Tax
Florida Rides Wealth Migration Boom, Industry Eyes Taxes
We talk to a nationwide US wealth manager about the migration of HNW and ultra-HNW individuals to the state, the dynamics at work, and some of the hurdles they face.
Whatever tax changes come out of the legislative machine in Washington DC, one thing appears clear: the shift of high net worth people and advisors to Florida isn’t stopping any time soon.
Florida is one of a handful of states (Texas, Alaska, Nevada, South Dakota, Washington and Wyoming) that has no state income tax. When the Trump administration made changes capping the state and local taxes that citizens deduct from federal income taxes, it increased the difference between traditional wealth hubs such as California and New York, and upcoming, lower-tax states such as Texas and Florida. If President Biden’s administration hikes capital gains taxes, income taxes and other levies – as is expected - the difference widens further.
And migration has been significant. The Office of Economic and Demographic Research has estimated that 329,717 new residents settled in Florida between April 2020 and April 2021. Florida’s population growth is expected to average 308,497 net new residents per year (845 new residents per day). This has fed through into residential real estate prices. A report in the Palm Beach Post (April 8, 2021) had this headline: “`Unprecedented’ housing shortage in Palm Beach County sparks feeding frenzy among Realtors.” The story said that the median price for a single-family home sold in Palm Beach County in February 2021 hit an historic high of $450,000, up 25 per cent from the same month in 2020 (source: Broward, Palm Beaches & St. Lucie Realtors). During 2020 there were 14,000 new vehicle registrations from out of state and 42 per cent of those were from New York settling in Palm Beach County, for example. Palm Beach County alone – an HNW hotspot - experienced a $3.4 billion rise in revenue due to new residents this past year.
Local wealth management firms are, understandably, benefiting from boom times in the Sunshine State.
“People are voting with their feet,” Gary Lickle, vice chairman of Chilton Trust Company, told Family Wealth Report in a recent call. Lickle has a background of a trusts and estates lawyer; he moved to West Palm Beach in the early 1980s and has stayed in Florida ever since. That move looks astute with every passing year.
Under the Biden income tax proposals, with no easement for state and local taxes, income tax in New York could be collectively as high as 61 per cent for those in the top bracket. (Of course, much depends on what actually happens as lawmakers debate spending and tax bills in Capitol Hill.)
“People started coming here to avoid estate taxes and now it’s an income tax move. And it is becoming a tsunami,” Lickle said.
The migration has been accelerated by the pandemic because of how Florida hasn’t been as restrictive as is the case with some other states, he said.
Florida’s politicians have played a part in the process. Former Florida governor Rick Scott, and now Ron DeSantis, have been promoting Florida’s tax, regulatory and business charms around the US.
This process is not new, by any means. Lickle gave the example of how Germany’s Max Planck research institute moved to Florida in 2014, creating hundreds of jobs and bringing in significant capital.
Wealth managers, whether they serve local HNW and ultra-HNW clients, or “snowbirds” moving to and from Florida, or those with Latin America links, have been adding teams and building on-the-ground presences. To give one example, last year the three grandsons of Adi Dassler, creator of sports and apparel brand Adidas, created a Florida-based multi-family office. The Glenmede Trust Company, which formed a transatlantic pact with a multi-family office, has opened a new office in West Palm Beach, Florida – the firm’s first office in the state.
Boston Private, an SVB company, has opened a new office in downtown Miami. Fieldpoint Private, the private banking and advisory firm serving ultra-high net worth clients, has expanded into the Orlando, Florida area by adding a former Bank of America Private Bank team which had managed $1.2 billion. Among other firms expanding in Florida are Goldman Sachs, which has added hires in its private wealth management business; Rockefeller Capital Management, which has made a raft of hires and named the first person to join its newly-opened office in Florida; Evercore Wealth Management opened a new office in Palm Beach; Landsberg Bennett Private Wealth Management launched in 2019 in Punta Gorda, Florida; and Boston Private appointed advisors as part of its work with a Florida-based firm. SunTrust Bank added a team of four wealth management professionals to its business in Naples. In 2019, the personal finance website WalletHub put Florida as one of the states with the highest return on investment in terms of its tax burden and provision of public services.
COVID-19
Inevitably, the subject of the pandemic came up, and Lickle said
that COVID-19 and the remote working phenomenon woke people up to
the idea that one doesn’t need to be in traditional financial
hubs to get things done.
Chilton Trust has been logging a rising tide of client enquiry and business for several years, he said. “Our average growth has been approximately 20 per cent a year,” he said.
Chilton Trust has a national charter; much of its clientele come from east of the Mississippi side of the US, Lickle said. It is hiring more people and redeploying some of its existing staff to handle the added workload. Chilton Trust, founded in 2010, employs more than 50 people. It has offices in Palm Beach, Florida; New York City, NY; Charlotte, North Carolina; Stamford, Connecticut; and Wilmington, Delaware.
It is not all sunshine in Florida, and FWR asked Lickle what risks do those thinking of moving need to know (besides hurricanes, and alligators on the golf course).
"The main trap, if you want to call it one, is adjusting from thinking of Florida as your vacation spot to one where you work and live. That’s an adjustment and your perspective will change dramatically," Lickle said.
Asked if skyrocketing house prices are a problem, he said: “Yes in general, and commercial developers are scrambling to build new housing to meet the demand. However, wealthy folks moving from a high-tax state save so much by moving that housing costs have not been a factor as the savings alone pay for a higher cost home.”