Miami offers pitfalls and possibilities

Few cities took a harder hit in the recession than Miami, and the city’s all-important real estate sector may never recover. For the clever adviser, however, pockets of opportunity remain.

“This is a high-profile city,” explained one Miami resident. “Especially at the low end, you’ll find people who’d much rather have a flashy car than a decent house.” So it’s perhaps all the more tragic in such a visually oriented city to see so many foreclosure properties in what was a real estate paradise.

With the economy still fragile, it’s easy to conclude that the best thing for an adviser is to hang a shingle somewhere else, but well-focused professionals can still carve out profitable niches.

Dennis Nason, a former financial executive who now runs an executive search firm in Miami, tells advisers to be equally aware of pitfalls and possibilities.

“There’s probably some $425 billion in investment funds available,” and about 75% of the financial institutions advising on that money are “carpetbaggers’ — that is, headquartered outside of the South, he said. “So there’s lots of opportunities for niche players. You only need a small piece of the pie to become successful.”

‘ON THE FRONT LINES’

“We were on the front lines of the recession,” said Mr. Nason. In September, the Miami unemployment rate stood at 12.1%. Real estate led the way down, and although Miami may always remain a destination for those seeking warm winters, the consensus is that it was grossly overpriced. “We’re getting closer to the real normal now — of course, many suffered meanwhile.”

For now, he sees other opportunities. Tourism is getting a boost from a pair of Royal Caribbean cruise ships that dock near Miami. And sports is another possible niche, with the Heat, the Dolphins, the Orange Bowl and frequent Super Bowls, as well as auto racing. “Sports is major part of our industry, providing direct and indirect employment.”

Probably the most obvious aspect of Miami is its international flavor. More the two-thirds of the population (69.4%) identifies itself as Hispanic or Latino, according to Census Bureau data.

“Miami clientele is heavily immigrant,” said Elaine King, a certified financial planner who is a vice president at Gibraltar Private Bank and Trust. “This is a melting-pot city.” She suggests that advisers brush up on their Spanish and educate themselves on international financial issues.

“Miami is a gateway to Latin America,” said David W. Roda, chief executive of Roda Asset Management LLC. “For those who can manage offshore funds and combine that with language skills, this is a great place to be.” Residents of Latin America have vacation homes in the Miami area. “They’re frequently on business and like dealing with U.S. institutions,” Mr. Nason said.

He is also counting on an obscure piece of legislation to boost business for smaller-niche advisers: the Foreign Account Tax Compliance Act of 2009, which he said will give the IRS greater authority to look into banks doing overseas business. “It’s going to have the effect of driving businesses into smaller boutiques.” These will likely be RIAs with lower reporting requirements.

THINK SMALL

For advisers who find international finance overwhelming, there are other possibilities if they think small, as in small-business and professional offices. “We’ve long been an entrepreneurial capital,” said Mr. Nason, who pointed out that Miami has little in the way of large corporate structure, with a minimal presence among the Fortune 500.

Although the recession has left Miami with few major banks to provide capital, leading to a credit squeeze that has hindered small companies’ ability to grow, some advisers are doing well.

Jack Patterson, a CFP who works extensively with small-business owners, witnessed firsthand how the recession hit Miami: He watched as one by one, his neighbors in his office building departed, until he thought he’d be the only one left. “Small companies were not getting financing, and those that were getting financing faced harsher terms,” he said. Mr. Patterson noted that low-capital businesses did better, however, and saw more optimism among that group.

In fact, he has some new neighbors in his building, such as a certified public accounting firm and a beverage distributor.

Steven Foldes, a CFP and lawyer, works with other professionals, such as doctors, dentists, lawyers and CPAs, as well as small businesses. Financing, he believes, is less of a problem than the general business environment. “The general complaint is a decline in business — customers are just spending less.”

Miami would seem to be the ideal place to carve a retiree niche: 28.6% of the population is 55 or older. “We’re a home to the elderly,” said Meg Green, a CFP. Florida doesn’t have any snow — or a state estate tax or income tax, for that matter. That makes it very compelling for people to come here and retire and most are very careful to follow all the rules to establish Florida residency even if they keep homes up North, she said.

However, they often leave their money home too — keeping their original hometown advisers. “So it becomes a challenge to serve these bistate people, but some have a lot of money and will want someone local to help them.”

HUNGRY FOR BUSINESS

This isn’t news to anyone, which is why brokerages are continually hosting free dinners to get retirees to buy annuities. One adviser quipped that retirees who plan their days carefully will never have to buy another restaurant meal again. So the business is there — but advisers will have to work for it.

For Miami natives, the retirement market may be even tougher: Mr. Patterson said that small-business clients, feeling economic pressures, are not putting aside enough money for retirement.

As noted, Miami’s demographics skew heavily to Hispanics and the elderly. According to Census Bureau data, the work force is spread fairly evenly: 26% in management, professional and related occupations; 23.5% in service occupations; 24.3% in sales and office occupations; and 15.8% in construction, extraction, maintenance and repair occupations.

Only 11% of Miami households have incomes of $100,000 or more, but that can be deceptive: In nearby Coral Gables, for example, median income is around $120,000 and houses are still going for $400,000 or more.

Despite small signs of recovery, there is no question that Miami is still reeling. But as any successful adviser knows, “problem” is just another way of saying “opportunity.”