The US offshore wealth industry was already seen as a niche market, but the recent rise of boutique firms has muddied the waters even further.
The past two years have seen international client-focused investment advisors leaving the big four wirehouses and global private banks for smaller, less well-known shops across the main international wealth hubs: Miami, New York, Houston and San Diego.
Much of this has been sparked by the private wealth giants restricting the countries their brokers could service, increasing minimum amounts, restricting travel, or even just pulling out of the industry, period.
This isn’t the only reason though. The disaggregation of US offshore, the advisory and banking segment that caters to wealthy non-resident clients, is only natural. This is a revolution that has already taken hold in the domestic US market.
‘It’s not only happening on the international side... a lot of people are looking at what they get in terms of technology, service and pay out [in an independent model] and finding that what they receive in the other [employee] model doesn’t justify the premium the firms charge on their income,’ says Ray Grenier, chief executive of independent broker-dealer Bolton Global Capital.
Javier Rivero, who runs the international division of RIA network Dynasty Financial Partners, says that while the US offshore diaspora has been sparked by market forces, the move is in line with the wider industry.
‘The international side is event-driven. Some of these advisors have to go. There are countries being exited, there are minimums that are handicapping the way they could grow,’ he says.
‘But the underlying economic dynamics [for the move] are pretty much the same as the domestic business.'There’s so much value on the independent side, so the trend will continue for many years to come.’
The total market share belonging to the wirehouses, national and regional broker-dealers in the US has declined from about 63% in 2011 to nearly 59% in 2016, according to Cerulli Associates.
Independent channels, such as independent broker-dealers, RIAs and hybrid RIAs, have filled that gap.
While data is scarce on the international client side of things, there’s plenty of anecdotal evidence saying it’s following suit. ‘There are fewer global offshore banks that do business in Miami now – let’s be honest,’ says Alan Goldstein of recruitment firm Avior Executive Search. ‘Last year at [an industry event] I met with maybe 80% independent advisory guys and gals whereas in years past the bulk were your more typical private bankers. It’s definitely where the trend is going.’
'The deck has really been shuffled. It’s hard to identify who’s an independent, who’s small and who’s not so small.'
An advisor’s tale
After more than 20 years with Merrill Lynch, Lisa Van Walleghem left to regain the ‘entrepreneurial spirit’ she felt when she first entered the business.
Along with fellow advisor Thomas J. Butler, she launched RIA Maximai in September 2016 in partnership with Dynasty Financial Partners.
During their time at Merrill’s Miami base, the duo managed $550 million in client assets. ‘Most of us have this very entrepreneurial spirit that matches very well with the clients we work with, whether it’s in Latin America or Europe. It’s that strong sense of entrepreneurial spirit that created all the wealth that we’re managing... it’s a great way of being and this is what this business used to be,’ she says.
Over a period of five years, van Walleghem questioned whether the firm she grew up in was where she wanted to stay. Over time it became more and more evident that if she wanted to continue to service her clients she would have to find another place to do it.
In July 2015, Merrill increased investment minimums across its accounts and zoned in on the ultra-wealthy in a trimmed down list of 29 designated countries, with a focus on Canada and Latin America.
‘I grew up with my clients and I was in noposition to dismiss them because the firm decided they didn’t want to do business there, or that I couldn’t travel there, when that is a core piece of our business.
'We live by the rule of “know your client.” We can’t know our client if we can’t touch or feel their businesses, meet their family members, see what cars they’re driving, make sure everything makes sense about them.'
She had started seeing smaller international broker-dealers pop up over the past few years, but did not put any serious thought into it until she started having talks with them.
‘The independent space for international advisors and offshore business in general over the past two or three years has really changed and it has gotten better. It wasn’t there five years ago. Every time I looked there were more and more options.
‘I wanted to find a solution that was similar to why I joined and why I fell in love with my time at Merrill and why my clients blossomed. I was looking for a place where I could make sure that the client’s voice was heard and that what we were doing what was in the best interest of the client.’
Merrill has not been the only firm to reform its strategy. In the past few years, the US offshore wealth industry has seen RBC Wealth Management, Barclays and Credit Suisse Private Bank exit, on top of revamps at Morgan Stanley and Wells Fargo. This has left a raft of advisors exiting or thinking about their next step.
Van Walleghem says: ‘There are interesting options out there for financial advisors. I would tell [anyone considering the move] to push that fear of the unknown aside and just jump in – it’s not easy but you’re reinvigorated and you’re re-involved in your business. Clients really see that and they applaud you – then more business comes in than you were even expecting.’
Independence also gives advisors freedom to pick off-platform investments, improve technology and generally have a more hands-on approach to their businesses.
‘Cobble all that together and it’s a significant upgrade for the client,’ says Rivero, who has been talking to firms regularly looking for advice on their next move.
‘Now, the momentum will not only continue but I think it will increase,’ he adds.
Gil Addeo, chief operating officer of San Diego-based independent RIA and broker-dealer Investment Placement Group (IPG), says for larger teams that want to create their own environment or advisory business, RIAs have been an answer, but it’s not a one-size-fits-all solution.
‘For those advisors who want to be representatives of a firm that understands the international space, especially Latin America, firms like IPG have been their solution. They’re looking for something that’s a boutique but long-term [in outlook].’
Like IPG, broker-dealers like Insigneo (formerly GIS, see page 20), Bulltick and Ultralat have been taking advantage and recruiting players in Miami. Though independent players are growing, the resources and partnerships available to them are still quite limited. One concern at the moment is the small pool of clearing and custodian partners at their disposal.
‘The number of choices in the business has vastly diminished over the years. When you look at the availability of international clearing and custody in the US, there are really only a small number of players in that business right now. It’s a concern to us but we think the pendulum is starting to swing the other way,’ Grenier says.
This article originally appeared in the September 2017 edition of the Citywire Americas magazine.