Global Clients, Local Regulators: Whither Advisors


– By Lovaii Navlakhi, CFPCM

Today’s family is becoming more and more global. For financial planners whose expertise lies in understanding products in their local market to help meet their clients’ financial goals, this is both an opportunity and a threat. Asset allocation is one of the first letters of the planner’s alphabet but the meaning has changed in the past decade when the first CFP mark was handed over in India. Back then, the range of products was restricted to India – and why not? India was in the midst of a roaring bull run that many believed will never stop.

For me, asset allocation starts with country, followed by currency. It is only then that you proceed to asset class (physical vs financial) and then to equity vs fixed income. We do understand that if there is a national calamity, stock markets will tumble, bond yields will shoot up (prices will fall), real estate will collapse, the currency will crash. Having different baskets for all (investment) eggs based in India does not do the diversification story a whole host of good.

When my first Indian client moved abroad, I looked at the opportunity it provided with eagerness. Here was a chance I got to visit him (just after an international conference), meet him in his surroundings, learn about his (local) culture and start getting a better understanding of investment options in his country. It enabled me to increase my knowledge and up my competence in a new area; it also allowed me to source newer clients like him (Indians living abroad) and grow my business.

The global crash of 2008 in many ways was the trigger for local financial regulators to take their role of consumer protection very seriously. Innumerable sets of legislation were passed – the sum and substance of which was that advice needed to be regulated. It is hard to fathom the regulator to stretch their arm across the globe (the Indian movie quote: “Kanoon ke haath bahut lambe hote hai” – or no one can escape the arms of the law; may be hard to imagine in such situations). As a result of this, the financial regulator has gone exactly the opposite way from the consumer. While the consumer is getting more and more global, the regulator is getting local.

Close Up of Finger Highlighting Financial Planning Words with Copyspace.

There are many families that send their children overseas for studies today – many of them find a source of livelihood and their partner there, and do not return to India. There are a number of issues to be mindful of when dealing with such families. We have an Indian client who had returned after 20 years in UK and who had investments in UK, US and Hong Kong. Having worked in a multi-national corporation in a leadership position, he was now looking at settling down in India, working as a consultant but with two children about to start their higher education. Another of our clients is a Swedish born, US citizen married to an Indian and residing in India since the past 20 years. When her mother expired in the US, inheritance brought its own share of myriad issues which we needed to tread carefully on.

The complexity of such situations cannot all be foreseen, but some obvious factors to keep in mind while dealing with such families.

  1. Investments: As a planner, the focus is first on asset allocation – where are the goals to be met? Local inflation and interest rates, cash flow requirements and market returns do play a role. However, some investment options may be restricted depending on citizenship and residency requirements.
  2. Citizenship: If the client is not a local citizen, some restrictions on the instruments you can invest in may apply and/ or additional documentation may be necessary.
  3. Taxation: The period of taxation or financial year in India is April to March, whereas the US follows a calendar year pattern. Some countries apply taxes based on residency and some charge on citizenship; income earned overseas is exempt in some countries and charged worldwide in others. Some countries have double taxation treaties which allow for credit
  4. Reporting: Additional reports may be required to be filed when there are overseas assets in excess of a certain amount. Formats for these may be specific and result in higher costs of compliance.
  5. Insurance: Coverage allowed may be an important determinant for the country in which one operates from. As people get older, this may become a critical factor in determining the country of residence.
  6. Estate Planning: While creating assets and determining family holdings, estate duty is a significant factor. What the rules are today are irrelevant, what they will be when the tax payer expires will determine what remains to be passed on.

What we have realised in dealing with clients over the past decade and more is that decisions are transient. Regulatory, taxation and reporting changes may cause decisions to be made differently. We have a recent case of a US citizen who moved to India a decade ago. As his second child also gets a US college admission, and FATCA imposes additional reporting “headaches”, the client is considering moving back to the US and restricting his Indian investments to remain under the radar.

The current “sandwich” generation is torn between ageing parents in India and ambitious children overseas and it is important to have conversations with these clients to understand their tipping point. As is clear from these discussions, knowing which country they will operate from early on may change the way an investment is recommended (asset class, instrument, holding pattern – single or joint) and avoid heartburn later.

Our first thought a few years ago was to attempt the “do-it-yourself” way. We evaluated setting up business in some of the countries we were operating in. However, as the regulators got local (Singapore for example wants only Permanent Residents to be given an advisory licence) we realised that we cannot be at multiple places all at one time. The client however wants just the opposite. He does not want to be “referred” to someone else – he wants you, with whom he has developed trust over the years, to sit on your side.

That’s where my years of attending international conferences have helped. Connecting with advisors during this time, understanding their business models, visiting their offices have all helped in their earning my trust. We now have trusted “associates” – and that is a loose term – whom we can connect our clients to. It’s win-win for all three sides.

The overseas advisor gets new clients. The client gets a broader canvas of investment options as well as the other tax and reporting, insurance and estate planning issues taken care of. (More often than not, my clients have no overseas advisor or one that they find not comprehensive or trustworthy, and are more than happy to make the switch.) We, selfishly, get to participate in all the conversations between our client and the advisor and thus enhance our knowledge. What’s more, this opens the door to get references of Indian clients from the overseas advisor: as they say, the best way to get references is to give one yourself.

Lovaii Navlakhi is the Founder and Chief Financial Plannerof International Money Matters. With over 30 years of top-notch industry experience, an MBA (Finance) from SP Jain Institute of Management, an ICWA, the distinction of being one of the first Certified Financial Planners (CFP) from India and a stellar reputation in the world of personal finance, Lovaii firmly believes in continuing education as a way of life.