneys familiar with the rules. “Your regular, everyday CPA does not know the rules. They should find an estate attorney who understands international clients as well. These are crucial,” he said.

The Paperwork and the Culture

Sometimes the planning challenges are more administrative. A challenge for Americans living abroad—which the State Department Bureau of Consular Affairs estimates is in the area of 7 million—is that “many of the fund companies here do not allow their shares to be owned with a non-U.S. address,” Karaosmanoglu said. “For those clients, we primarily work with ETFs.”

He added, “Basically, you need to know what the citizenship of the client is and where they live.”

Advisors who are used to signing clients after one or two meetings may be stunned to find non-U.S. clients take things a lot slower. “You need to know the sales process is not the same as with the typical American client. It might take you six months to a year to get to know somebody before you even have an investment,” Karaosmanoglu said.

He stressed that the sales process is “very different for different people. You can’t be pushy in some cultures, and you really have to listen.”