The SEC regulated firm, has been working with US clients for more than 20 years, but in response to the inter-governmental Fatca agreement issued by the US Treasury last week, said: "Assuming that firms can identify US-linked clients they are left on the horns of a strategic dilemma, to create a compliant investment solution or not."
The inter-governmental rules were made in conjunction with France, Germany, Italy, Spain and the UK, which have all made reciprocal agreements with the US.
This type of agreement is only open to those countries with an existing income tax treaty or tax information agreement.
On the individual firm level, however, London & Capital said the creation of compliant investment solutions must not only avoid toxic assets but also meet onerous reporting requirements.
Daniel Freedman, co-founder of the firm, said: "The vast majority of firms have concluded the costs are simply too high and have made the commercial decision to exit the market, making their US clients orphan," Freedman said.
Challenges ahead
"In dealing with US clients one has always to understand the challenges of working across two jurisdictions, and the regulatory and investment implications of doing so. Wealth managers which want to continue working with clients who have a US tax reporting obligation have had no choice but to invest heavily in systems capable of handling not only the sales aspects of the business, but also its operations and – for tax and compliance purposes – more complex investment reporting requirements."
One of the most worrying scenarios Portfolio Adviser has been informed of is if a wealth management firm has a client with a US tax obligation who does not realise they have an obligation because it arose from a short period of working over there while they were a citizen of another country.
Freedman said London & Capital had been working ever more closely with the leading legal and accountancy firms and with the alumni of many leading US colleges and interest groups to promote awareness of Fatca legislation.
London & Capital is also making its counsel available to firms that are either unable or unwilling to cater for US clients in light of the legislation.
