Charles Schwab CEO says investors are 'de-risking' and diversifying
NEW YORK, May 1 (Reuters) - Investors have responded to the market turmoil throughout April by dialing down the level of risk they are taking and making some shifts in their asset allocation in favor of bonds and non-U.S. stocks, says Charles Schwab CEO Rick Wurster.
"Most investors are staying the course," Wurster said in a Reuters NEXT Newsmaker interview on Thursday morning.
Still, 61% of clients reported feeling bearish during April, according to a poll conducted that month, compared to only 32% in a similar poll during the first quarter of 2025, data from Schwab showed.
Trading volumes, which hit record levels early in April following U.S. President Donald Trump's tariffs announcement, tapered off as the month progressed, but client engagement levels remained high, Wurster said.
"We set an all-time record" for calls and online contacts with clients during the heightened volatility, he said.
Overall, Wurster said few clients made dramatic adjustments to their asset allocations in April but that those whose portfolios included non-U.S. stocks, bonds and some commodities noted they benefited from that diversification.
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President Donald Trump said on Wednesday the handshake deal reached in London between American and Chinese negotiators was a "great deal," adding, "we have everything we need, and we're going to do very well with it. And hopefully they are too." And U.S. Treasury Secretary Scott Bessent said there would be no "quid pro quo" on easing curbs on exports of AI chips to China in exchange for access to rare earths. But China's chokehold on the rare earth magnets needed for weapons systems remains a potential flashpoint. China dominates global production of rare earths and holds a virtual monopoly on refining and processing. A deal reached in Geneva last month to reduce bilateral tariffs from crushing triple-digit levels had faltered over Beijing's restrictions on critical minerals exports that took shape in April. 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For over a century, Britain has been a hub for wealthy expats escaping political tumult, oppression or simply seeking better opportunities. From the 'White Russians' fleeing the Bolshevik revolution to wealthy Chinese seeking a safe haven for their capital in the 2010s, the UK was a magnet for the rich. Now, though, the flows may be reversing. After Labour's move to scrap non-dom status and overhaul inheritance tax, there are growing signs that the 1pc may be fleeing. 'I'm still here, counting the days I'm allowed to stay, waiting for a miracle, which is not going to happen,' says 55-year-old Magda Wierzycka, who has lived in Britain for half a decade. Wierzycka fled Poland as a refugee under communism in the early 1980s before settling in South Africa, where she made millions. In 2019 she moved to the UK to start a venture capital business. 'We brought in about £500m and invested it in British innovation. Five years in, I effectively get told 'We don't need your money, and we don't want you in the country'.' Wierzycka, who was a non-dom until the status was abolished, can now only stay in Britain for 91 days a year before incurring tax on her global earnings and gains, with a lower limit on how many days she can work. As a result, she is reluctantly planning to return to South Africa. Reeves's decision to raise taxes on people like Wierzycka was a calculated gamble. The Chancellor hopes that most of the rich will choose to stay in Britain and pay higher taxes, boosting public coffers by £5bn a year. The money will help pay for free breakfast clubs for children and plug gaps in stretched public finances. Yet the list of wealthy emigres has been growing steadily since tax changes took effect April. It includes people like South African national Richard Gnodde, Goldman Sachs' best paid banker outside the US, Aston Villa co-owner Nassef Sawiris and steel magnate Lakshmi Mittal. Those are the names we know of. How many others are leaving? 'We really don't know anything at this stage,' says Arun Advani, an associate professor of economics at the University of Warwick. 'The only way to know about what non-doms are doing is to look at the tax data. The data for the last tax year that ended in April, people don't even file those taxes until January of next year. 'Late filing is particularly prevalent at the top of the income distribution, where the £100 late fee is not really that costly. We don't really get that information here until, in I guess, 18 months.' It will be a nervous wait for the Chancellor. If 25pc of non-doms quit the UK, the Treasury would make no extra money from scrapping the tax status. If a third left, the UK would lose £700m in the first year of the policy, according to the Centre for Economics and Business Research (CEBR). 'I love this country,' says entrepreneur Bassim Haidar, who was born in Nigeria but has Lebanese citizenship. 'We really integrated. We've made amazing friends.' He left before the changes took effect on April 6 and now splits his time between the United Arab Emirates, Greece and Italy. 