One of the common themes across South Asian communities within the US and other nations is that a significant percentage of immigrants and second-generation citizens have advanced degrees, pursue a high-salary professional career path, and have a tendency to be business owners or entrepreneurs.
While this trend is well known and self-evident, given the increasing standards for employment visa eligibility requirements, what many South Asian immigrants are still not aware of is that, as a result, they can have distinct financial planning needs relative to the general population.
Aadil Zaman and Syed Nishat, partners at Wall Street Alliance Group, believe that South Asian immigrants require the help of advisers that are specialised in addressing these distinct, and often complex needs, rather than an adviser who is an asset gatherer or one who is used to handling more standard finances.
A clear example is within the healthcare sector.
Higher income bracket
According to a recent study published in the Journal of the American Medical Association, which looked at more than more than 150 million healthcare sector workers in 2015, immigrant physicians made up nearly one third of the workforce.
The percentage of foreign-born physicians has remained nearly constant for a decade, and this rate has shown no sign of slowing down.
Estate planning
These first-generation physicians fall into a higher income bracket, however they remain consistently underserved when it comes to financial planning.
With more complicated financials comes a greater need for tax savings, college planning for children, and asset protection. However, they often don’t know everything available to help them achieve their financial goals.
A responsible adviser will work to prepare a physician and their family for retirement, assisting with asset protection strategies to address the high-risk factor of the profession when it comes to current and potential creditors.
Along these same lines, physicians’ unique circumstances mean that estate planning should be customised to suit each situation, built to avoid probate and minimise estate taxes.
Often, this will include guidance from an estate planning attorney to set up a Nevada or Delaware Asset Protection trust or revocable trusts, both of which are strategies that better enable physicians to leave assets to their beneficiaries.
Tax savings
Owing to physicians’ higher tax bracket, tax savings is another area to be addressed.
One of the simplest ways to save money in taxes is by maximising contributions to a retirement plan.
Assuming a 40% tax bracket, every $10,000 (£7,669, €8,462) an individual contributes to a retirement account leads to a saving of about $4,000 in taxes.
For example, a 52-year-old self-employed physician puts $193,000 into a defined benefit plan, an amount that is completely tax deductible.
Again, assuming a 40% tax bracket, over a 10-year period, this works out to a total tax saving amount of approximately $773,000.
Real estate can also provide another strategy self-employed physicians should consider for tax saving. Cost segregation analysis, with the help assistance of a financial adviser, could enable an accelerated depreciation of property.
Company structure
Similarly, many South Asian immigrants pursue an entrepreneurial route, with ambitions to establish and stabilise growing businesses.
During our conversations with successful or aspiring business owners, they are often asking questions well beyond personal finances, instead delving into topics related to managing the overlap between personal finances and company finances.
As an adviser, it’s important to help throughout the developing stages, including opening a practice and deciding which type of business best suits their specific situation, whether this means an LLC, S Corporation, or C Corporation.
As the business continues to grow, the extended planning should move into setting up company-sponsored retirement funds and liability coverage, as well as an examination of potential tax savings.
Planning should also extend to protecting the business or practice, ensuring its security by setting up operating agreements, buy/ sell agreements, and business continuity documentation between business partners.
The work is ongoing—a good financial adviser should also maintain open lines of communication about areas that are of concern to business owners, such as changes in retirement contribution limits or tax credits that will benefit them.
Family focus
Another dilemma first generation immigrants face is whether to save their income for their children or for their own retirement.
Before emigrating, many parents focused on taking care of their children’s education with the anticipation of adult children taking care of their parents in turn when they are elderly.
However, in the US, the key to independence is proper financial planning.
The best method of saving money for children is through college 529 plans, where the assets not only grow tax-free but remain tax-free when withdrawn for qualified tuition.
In some states, including NY and PA, these contributions can count toward state tax deductions as well.
Culture is key
Finally, and perhaps most importantly, high earning, first generation immigrants should choose to work with an adviser who will not only help them with their assets but who also understands their values through a cultural affinity and shared experiences.
When it comes to making decisions about the market, emotions may have a large impact on those decisions, often to the portfolio’s detriment.
Behavioral finance is the study of investor reactions, examining financial as well as social sciences like psychology and sociology to aid advisors understand their clients better.
A certified behavioral financial adviser (BFA) is trained to work with clients to understand what is important to them, which means the financial adviser is in a better place to help them invest in a manner that aligns with their values and continue to grow their portfolio in a way that is not influenced irrationally when there are market shifts.
This level of trust and mutual understanding is vital for immigrants who want to know that they are being given guidance which aligns with their beliefs.
With the new opportunities presented to them, first generation immigrants can put themselves in the best position to build and grow their professions, practices and their families’ future security.
By working with a financial adviser who respects and understands their unique situations, they can make the best use of the strategies and tools available to establish themselves in the new home they’ve chosen.
This article was written for International Adviser by Aadil Zaman and Syed Nishat, partners at Wall Street Alliance Group.
