Updates from the USA
With the ‘debt crisis’ and 2024 Presidential election commanding the news outlets’ attention, we asked experts working in the US market to help us to not only uncover the reality behind the big headlines, but reveal the things we may not be hearing about when it comes to impacts on the wealth management market.
The Citywealth Powerwomen Awards will be hitting the US shores for the second time, with the prestigious awards dinner taking place on 14 March 2024 in New York City. Article contributors Genna Garver and Ronni G. Davidowitz are shortlisted for the Champion of the Year category this year. Katten and Withersworldwide are up for ‘Best Employer – Career Progression’. Voting is now open (for both the USA and International awards) and tickets on sale now.
Joshua Rubenstein, Partner and National Chair, Private Wealth for Katten Muchin Rosenman in New York provided summative insights on the key headlines coming out of the USA: “The gap between what the U.S. government spends and earns continues to grow, and Congress continues to spar over it without resolution. Republicans ran up big budget deficits under Trump with major tax cuts, and now Democrats under Biden are struggling to provide aid to the Ukraine and Israel without major social budget cuts – which of course means major tax increases. Yet none of this has enabled the Republican majority in the House to coalesce and enact a Speaker since ousting Kevin McCarthy. And Trump continues to be the leading Republican presidential candidate for 2024, notwithstanding defending against four separate indictments. While these headlines speak poorly for the state of American politics, there is hope that inflation is going down and interest rates will soon follow suit. In the words of James Carville, a chief strategist in Bill Clinton’s successful 1992 presidential campaign against George W. Bush, it’s ‘the economy, stupid’. At the end of the day, the wealth management industry will survive politics if the economy improves.”
Ronni G. Davidowitz, Partner at Katten Muchin Rosenman in New York, expanded on the practical repercussions of this political upheaval: “[I]t seems to me that the current chaos in our US House of Representatives with the inability to timely select a speaker, the looming prospect of a government shut down and the resultant debt crisis adds strains to a strained administrative process. If we face a shut down and among others, IRS personnel get furloughed, the already evident processing delays of release of lien applications, review of not-for-profit organizations exempt status determinations and estate tax audits, with fixed deadlines, get further delayed. This would have a domino effect on pending sales, charitable endeavors and settlements of estate. Add to that the uncertainty of the 2024 presidential outcome and its potential impact on many of our tax provisions that are due to sunset without legislative intervention, it leaves the field of planning open with a rush to take advantage of the current tax laws as the potential exists that such provisions may go away due to the sunset provisions and/or as part of horse trading in later negotiations, depending on who takes office. All of this makes for challenging times to best advise our clients who are in position to take advantage of tax laws but were not otherwise ready to commit to do so.”
Moving away from the topline stories, we asked the experts what their top-of-mind concerns are; the things that may not be hitting the global headlines and, thus, those working outside of the USA may not be thinking about.
Ann Wicks, Corporate and Employment Partner at Withersworldwide in San Fransisco said: “There are clearly concerns around the amount of investment available for start-ups or early stage companies, as well as concerns over mobility for those who are looking to make moves. On the employer side, any drop in consumer spending is going to result in slow or negative growth that will necessitate cost-cutting measures, including lay-offs. For those outside of the US, that would include impacts on immigration sponsorship/availability, etc. Those are general concerns and are fairly obvious to anyone thinking about the issues.”
Patricia Angus, Founder and CEO of Angus Advisory Group in New York, commented on the focus being seen on digital disruption and how it has the potential to transform the wealth management industry. She said: “Any wealth management firm that is not actively integrating technology to improve delivery will fall behind.”
Angus also noted: “At the same time, an often overlooked risk to the industry is the increasing inequality in the U.S. – social strife, civic unrest, and the crisis of democracy may have a greater impact on wealth management than technological changes. These are complex issues related to perceptions of the social contract. They are not easily solved, and wealth managers will be in the middle of these issues whether they realize it or not.”
Genna Garver, Partner at Troutman Pepper in New York, discussed how decisions by the SEC are affecting the industry, both within the USA and globally. She explained: “The [U.S Securities and Exchange Commission (SEC)] has been engaged in a rapid fire rulemaking process over the last few years. Many of the rules have a significant impact on private funds and their managers. Despite serious pushback from industry commenters and members of Congress, the SEC has marched forward with its agenda at times seemingly without sensitivity to the interconnectedness, compounded impact and potential unintended consequences of proposed and final rules. Indeed, 6 industry groups have brought a lawsuit against the SEC regarding its recent final private fund adviser rules. Those rules will come into effect for large fund managers within the year (September 14, 2024), and for smaller fund managers within 18 months (March 14, 2025) – assuming those rules are not vacated by the court.”
“For non-US fund managers certain provisions of these rules, particularly the restricted activities and preferential treatment provisions, apply regardless of the manager’s SEC registration status. The substantive provisions of the rules, being the quarterly statement rule, audit rule, and adviser-led secondaries rule, apply to SEC-registered offshore advisers with respect to their U.S. private fund clients (but not to their non-U.S. private fund clients (regardless of whether those non-U.S. funds have U.S. investors)). The rules will also have an impact on all investors in private funds, including non-U.S. investors with a potentially chilling impact on communications between managers and investors in light of the restrictions on preferential transparency.” For further information, Garver suggested the Troutman Pepper podcast: New SEC Private Funds Rules – What Is Happening and What You Need to Know | Troutman Pepper
Joshua Rubenstein looked beyond 2024 into 2026: “The private wealth profession is starting to turn its sights to 2026, when absent Congressional action, our historically high nil bands ($13.61 million in 2024), will essentially halve. With only two more years’ of unprecedentedly high gift and estate tax exemptions, there will be a lot of activity to ‘use it or lose it’ – particularly given Congress’s demonstrated inability to coalesce over almost anything. On the other hand, since the enactment of the estate tax in 1916, rates have increased and decreased many times, but exemptions have never decreased. What will end up happening is anyone’s guess, but for sure there will be a lot of activity.”
“The private wealth industry is also struggling with what it means to diversify. Before 2008, everyone thought diversification meant of assets. After the discovery of Madoff, Sanford and other Ponzi schemes in 2008, diversification evolved to mean diversifying not just assets but also managers. Now with the turmoil in the crypto and alternative industries, as well as calls for social-based investing, everyone is trying to redefine yet again to what it means to be appropriately diversified.”
Rubenstein concluded: “Finally, the fact that the most rapidly growing segment of the U.S. population is the over-65 segment, preparing for the largest transfer of wealth ever, while expectant beneficiaries are waiting longer than ever for their inheritance ship to come in, is creating an enormous increase in lifetime controversies, as patriarchs and matriarchs live longer than expected but with diminishing capacities and increased susceptibility to influence.”
Many thanks to the experts who contributed to this feature.
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