Much of today's offshore US wealth management market is run from Miami and New York. This market - as it affects Latin America - faces several headwinds, a study finds.

Asset managers pushing into the Latin American wealth management sector are squeezing the $150 billion US offshore wealth management sector, forcing firms to recast business models, a study says.

New research from Cerulli Associates and Latin Asset Management, a research house, has found that retail distribution in Latin American capitals has become much more enticing for global asset managers. They face hurdles in the US offshore market such as declining fees, rising required investment minimum assets, fewer third-party relationships, and a move to managed accounts at large wire-houses.

The US offshore wealth segment is made up of investments by Latin American investors via firms based in centers such as Miami and New York, and is a market from which a number of global managers derive the bulk of their Latin American assets under management. The study estimates that cross-border fund AuM derived from the US offshore segment totals almost $100 billion, which accounts for roughly two-thirds of the $150 billion total offshore wealth stock.

The Cerulli/LAT report said that the offshore market is big, but not expanding overall.

“Almost all aspects of the business have undergone changes, starting with the approaches of large wirehouses and global private banks, which have adopted fee-based models while streamlining their offerings and taking discretion away from their advisors,” Thomas V Ciampi, founder and CEO of Latin Asset Management, said. “They have undergone consolidation at the advisor level while cutting back on compensation, and their focus on large clients has led to an exodus of smaller clients to boutique firms and multi-family offices - a segment that is growing as advisors bail out of larger firms and set up their own shops.”

“Our view for the US offshore segment is that firms with strong domestic product lines and entrenched relationships with large wirehouses at the domestic level (i.e. US onshore) are best equipped to roll with the punches that this segment throws at them, as they will be able to anticipate the next round of restructurings, platform adjustments, compliance, and technology demands,” Ciampi said.

The findings suggest that it is crucial for relationship or key account managers to handle home-office issues and stay informed about planned changes at the large firms. Global fund companies that lack this infrastructure and have limited wholesaling resources on the ground in the US are best off focusing on independent advisories and multi-family offices, especially those plugged into third-party broker/dealer networks, the study concluded.