(city wire) -- The difficulties of onboarding a new international client will be all too familiar to many advisors. Our columnist offers his insight into making it through the regulator maze and keeping your sanity
Few things have changed more dramatically in the last few years than opening accounts for international clients. Yes, fees and commissions have come down but new products and more assets under management have compensated for that, with the average production per financial advisors having also risen. But the account opening process has gone from being overtly simple to a near Kafkaesque endeavor.
Ever since the introduction of the Patriot Act following the 9/11 terrorist attacks, authorities have focused on denying access to financial funding to terrorist groups worldwide.
Unfortunately, most of these groups have the same modus operandi as our typical international client, an offshore shell company used to protect assets and confidentiality.
Also, the same jurisdictions are used, such as the British Virgin Islands, Cayman Islands, Panama, and many others.
To make things even more complicated the regulators have not issued specific rules about how to document new accounts, hence financial institutions have had to scramble to produce some coherent policies. Add to that the digitalization of data, which has made collecting and storing clients’ information a very complex and expensive task. The result is a collection of procedures that make the life of the financial advisor very difficult.
Top tips
How to go about it? Let’s take a look at some of the special documents now required for international clients. Countries labeled high-risk jurisdictions, which includes most countries in Latin America and Eastern Europe, means an Enhanced Due Diligence (EDD) form for any clients based in those regions.
Here, one of the most important topics is to get the right information attesting to the identity of your client.
After producing their identity numbers – tax info, passport, social security etc. – comes the tricky part: showing the source of their wealth. The size and origin of the wealth of an individual will most likely explain the behavior of the account. Someone that made their fortune taking big risks and speculating in different markets will most likely keep doing so.
Conversely, someone that made it through a profession and is very conservative will act accordingly. This information will help the firm establish a proper client profile and is a crucial vetting process. Without it, it is very difficult to monitor account activity.
Explaining source of wealth can either be straightforward or extremely difficult. A founder/shareholder of a publicly traded company, very easy.
Someone that sold a privately held company in a somewhat public transaction, not so easy.
Probably the most challenging of all is inheritance (one of the most common sources of wealth) and at times it is not easy to demonstrate that your client received money from their parents or grandparents.
You have to work with your client to furnish this information with the most amount of detail possible. Bring more, not less; sometimes web pages or publicly available information about the client can be very helpful.
Don’t forget that once you submit the account for opening, compliance will run the client’s info through many databases, so being forthcoming will not only help the approval process, but save time, and you’ll then have a valuable commodity, a grateful compliance person.
Breaking bad
If something negative comes out, don’t be discouraged, many very wealthy people have issues and are aware of them. Reach out and ask for an explanation, bring it to your supervisor and discuss it. All firms have risk committees designed for these events, and they go all the way to the CEO. If the client is worth it, keep escalating all the way up. Even now, some clients are willing to pay for the cost of additional due diligence in this process.
For a Politically Exposed Person (PEP), here again the regulator does not define who falls into that class, whether they are a councilman in a small town or someone that was a cabinet minister 300 years ago.
Sometimes if a publicly owned pension fund buys a stake in your client’s company, they will automatically become a PEP.
So ask the question beforehand and get the information, and again do not be disillusioned if things show up. In my days as a financial advisor I had acting presidents of countries as clients, that is a PEP!
Do firms have an integrated online system for all of this?
Clearly not, and there too many systems that don’t cross-reference the required information to smoothen the whole process.
Maybe someday someone will produce a single tool to do it in one single place.
That would be a game changer.
Fabian Onetti is president of Winston Capital Advisors, a firm that advises international advisors on capital markets and wealth planning. A former director at Morgan Stanley, he has more than 30 years of experience in international wealth management.