'Just like we adapted here, we will adapt somewhere else.' Tipping point Predicting an exodus of the wealthy has often been a case of the boy who cried wolf. Yet several studies suggest something big may actually be under way this time. Even before Labour took power, Swiss bank UBS said the UK was on track to see the biggest departure of dollar-millionaires out of a group of 56 countries by 2028. Henley & Partners, which makes money from helping the world's wealthy move around, claimed Britain saw a record exodus of almost 11,000 millionaires last year. Some of its data was based on flimsy metrics like the locations people list on their LinkedIn profiles, however. The most robust analysis so far has come from Bloomberg, which found a surge in the number of directors moving abroad after analysing 5m company filings. Around 4,400 directors reported an overseas move in the last year, it said. The figure likely includes non-doms and British nationals moving in protest over recent tax changes. This includes stripping away inheritance tax business relief, a policy that could potentially force the sale of family businesses to pay tax bills. The changes also abolished the more than 200-year-old non-dom status in April, replacing it with a residence-based regime. This grants well-heeled newcomers four years of reprieve from being taxed on their foreign income and gains. However, in a major change, anything you own anywhere in the world – like a stake in your family business – becomes subject to UK inheritance tax after this period, and for up to 10 years after you leave. Non-doms have been a target for the taxman for a while. Jeremy Hunt, the former chancellor, cut back on the tax breaks in April last year before Reeves scrapped the relief altogether. Many non-doms say this was their tipping point. One describes it thus: 'It's like boiling a frog, except in this case the frog can jump out of the water.' 'Desperate situation' There were 68,900 non-doms living in Britain in the 2022 tax year, the latest HMRC data shows. They are typically employed in lucrative professions and are highly mobile. You would expect a high share to leave in any given year, which can make it difficult to discern genuine trends without hard evidence. One place to look for clues is in London's most well-heeled neighbourhoods. At private members' club Walbrook, in the City of London, between 20 and 50 clients have cancelled their memberships as a result of the tax changes. 'The exodus actually began last year,' says managing director Philip Palumbo. 'The City seems to lack confidence, purpose. It feels over-taxed, over-regulated, and we are haemorrhaging good people to artificial places like Dubai, which is just so unacceptable.' Wealth advisers tell clients that memberships, including for gyms and private clubs, can be used by the taxman to prove residency. As a result, other clubs have resorted to offering shorter-term options of up to 90 days, news reports suggest. It is not just clubland that is suffering. 'Very definitely, there's a reduction of customers – certainly customers from the Arab countries who had residences in London. They come here [in] far fewer [numbers] now,' says Brian Lishak, the 86-year-old co-founder of Savile Row tailor, Richard Anderson. There has also been a drop in demand for butlers and nannies, according to Joshua James from Super Private Staff. His firm helps source household staff for the very rich. 'We have observed a notable decline in the high-end household recruitment market in London. It's clear that opportunities are shifting. Strong demand is emerging in regions like the Middle East, Monaco, and America.' A surprising side effect of Reeves's tax changes may well be an exodus of Britain's finest butlers and nannies. 'It is worth saying, the appeal of a butler or nanny with a British accent remains attractive internationally,' James adds. Buyers of London's poshest houses in areas like Mayfair, Knightsbridge and St John's Wood are seeing financial crisis-level discounts, according to Savills. Prime central London prices are a fifth lower than at their peak in June 2014. The estate agent blamed the non-dom tax changes and stamp duty hikes. Interior designer Phillippa Thorp has witnessed several non-dom customers leave. 'Businesses like ours have survived on rich bankers and rich people coming here from all over the world. They've had their families here for 20 years, they would never have left but for this mad own-goal,' she laments. Thorp fears the skilled tradespeople she relies on such as painters and bronze workers will struggle to get by as a result. 'We're losing them and we're losing their skills, and they will never come back. It's desperate, the situation. There are an awful lot of people who don't know what to do. Should we let some people go? Do we pray that the Government is going to do something right for once? It just seems like one disaster after another,' she says. 'I can safely say it just gets worse. If I was a young me, I would never, ever start a business here.' Thorp's case underscores the broader risks from the tax crackdown. Few of Labour's voters will shed a tear if the super-rich decamp to Monaco or Dubai. But the exodus has a broader economic impact. It is measured in fewer pounds spent in Michelin-starred restaurants, fewer donations to galleries to support blockbuster exhibitions or wings, and fewer people employed to help and serve the wealthy, among other things. 'I had 16 staff [in the UK] – drivers, property managers, and so on,' says Haidar, the Nigerian-born Lebanese businessman. 'I'm down to two now. These guys have lost their jobs.' London's loss, Dubai's gain Just how big the eventual economic impact is depends on how many of the wealthiest choose to leave. 'It would be safe to say that a large number have left, full stop,' says Simon Gibb, a partner in the London private wealth team of Trowers & Hamlins. 'That is largely to do with the removal of trust protections both for income and capital gains tax, but ultimately inheritance tax was very much a deal-breaker.' Non-doms have traditionally sheltered income earned from foreign businesses by placing it in a trust abroad. However, such trusts will now be subject to a British inheritance tax bill of 6pc every 10 years after they die as long as it exists. Those inheriting the business may have to sell chunks of it to pay the tax bill, Gibb says. Many are more concerned about the tax rates in death rather than in life. The UK's loss is other countries' gain. Britons were the second biggest foreign buyers of property in Dubai last year. Philippe Amarante, managing partner at Henley & Partners Middle East, says the United Arab Emirates is welcoming the wealthy with open arms. 