Advisors increasingly dump expensive New York and California for no-tax Florida

Wealthy investors have been fleeing expensive states like California, New York and New Jersey for sunny, no-tax Florida and Texas for years. Increasingly, some of their advisors are doing the same.

With tax hikes on the affluent all but certain under the Biden administration and remote work set to continue, at least partly, post-COVID, some advisors are increasingly weighing whether living in Manhattan, San Francisco or other high-cost cities is worth it.

It wasn’t for CFP Kevin Couper of Wealthspire Advisors, a $12.9 billion RIA headquartered in New York. Last July, he decamped from his Marina del Rey, California, outpost to the firm’s office in Boca Raton, Florida, sometimes called the Beverly Hills of the East Coast. The near-perfect weather and wakeboarding in Palm Beaches’ crystalline waters weren't the only selling points.

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“You can move and basically get a raise from day one by not paying state income tax,” Couper, a senior vice president, says, referring to California’s top rate of 13.3%, the highest in the nation. (Florida has no income tax.)

Do the math
Take a Los Angeles-based advisor who makes $250,000 a year. At her bracket’s rate of 9.3%, $23,250 goes to California state coffers each year. Now say she moves to West Palm Beach, Florida, with the same salary, and stays there for the rest of her career. Assuming an annual investment return of 6% over 30 years, she would have an additional $2 million by the time she retires. Couper, 34, who also once worked out of Wealthspire’s New York City office, calls the tax savings “a pretty big motivation” for his move. That and the climate: “The Pacific’s freezing. I wakeboard, and golf a lot more often.”

There’s no hard data on how many advisors have moved to low-tax or no-tax states during the past two years — or during any period. In April, New York City mayoral candidate Andrew Yang claimed that 300,000 Manhattanites, including many high earners, had fled the city during the past year for Texas and Florida. In recent years, hedge fund managers have decamped from Connecticut, New York and New Jersey for Florida to escape high bills from state revenue agencies and blunt the cost of the $10,000 SALT cap on state and local deductions, which includes property taxes.

Anecdote isn’t evidence, but it does suggest that further down the money-making food chain, some investment advisors are now making the same moves.

Ed Cofrancesco, the CEO of International Assets Advisory, a hybrid broker-dealer/RIA headquartered in Orlando, Florida, says that within his own firm, around half a dozen advisors had left for sunnier, less expensive locales since COVID began in early 2020. “A couple of guys from New York, New Jersey and Connecticut went to Florida” — Fort Lauderdale, Jupiter Island, Jacksonville and Orlando, he says. One advisor moved from San Francisco to Phoenix; still another quit his affluent Chicago suburb for Dallas. While Arizona taxes its top earners at 8%, that's well below California’s rate. Texas has no state income tax, affording the same savings as Florida.

Cofrancesco’s advisors continue to meet with their original clients via Zoom and telephone. But the pandemic only accelerated a trend of meeting remotely, he says: “A lot of advisors out there have practices that are not local-based. A lot of people don’t physically see clients that often.”

With the adoption of remote work and Biden’s calls for tax hikes, “there are real opportunities for financial planners, and their partnerships, to realize significant tax savings,” says Nishant Mittal, a senior vice president and general manager of business travel at Topia, a San Francisco-based company that helps companies with business travel and employee moves. He says he’s been working with advisors “who decided they don’t need to be in New York, they don’t need to be in California.”

Sunshine Express
Mittal says he personally knows around two dozen advisors in Manhattan, most of them with Morgan Stanley and JPMorgan Chase, who recently relocated to Florida to reduce their personal tax bills. With the pandemic, “they say, ‘why don’t I save on the New York state and New York city tax since I don’t have to be in the office?’” He adds it’s likely that “hundreds, if not thousands” of advisors have recently gone south to cut their taxes.

New York City residents who earn more than $1.1 million pay an extra 3.9% tax on top of the state’s nearly 9.7% levy. The very top earners pay a combined local and state bill of nearly 14.8%, now the highest such burden in the nation.

Advisors sometimes move to follow their richest clients (most broker-dealers offer primers for wealthy Boomers seeking to retire in Florida; here are ones from Merrill Lynch and Raymond James). But increasingly they’re worried about President Joe Biden’s moves to raise the top federal tax rate nearly three percentage points to 39.6% for single filers making around $524,000 — and to impose that rate on long-term investment profits for people earning at least $1 million.

Louis Diamond, the president of Diamond Consultants, a recruiting firm that caters to financial advisors and wealth management firms, says that COVID “has definitely accelerated” moves south: “A lot of advisors are realizing they don’t need to be tied to their original office and can work remotely.” The play is particularly attractive for planners who are looking to cash in by selling their practices to a private equity firm. “We’ve seen a lot of advisors move in anticipation of selling, to protect their windfall,” he says.

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At the same time, moving an entire business can open up costly multistate tax issues, depending on where an RIA’s clients are located. On the tax front, “your everyday advisor at LPL or Ray Jay would be fine moving,” says Jeff Powell, the managing partner and chief investment officer at Polaris Wealth Advisory Group, an RIA in San Rafael, California. But the tax calculus is different when an RIA with clients spread out over many states moves its headquarters to another state.

Breaking tax residency is hard to do
Lowering one’s tax bill by changing one’s status from New York City resident to Florida resident involves oddly specific hurdles. One includes the so-called “teddy bear test,” which looks at whether an advisor took all his treasured personal items with him. An advisor who holes up in a Miami condo to Zoom with clients for half the year while keeping or renting an apartment in New York still owes the New York city and state levies.

In general, New York taxes residents if they own or rent property there and were physically in the state for more than 183 days — even if one day consisted of 15 minutes to pick up a package.

What if an advisor rents out his Brooklyn apartment for the year and moves to Miami to ride out the pandemic? Then he owes the levies, because his apartment is a “permanent place of abode,” according to New York’s Department of Taxation and Finance. “A lot of advisors don’t know this,” Mittal says, “and these people are in for a huge, huge surprise."