16th Jun 2023 by Kyle McClellan & Ollie Cutting

Principles of Investing for American Citizens Living in the UK: Principle 5 - Securing your assets from top to tail and managing risk beyond the markets

Risk

Building a sound financial plan that allows you to meet your goals can often involve an element of risk, given the intrinsic link between investment risk and return over the long-run. A sound Wealth Manager will analyse the required risk you need to take from a pure investment standpoint in order to achieve success and explain the interplay between volatility, diversification, inflation and currency risk to guide you towards a portfolio with the appropriate level of market risk for your needs.


“Safety isn’t expensive, its priceless” ~  Jerry Smith, American Football Player

Building a sound financial plan that allows you to meet your goals can often involve an element of risk, given the intrinsic link between investment risk and return over the long-run. A sound Wealth Manager will analyse the required risk you need to take from a pure investment standpoint in order to achieve success and explain the interplay between volatility, diversification, inflation and currency risk to guide you towards a portfolio with the appropriate level of market risk for your needs. It is natural for many clients to consider their risk from a portfolio and markets standpoint – which are of course important – but there also wider factors that highlight the importance of working with the right specialist Wealth Manager and their team to create a safe environment for your investments to perform in.

1.)    Appropriate Regulation

a.    Americans in the UK are, by nature of their tax and regulatory complexities, straddling two financial regulatory environments and often have a presence in both the US and UK either physically or through their financial asset accounts.  Making sure that your Wealth Manager is qualified and regulated to provide advice in the UK (under the Financial Conduct Authority (FCA)) and the US (under the Securities and Exchange Commission (SEC)) provides a strong base to help ensure that there is adequate advisory competence and compliance with rules on either side of the Atlantic.

b.    Often, UK based firms will have the ability to provide advice to Americans physically resident in the UK, but there may be a risk that if a client makes an unexpected return to the US their advisor can no longer fully support them.  Furthermore, perhaps the UK based advisor is unable to advise on US based retirement accounts or lacks knowledge about the US implications of certain UK investment choices, for example, which makes it hard to develop a comprehensive financial plan.

c.    It is best to find an Advisory firm that is committed to serving you as a client type. We have seen major banks in the US cease to work with Americans living overseas due to the regulatory environment and time cost associated with keeping up to speed. Firms that specialise in working with Americans living abroad are incentivised to ensure they are on top of European, UK and US regulations to ensure their core client base has access to the right advice.

2.)    Securing Assets with the Right Institutions

a.    Fund manager selection: Intelligent investing involves ensuring diversification across asset classes – buying funds with different characteristics such as their geographic exposure or market segment, and importantly buying funds that are tax-efficient in the US and UK if you are American living in the UK.  Choosing the right fund manager is important – if a fund has UK reporting status one day, it might not the next, and so you should buy funds from a provider that understands the tax and regulatory environment. Your Wealth Manager should ideally have regular dialogue with them and, whilst no guarantees will be given by a product provider in this respect, at least the Wealth Manager should understand their commitment to keeping tax efficiencies in place.

b.    The investment industry has expanded over time, so thousands of fund providers, banks, and investment platforms can purchase securities. Thorough due diligence should be conducted on an ongoing basis to ensure that reputable businesses run the funds you are purchasing with good governance, and it's important for your Wealth Management firm to have a good relationship with the custodial bank that secures your investments.

c.    Your advisor should be able to articulate what happens to your assets in the worst-case scenario where a fund management business, or even a bank, goes out of business – are you protected by the US or UK government, for example, and to what degree?  Overall, you should be able to rely on the risk assessment frameworks of your investment team to reduce the chance of your assets losing value as a result of institutional failure.

Please email masecocommunications@masecopw.com to receive a copy of our Principles of Investing whitepaper in advance.

The Legal Stuff

This document may not be forwarded, copied or distributed without our prior written consent.  This document has been prepared by MASECO LLP for information purposes only and does not constitute investment, tax or any other type of advice and should not be construed as such.  The information contained herein is subject to copyright with all rights reserved.

The views expressed herein do not necessarily reflect the views of MASECO as a whole or any part thereof.  All investments involve risk and may lose value.  The value of your investment can go down depending upon market conditions and you may not get back the original amount invested.  Your capital is always at risk.  Information about potential tax benefits is based on our understanding of current tax law and practice and may be subject to change. The levels and bases of, and reliefs from, taxation is subject to change. The tax treatment depends on the individual circumstances of each person and may be subject to change in the future. We recommend that anyone considering investing seeks their own tax advice.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at Burleigh House, 357 Strand, London WC2R 0HS.  The individual partners are Mr J E Matthews, Mr J R D Sellon, Mr A Benson, Mr D R B Dorman, Mr H Q A Findlater, Mr T Flonaes, Mr E A Howison and Ms A L Solana.  Calls may be recorded for your protection and for training and monitoring purposes.

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.

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