The rising costs of complying with tax rules on US expats is encouraging some financial firms to cut service offerings overseas. Not so in the case of Canada's RBC Wealth Management.

The heavy cost of complying with regulations governing expat US citizens has encouraged some financial firms to cut service offerings. Not so in the case of Canada's RBC Wealth Management, which is taking a very different approach.

As recounted by this publication over the past two years, the compliance burden, increased by developments such as the FATCA and HIRE Acts - designed to stamp out offshore tax dodgers - has encouraged some firms to pull out of the market or adjust service offerings to firms with US clients. One example is Pershing, part of BNY Mellon, as reported here.

Even before this legislation – passed last year – RBC Wealth Management regarded the expat US citizen market as a valuable one to be wooed, not shunned. No exact figures are available, but estimates of the numbers of wealthy expat US citizens run into the hundreds of thousands or more.

“Recent legislative changes have meant that a number of global wealth managers are reconsidering their servicing of US clients from non-US platforms. While some baulk at the additional legislative burden and are exiting the market, RBC Wealth Management not only remains committed to the market, but we see this as a terrific opportunity to gain market share for our London-based business,” Ralph Awrey, managing director, business development for North America at the firm, said in a recent interview. He is based in Toronto.

“At the very time that sophisticated US clients are increasingly choosing to look to the global marketplace for a variety of wealth management solutions, public policy changes in the US are making it more challenging for them to find global institutions willing and able to provide them with high quality, US-compliant products and services,” he said.

That there is a problem has not escaped other wealth management stakeholders.

A number of firms, such as Société Générale and the international law firm Withers have been briefing journalists such as your correspondent about the implications of new US tax laws such as FATCA. The US, unlike countries such as the UK, taxes its citizens on a worldwide basis. This blunts any incentive for a US citizen to live in a jurisdiction where taxes are significantly lower than at home.

The drive by the US Internal Revenue Service, and senior US politicians such as Carl Levin, the Democrat senator, to crack down on alleged tax evasion means that there is a great deal of pressure on US expats to an extent that there was not a decade ago. And countries' hunger for revenues only means such pressures will remain strong.

Nothing new

RBC’s Awrey is at pains to stress, however, that his firm’s business development in the US expat space is not purely a response to new rules, even though legislation has helped highlight the issues.

“This move is not a causal reaction to recent legislative changes, such as FATCA, but the recognition of our existing strengths and the potential to offer additional services to clients, in particular from our UK investments business, which holds an SEC licence,” Awrey said.

“While other firms may be exiting this segment, we see this as a great opportunity,” Tracy Maeter, head of investments, British Isles, RBC Wealth Management, said in the same interview.

“Our area of strength has always been international UHNW and HNW clients, and a significant proportion of these have ties with the US,” Maeter said.

“We believe we are ideally positioned to service US clients, both domestic and expatriate, looking for international diversification and expertise. In the UK we have held an SEC licence since 1998, so working with US clients is not a new strategy for us,” Maeter, who previously worked at HSBC in London, said.

RBC’s bullishness on the subject comes naturally to a bank well versed in dealing with international clients; it already has a significant offshore banking and wealth structuring business in the British Isles, for example.

Awrey explained that as far as the US market is concerned, the structure of the business works in the US against three subsets of the high net worth and ultra high net worth market: US citizens with international wealth management requirements; non-resident aliens living in the US; international clients with US connectivity, either through their professional advisors, business interests, or personal financial interests.

“We are highly sensitive to the US client’s obligations to provide their tax authorities with information pertaining to their global financial affairs and have built the capability to provide this information to our clients and their advisors,” said Awrey.

“FATCA is another in a long line of international tax initiatives designed to make taxpayers, in this case US taxpayers, aware of their obligations to make the appropriate disclosures or penalise them if they fail to meet those obligations,” he continued.

“It is going to be a significant investment for the financial institutions to comply with the new rules. Firms may have to review their entire client base. It is going to be a massive undertaking,” Awrey said.

His colleague pointed out that the bank is already working on how to develop its service offerings.

“There is a working group [at RBC] that is looking at this and discussing with the IRS and US Treasury as they define the final requirements. It is not yet entirely clear what all the implications are,” Maeter said.

“We are investing in individuals qualified to deal with US persons and building out a suite of products for them, along with a team of relationship directors in the US and the UK. In particular, we have seen client interest in multi-currency products and for US-compliant structured notes and so are looking to focus on those areas,” she said.

Awrey said: “We spend a great deal of our time working with intermediaries: accountants and lawyers, and others who advise H/UHNW US and US-connected clients with international wealth management needs. These intermediaries understand that we have made necessary investments in our platform and our people to ensure that we remain tax-aware across all markets and specifically understand what their client’s US tax reporting obligations are.”

“We are making very strong efforts so that our referral networks in the United States and abroad understand that our business can service the US person in the global marketplace. They know we are open for business,” he added.