How To Serve Latin America-Based Clients

Intercontinental’s International Director Describes Service To International Clients Including Jurisdictional Solutions, Favored Assets And International Compliance

Julius Buchanan, Managing Editor,
Wealth Solutions Report

The U.S. domestic wealth management clientele is so broad that we often forget the international clients who also want access to this market. Many clients of the U.S. wealth management industry are based in Latin America, and often they have connections here including business, family or real estate.

In honor of National Hispanic Heritage Month, we bring you the counsel of a San Antonio-based wealth manager with over two decades of experience serving Latin American clientele in a family of firms that has provided solutions for international clients for over 40 years.

Founded in 1981, Intercontinental Financial Services Corporation grew into a network of related businesses, including global wealth management firm Intercontinental Wealth Advisors, founded in 1997, which currently manages over $1.7 billion for a diverse clientele with multinational ties and Latin American roots.

Kenneth Korngold,
International Director, Intercontinental Wealth Advisors

Many of Intercontinental’s professionals and clients come from Latin America and have Hispanic heritage, and the firm maintains expertise in Latin America and investment opportunities in the region. In addition to traditional advisory services, the firm provides art advisory, family governance, concierge services, investments in emerging and global markets and worldwide relocation programs for non-U.S. tax residents.

Kenneth Korngold, International Director of Intercontinental Wealth Advisors, mastered in Latin American Studies at New York University and works with many of the firm’s international clients. In his spare time, Korngold collects art and supports museums and art galleries.

We asked Korngold about assets that attract international clients, favorable jurisdictions for them and other important considerations.

WSR: What assets particularly appeal to your international clientele?

Korngold: Several years ago, our firm recognized the importance of getting in on the ground floor of providing alternative asset classes to our international clients. We have a large swathe of clients who are property developers, architects or general investors in real estate projects in their countries of origin.

Naturally, most of our investors are driven towards brick-and-mortar investments throughout their business lives. Foreign investors are often wary of treading into a new region where they are unfamiliar with the operational, legal and fiscal landscape.

We found that large private REITs fulfill an important investment appetite. Core real estate investments that yield above 5% with potential for capital appreciation in developed real estate, with an occupancy rate around 98% in class A multi-family residential, warehousing and office space, appeals considerably to many of our investors.

Geographically diversified across the U.S.

Above all, our clients can obtain turnkey expertise management in large portfolios of diversified projects throughout the U.S. as opposed to pursuing one-off, geographically concentrated deals. These funds maintain favorable lines of credit, tax efficiencies and negotiating heft, and provide investors with flexibility to redeem within a relatively short period of time as compared to a fund that requires all its investors to act in concert.  

Private equity funds that invest in privately owned businesses in the larger, more established shops that we have relationships with generally outperform during bear markets. The market jitters we now face deliver a risk-off environment that does not leave most corners of the public markets unscathed. We strive to mitigate that impact, given the longer-term investment horizons and overall minor liquidity needs of most of our high-net-worth clients.

WSR: Aside from investment decisions, what are some important items to consider for international clients?

Accord on information exchange

Korngold: The G20 nations signed a multilateral accord a few years ago that set the standards for annual automatic exchange of reported financial account information between governments, including balances, interest, dividends and sales proceeds from financial assets, covering accounts held by individuals and entities, including trusts and foundations.

The accord sets out the information to be exchanged, the financial institutions that must report, the types of accounts and taxpayers covered, and common due diligence procedures for financial institutions.  

Even the most sophisticated investors are often unaware of these recently enacted complex reporting standards. In this accord, tax compliance requires not just adherence to filing obligations, but extensive documentation properly answered when opening accounts and maintaining clients’ files in good standing.

Extensive documentation

Almost all of our foreign clients utilize private investment corporations (PICs) to hold their assets, which face complex regulations across jurisdictions. Private banking institutions will not open PIC accounts without proper adherence to these regulations, giving rise to hefty legal fees to stay up to date and requiring financial advisors who understand the complexities.

WSR: Are there favorable jurisdictions for international clients?

Korngold: Jurisdictions have pros and cons in terms of tax efficiencies and annual fees. The United States government did not sign the automatic exchange of information pact. Many of our Mexican clients open U.S. bank accounts through C Corp LLCs (which are treated as a U.S. corporate tax paying entity) that file annual returns in the U.S.

The tax treaty between the U.S. and Mexico gives a Mexican tax resident the option to decide where to file without being subject to double taxation, and many of our clients opted to pay taxes in the U.S., receiving treatment as U.S. domestic tax residents in the process. This allows their financial information to be safeguarded in the U.S. with no exchange of information requirements. 

Privacy of information

The U.S. domestic status opens the door to a wider array of investment opportunities in private equity, private credit and mutual funds that are only available to U.S. tax residents. Many of these investments also have lower expense ratios. In addition, this avenue appeals to clients where information privacy is a concern, particularly in emerging markets. 

Many of our clients also require advice and guidance when purchasing secondary homes in Miami, Los Angeles and Texas. Since foreign clients only have an estate tax exemption of around $60,000, they often acquire these properties through an LLC investment vehicle with a parent company.

This vehicle also prevents clients from being subject to the Foreign Investment in Real Property Tax Act (FIRPTA), which imposes a 15% withholding tax on the sale of U.S. real property interests by foreign persons or entities. Our accounting liaison team also guides clients on deductions for home improvements, homeowner’s dues and property taxes.

Julius Buchanan, Managing Editor at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com

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