USpain Financial Consultancy: Expert Advice for US Expats in Spain

Have you ever had a rug with a bump in it?  Stomp the bump flat and it reappears a foot away, because the real problem is that the rug doesn’t fit the room.

That’s the feeling Peter Dougherty has had for a while. While he was a financial planner at Spain’s Bissan Wealth Management, he helped Americans with their financial plans and investments. But assisting them with their investments in Spain proved to be consistently difficult.

As Dougherty describes it: “if you think of a financial plan as being like a recipe and an investment portfolio being like the meal, for Americans in Spain their pantry has been stocked with the wrong ingredients. A plan might correctly identify what’s needed to prepare the meal, but the portfolio holds ingredients that won’t be able to cook it.”

The reason for this, Dougherty explains, “is that American citizens continue to be bound by U.S. tax rules no matter where in the world they live. A few of these rules severely penalize investing in any mutual fund or ETF that is managed in Spain. If an American wants to have an investment portfolio in Spain that means their only viable option is to purchase individual stocks and/or individual bonds, which increases the costs and reduces their diversification vis-à-vis a mutual fund or ETF. Thus, it’s often wiser for Americans to leave their investments in the U.S. rather than transfer financial assets to Spain.”

According to Dougherty, that’s one bump in the rug. The other, he believes, is that modern portfolio theory incorrectly assumes that ‘volatility’ equals ‘risk’ in an investment portfolio. As Dougherty explains: “if over three years two stocks have each earned 6%, portfolio theory tells us that the stock whose annual returns have been 8%, -1%, and 11% is ‘riskier’ than the stock that returned 7%, 5% and 6% over the three-year period. They each earned 6%. Yet, because the standard deviation of the first stock’s returns (5.10) is higher than second’s (.82), which means its returns vary more, buying the first stock is viewed as subjecting the investor to more ‘risk’ than buying the second stock.”

But Dougherty doesn’t believe this ‘volatility’ (variance in price) equals risk. Instead, he says: “Not having what you need when you need it is the risk. To most clients, ‘risk’ is the possibility of not reaching their goals, like not having the money to finance their children’s education. The way to unite the textbook definition of ‘risk’ and the client’s definition is to coordinate financial planning and investing through something called ‘goal-based’ planning. Goals give both the advisor and client a shared yardstick.”

So, four years ago, when Peter Dougherty arrived in Spain as a financial planner, he deliberately went to work for the only Spanish firm that brought financial planning and investments into alignment via goal-based planning: Bissan Wealth Management.

Now, four years later, Dougherty has left his job at Bissan and founded USpain Financial Consultancy. He recognizes that — because U.S. investment rules are incompatible with the Spanish financial ecosystem — Americans might want to leave their investments in the U.S. rather than transfer financial assets to Spain. According to Dougherty, “It’s important to realize that geography and portfolio structure don’t necessarily need to match. Although in an ideal world an American who’s moved to Spain would bring their financial assets along with them, it may not make economic sense. Incompatible investment rules are the most obvious reason, but currency fluctuations and tax implications are no less important.”

Think back to that rug with the bump in it. As Dougherty says, “Good cross-border financial planning isn’t about flattening every bump as it appears.  At USpain Financial Consultancy, we recognize that it’s about making sure the rug fits the room in the first place.”

Peter Dougherty is a financial planner at USpain Financial Consultancy, where he advises Americans living in the country. He holds an MBA in finance from Columbia University in New York and an MS in Spanish taxation (Máster en Fiscalidad y Tributación) from Universidad Nebrija in Spain. He is Spain’s only U.S./Spanish dual-accredited financial planner: having earned the CERTIFIED FINANCIAL PLANNER® credential in the U.S. and the European Financial Planner certification in Spain.

For more information: https://www.financial-planning-in-spain.com