As Wealthy Clients Head South, Advisors Follow

Three years ago, I came to Florida without a nickel in my pocket. Now I’ve got a nickel in my pocket.

– Groucho Marx as Mr. Hammer, The Cocoanuts, 1929

Tim Sallade, Chief Investment Officer of Lake Tahoe Wealth Management, moved to Florida two years ago, and new neighbors continue to follow him there. In 2022, Florida grew the fastest of the fifty states, increasing its population by a whopping 1.9 percent, according to the latest United States Census data.

Florida, Texas, Nevada, North Carolina, and Wyoming have some of the lowest tax burdens in the country, and residents of all income groups from high-tax states, like New York and New Jersey, are flocking there. So many people left California in 2021 that the state ran out of U-Hauls. According to the self-transport company, Texas and Florida were the top two destination state for one-way rentals in 2022 for the second consecutive year.  

Follow the Money 

Rising employment and the influx of affluent transplants have attracted firms seeking to manage the newfound wealth.

Tahoe’s Sallade arrived in Vero Beach from western upstate New York, where he lived after graduating from Cornell University’s Samuel Curtis Johnson School of Management in 2000.  

“I was a bit surprised there weren’t more hidden cost-of-living fees coming down to Florida,” he said. He did encounter some differences in insurance prices, namely the addition of flood insurance to homes and higher auto insurance premiums, but for him, the savings in employment taxes outweighed any increased costs. 

“The two big ones are income tax, which whatever you paid in New York state disappears, and property tax, which is probably one-third to one-fifth lower in Florida from what I’ve seen,” Sallade added. “So, we’ve had a significant increase in savings over the last two years.”

In 2022, Rockefeller Capital unveiled an ambitious plan to double assets under management to $200 billion while expanding its advisor headcount from 250 to 400. As part of the aggressive expansion, the firm announced plans to build offices in Florida while expanding operations in Texas and North Carolina. 

Multifamily offices also joined the rush to establish offices in states with growing communities of affluent transplants. TAG Associates announced the opening of a location in West Palm Beach this week — its first office outside New York City after 40 years in business. 

Jonathan Bergman, President of TAG Associates, saw the expansion South as a natural evolution. “Even before the pandemic, we had started spending more time in Florida visiting our clients,” he said. “Many of our clients made their wealth in the New York metro area and then moved to Florida for good weather and for great tax benefits.”

TAG Associates manages $9 billion in assets, focusing on multigenerational wealth and an average family-client relationship that encompasses more than $100 million in assets.  

The new office does more than provide local service to existing clients. Despite the uptick in advisors entering the Florida market, Bergman sees key advantages for his firm to develop relationships with a rising generation of wealth creators. “We observed that there are very few multifamily offices in the Florida region that have bespoke portfolio management with institutional investment access.”

Keeping Home Ties

For many wealthy families, keeping a presence in the places where they built their fortunes is important. When they do, advisors work to ensure that residency issues do not disrupt tax and estate planning. 

“We do two different things. We move people, and we move their money,” says Mark Haranzo, chair of Holland & Knight’s New York Private Wealth Services Group, adding, “[but] it may not be both at the same time.” 

Holland & Knight has the largest private wealth legal practice in the United States, and according to Haranzo, the firm has fielded complex state residency-related inquiries with increasing frequency in recent years.  

Haranzo notes that taking advantage of a favorable tax jurisdiction does not necessarily mean a client must give up their life in a high-tax state. Depending on both states’ residency requirements, clients can purchase a second home in a low-tax state, claim residency, and operate under that state’s tax regime while still spending large chunks of time elsewhere. 

This divided living arrangement is common with Bergman’s clients at TAG Associates. “They still have strong personal connections to New York, but they’re spending at least six months in South Florida.”

For business owners who cannot move their income streams to a new state, a dual property lifestyle can be particularly advantageous. There are other options short of moving, according to Haranzo, like setting up trusts in low-tax states to reduce clients’ tax liability. 

Assuring Insurance

Hurricane Ian, which struck Florida last September, accounted for over $110 billion in damages. As sea levels rise an estimated 14 to 18 inches by 2050 (per a 2022 NOAA report), the Gulf region’s volatile hurricane season is predicted to only worsen over time.

But climate change isn’t the only concern for oceanside property owners in the Carolinas and on the Gulf of Mexico. Average insurance rates for Florida homeowners have risen by double digits in recent years, while waterfront homes are increasingly becoming all but uninsurable. Fifteen Florida property insurers fell into insolvency between 2020 and the end of 2022. 

In December last year, the Florida legislature passed a $1 billion reinsurance fund to back property policy issuers and curb frivolous litigation. These measures are meant to primarily aid average homeowners, however, and not the expensive homes of the wealthy.

Holland & Knight’s Haranzo stated, “Everyone’s flocking down [to Florida.] In 20 years, they may be flocking back.”

Problems finding coverage are not unique to Florida. Texas ranks among the most expensive property insurance markets in the nation. According to Bankrate, in 2021, Texas had the most tornadoes of any state, recording 118. The same year, Texas also ranked second for the most recorded wildfires, with 5,576.

Clients frustrated in their search for affordable insurance after moving to the Sun Belt are reaching out to their advisors for help. In a report from September of last year, TAG Associates Managing Director Neil Shapiro discussed the frustrations faced by some of his firm’s client families. “Many homeowners don’t even know they have a problem until renewal on their current policy comes up, or they try to get coverage for a new home.”

Shapiro relates a story of one client with a waterfront home whose insurer, a national firm, decided to exit the area and not renew the policy, providing them just weeks to find new coverage. Another waterfront homeowner approaching their renewal date was offered continuing coverage at a 43 percent price increase, citing both inflation and location rate changes.

“There’s no straightforward solution to the insurance problem nowadays, and there may never be again,” Shapiro concludes.

One of the strategies TAG Associates deploys for clients with hard-to-insure properties is contracting with “non-admitted” insurance providers, such as Lloyd’s of London, that have more underwriting and premium pricing flexibility.

The Pursuit of Happiness

The biggest commonality Tahoe’s Sallade sees among clients who have happily moved South is “a dislike of big taxes.” Those who choose to stay in places like the Northeast, in Sallade’s experience, have “an inclination toward philanthropy” and are more comfortable paying larger amounts of money to the government. 

For some wealthy individuals, the conservative cultural and political environment is another attractive feature. Hedge fund giant Citadel’s move to Florida drew mainstream media attention partly due to the outspoken support of its billionaire CEO, Ken Griffin, for Florida’s Governor Ron DeSantis – a hugely popular Governor statewide but a divisive figure in national politics.  

Economic migration, however, impacts advisors’ and clients’ lives well beyond their tax bills. Holland & Knight’s Haranzo encourages his clients considering a tax-motivated move to take the specter of political and culture shock seriously. 

“I think there are a lot of factors people aren’t considering,” Haranzo said. “I’ve had some clients now expressing concern about potential moves or regret after moves based upon the political environment of the states.” 

In other words, taxes should not be the only reason someone relocates.“I usually counsel clients never to let the tax tail wag the dog,” said Haranzo.