Family Wealth Report explores some of the factors that make Latin America a unique wealth management market, including why more players are setting up shop in Miami.

Latin America may not have been the star of the show in Capgemini's 2015 World Wealth Report, having logged a fall in both high net worth individual population and wealth, but as the fourth-largest wealth region in the world it is nonetheless taking part in an industry-wide shift (source: Julius Baer's inaugural Industry Report: Latin America).

The region continues to be an important area of business for many wealth managers and other service providers, particularly as intensifying tax and regulatory rules drive up the need for financial advice across the world, and economic and political forces generate investment opportunities and challenges.

Notably, Miami, FL, is a growing area of focus for many players. In June, Morgan Stanley opened a third wealth management office in the city, while Maitland, the global advisory and fund administration firm, recently set up shop there to serve its expanding pool of LatAm clients.

Other key wealth management hotspots for LatAms in the US include New York, Houston, TX, and San Diego, CA, noted James Jesse, head of international wealth management at Morgan Stanley. However, it is Miami, which sits at the southeastern tip of Florida, that is increasingly viewed as “the Wall Street of Latin America,” as described by Benjamin Reid, who leads Maitland’s business development efforts in the region.

There are several reasons for this ongoing shift. According to US Census data, for instance, just under a quarter (24.5 per cent) of the Sunshine State’s total inhabitants were of Hispanic or Latino origin at end-July 2015, compared to the US average of 17.6 per cent. LatAm itself is of course a “huge territory,” said Enrique Riley who manages the Latin American banking business at the financial technology firm Temenos, in an interview last year with Forbes. “But from Miami you can fly easily to and from any capital,” Riley said. 

“If you look at the number of private banks, family offices and intermediaries that are LatAm-focused, Miami is the place,” Reid said. “London is still a big booking center, as is New York, but what we have seen in the last two or three years is a significant number of people, especially managers and wealth advisors, moving from New York to Miami.” Many clients at Maitland in some way or another have a link with the city, where, in Brickell, more people speak Spanish and Portuguese than English, he added.

Culture

Because of higher market volatility and political instability in the region compared with other parts of the world, LatAm families tend to be more aware or concerned about the financial safety of the next generation than their US counterparts, Family Wealth Report has heard from executives in the space. Indeed LatAm clients are very family-orientated, said Mel Lagomasino of WE Family Offices. “Typically, we're not just talking to the patriarch or matriarch, we're involved with many family members.” 

From a business perspective, LatAms also value personal relationships much more highly compared to other cultures, and are more trust-oriented, Lagomasino added. “They will often reveal to their advisors pieces of [financial] information at a time to see if they can trust them. That is a major implication for advisors...uncovering the whole picture to see how you may be able to help [clients] can take a long time.” With that said, WE Family Offices has previously told this publication that, across most sectors, LatAm clients are among the most loyal client bases, with families in the region tending to have long-standing wealth management relationships with major financial institutions. 

However, another force at play is the move by some banks to pull out of or scale back their operations in certain countries (Morgan Stanley's latest wealth management office in Miami was born from its acquisition of Credit Suisse's LatAm business, while in 2014 RBC pulled out of Uruguay and Chile, and BNP Paribas sold its Miami branch, which dealt primarily with LatAm clients.)

This shift has been extremely disruptive for wealthy families in the region, Lagomasino said. “If you combine some of the things that are important culturally, with the supply part of the equation, now is a very disruptive time for clients.”

The LatAm client is also “very specific generally, especially when it comes to wealth structuring,” Reid of Maitland added. “They like what they know, and there is a greater fear of the unknown which you don’t get so much when dealing with clients in the US and Europe, and with that you have to be very delicate.”

Similarly, international client advisors at Morgan Stanley “must have a substantial portion of their business coming from the international segment,” Jesse said. “We want our advisors to be focused on the segment, not just have one or two accounts outside the US. We want our ICAs to be subject matter experts in the cross-border rules of the road associated with the countries they have clients in. We want them to be very focused on the cultural nuances and the regulatory requirements, and product restrictions, if they exist.”

Outlook

While the global drive toward tax transparency has been seen as a challenge for many institutions with private clients – across many countries – it has also created opportunities, with regulations such as FATCA making the task of managing finances much more complicated at the client level as well.

As noted by Lagomasino, many LatAm families have diversified their wealth across continents, typically with their operating business at home in the region. “But now, with new rules at home and overseas, they're having to review their legal structures and tax planning strategies,” she said. Santiago Ulloa of WE Family Offices also highlighted that, in many cases, family members live in different countries, particularly the US or Europe, adding another layer of complexity when it comes to wealth transfer planning, for example.

Although Capgemini's World Wealth Report states that Latin America constrained global wealth expansion in 2015 – recording a 2.2 per cent drop in HNWI population and 3.7 per cent drop in wealth – it is important to note that there have been a number of forces against the region in recent months (as there have been, of course, elsewhere around the world). One particular headwind for LatAm, Ulloa noted, has been the drop in currency values, by 50 per cent in some cases, which can have a huge impact on the value of operating businesses and in turn individuals' net worth. The slowdown in China also hit commodity markets.

“Even though growth in the region seems to have stalled, I think we are reaching a turning point,” Ulloa said. “In general, people are more positive and we are nearing the end of a negative cycle in commodities. There is also greater democracy in some countries like Brazil and Peru, so I think we will see positive tailwinds in the region in the coming years.”

The wealth management industry serving wealthy Latin American individuals is changing, Julius Baer said in its aforementioned report, as “evidenced by a shifting landscape of market participants, the drive towards localization, the rise of transparency, and the renewed role of offshore banking.” This, it said, will only accelerate the demand for a “refined HNWI service offering” that is focused on professionalism, accessibility and a “sophisticated understanding of client needs and circumstances.”