In today’s global marketplace, NRIs want to live and work outside their home countries while simultaneously maintaining a financial foothold in India. Whether to support family or in anticipation of their return, managing investments and financial accounts in India and the US requires expert guidance. With increasing regulations and scrutiny of cross-border transfers and investment holdings, NRIs need to find a financial expert that understands their unique situation and guides them in comprehensive financial planning.
A good advisor may understand the investment options available both in the US and India. However, an ideal advisor will go beyond investment selection and portfolio allocation to partner with you to understand your evolving financial needs and help you manage your finances accordingly.
Below we discuss the skills and resources that NRIs should be looking for when selecting a financial advisor.
Understanding your Financial Goals
A financial advisor needs to understand the individual aims and goals of their client. Are you supporting family in India? Do you have a timeline for your eventual return? Where do you foresee your children attending university? Do you own real estate or intend to buy a home? Do you intend to start a business? When and where do you plan to retire? These are just some of the questions that a financial advisor should be asking you before coming up with a financial plan.
This should not be a one-time discussion either. Advisors should be checking in periodically to verify whether your current situation or plans have changed, and the resulting implications for your finances.
NRIs should also be looking for an advisor who is familiar with the wealth of investment opportunities available both in the US and abroad. An NRI keeping a foothold in India in order to support aging parents will want some part of their portfolio in a conservative allocation with capital preservation and easy access to liquidity in India. This would be different from an NRI anticipating returning to India in 20 years for retirement, thereby requiring a more aggressive investment allocation primarily in their home country. Financial advisors should also be careful to understand the effects of projected growth and inflation in both countries when weighing investment opportunities.
Optimizing your Portfolio
Financial advisors to NRIs must be proficient in cross-border portfolio optimization. This means understanding the available investment opportunities and instruments in both the US and India. This includes investment trade-offs, such as cost structure, regulatory and compliance requirements, and tax implications for each instrument. As an example, your advisor should know when it’s best to invest in Indian mutual funds out of an India domiciled NRI account vs. investing in US-based India ETFs out of a US account. Familiarity with opportunities in both countries will help them optimize the right portfolio for your needs.
Advisors need to consider an NRI’s current and prospective liquidity needs in both geographies. Funds should be easily accessible to cover anticipated as well as emergency costs. Before recommending transfer of money to India or vice versa, financial advisors should be fully versed in transaction costs or regulatory caps, so NRI clients have quick, required access to liquidity where and when they need it.
Tax Optimization and Compliance
Tax regulations in the US and India are continually evolving. NRIs need a financial advisor that can help them negotiate both countries’ reporting requirements. With the passage of FATCA, the Foreign Account Tax Compliance Act, in the US, H1Bs may be subject to IRS disclosure of Indian assets above a certain threshold. This means any potential tax implications of FATCA, as well as Indian tax requirements, will need to be considered when allocating the portfolio, making it important that you have a knowledgeable financial advisor.
Real Estate Management
Indians have long been attracted to tangible assets such as real estate or gold. According to the World Bank, of $80 billion in remittances to India in 2018, almost $13 billion was invested in the Indian real estate sector. Financial advisors should be familiar with potential tax implications should income-generating real estate holdings become part of your investment portfolio, as income from foreign property may be subject to taxes abroad as well as in the US.
Adequate Funding for Retirement
Wherever an NRI chooses to retire, it’s important that they have the projected funds to cover their lifestyle. A great financial advisor will help you diversify and grow your investments, guiding you on where best to invest. They should also have a plan to reallocate investments and funds between India and America as your intended move date nears or to a more conservative investment mix as you approach retirement.
Minimizing Inheritance Tax
NRIs need to be thoughtful about how they structure their portfolios so as to minimize tax payments for future heirs. Financial advisors should be knowledgeable about inheritance tax and proactive in structuring portfolios to reduce inheritance taxes. Although India has abolished inheritance tax, FATCA rules may subject you to tax on income-generating assets in India.
A solid financial advisor is essential for NRIs who plan to have income and assets between India and the US. As tax and financial regulations evolve, NRIs need expert guidance that can help them reach their goals. From expertise in cross-border taxation to real estate investment, the best NRI financial advisor will have a multitude of skills to help you achieve financial goals in both countries.