'It's pro-migration. It can take you five days or two days even to come to Dubai and set up the company. It will take you a few days, a few weeks, to set up local domestic bank accounts and get you going,' he says. Parents who in the past came to Britain to put their children through school are now going to Dubai, he says. 'The clients that we have are saying ' you don't have knife crime, right? You don't have fist fights in the school courtyards'. The UK – particularly with crime and other elements – maybe the overall proposition has somewhat decreased.' Andrew Griffith, the shadow business secretary, says: 'It is a crisis of the Government's making. If [Reeves] would reverse the provisions about bringing global assets within UK inheritance tax, this flight from the UK would end tomorrow.' The issue is rapidly rising up the political agenda. Richard Tice, a Reform MP and the party's deputy leader, warns that Britain is 'seeing the greatest brain drain and wealth drain in my adult lifetime'. 'Every day of the week, I hear people say 'my friends are leaving,'' he says. 'It's truly terrifying. All these ludicrous people from the Left thinking the solution to our problems is to have a wealth tax. There won't be any wealth left in the country. It's a mobile world. This is a battle royale of hearts and minds.' Reform, which is currently polling as Britain's most popular party, has pledged to reverse the non-dom changes and scrap inheritance tax completely. The promise would leave a shortfall just shy of £20bn in public finances by the end of the decade, which Tice says would be filled 'by scrapping stupid net zero' amongst other things. A big mistake? The Treasury always expected people to leave in response to the non-dom and inheritance tax changes. The problems arise if more people go than expected. When Reeves announced her changes in October's Budget, the Office for Budget Responsibility (OBR) said the measures would raise £5.2bn a year by the end of the decade. This reflects only the direct tax take, not wider impacts on investment, staff and businesses relying on these very wealthy individuals. The fiscal watchdog assumed that 12pc of non-doms without trusts and 25pc with trusts would go. However, the OBR warned that predicting behavioural responses was difficult. Reeves has softened some measures slightly since October after a backlash from the wealthy, but the OBR said the tweaks did 'not materially affect' its forecasts. Britain relies more on high earners than many other countries, with the top 1pc paying 28pc of all income tax. If you broaden it to the top 10pc, the figure rises to 60pc of receipts. The Chancellor risks getting no revenues at all from the policy if more than 25pc of non-dom taxpayers leave, according to analysis by the Centre for Economics and Business Research. If as many as half relocate, Reeves could end up with a black hole of £12.2bn a year by the end of the decade in a worst-case scenario, the CEBR said. Chris Walker, a former Treasury economist, recently published a study suggesting 10pc of non-doms had already left by the end of last year, though it was based in part on the Henley & Partners analysis focused on LinkedIn. Regardless, Walker says: 'I think the OBR and the Government have underestimated the behavioural response. My gut instinct is that the Government probably won't lose money. But I would be surprised if it got even half of the £34bn it's projecting over five years. It's either going to be tax rises or spending cuts or a combination of the two to fill any gap that arises.' Advani, the economist, is less concerned about a wealth exodus. He believes there will be an initial spike and then the departures will tail off. Other people will also come in their place under the four-year regime, he expects. But he warns: 'It seems to me completely crazy that we've designed a regime that will continue to be a huge discouragement from people investing in the UK. That seems like a really big mistake.' 'Tax me more' Anyone betting on another Labour about-turn on the issue is likely to be disappointed. Those on the Left argue that the exodus of the wealthy is simply fabricated. 'All I can say is I don't see that,' says Stephen Kinsella, who describes himself as a 'patriotic millionaire'. 'I have lots of friends who have more money than I do. The people I talk to have got serious money. Most of them have their kids at school here, their family is here, and they just like the life and the culture and everything else this country offers you.' Kinsella is part of a lobbying group of wealthy individuals pushing for a 2pc wealth tax on anyone with more than £10m of assets to help repair Britain's crumbling state. People who claim there is a wealth exodus 'have such a vested interest', he argues. 'Who's more credible – them or us? I'm someone who says 'tax me more'. It would make no sense for me to do that if I genuinely believe that a lot of wealthy people would leave and therefore the UK tax take would go down. 'The wealth management companies have an interest in talking this up and talking up interest in their services. I'm not saying that being cynical, but it's obvious this narrative suits them.' Alex Cobham, the chief executive of Tax Justice, claims the whole notion of a wealth exodus has simply been whipped up the media and others who benefit from it. 'Anyone who says that they can tell you anything definitive about that is either kidding themselves or they're not being straight with you,' he says. 'Where did the spin come from that took these really thin and questionable numbers and turned them into this kind of headline news of 30 stories every day throughout 2024?' Cobham claims there is 'solid evidence' that tax changes generally lead to only small waves of migration among millionaires. 'Everybody's starting point should be that there isn't a significant concern here,' Cobham says. Regardless, lobbying groups are still trying to convince the Government to backtrack on some of the changes. Leslie MacLeod-Miller, founder of Foreign Investors for Britain, says: 'It's not just tax revenues, even though the non-doms contribute approximately £9bn per year in tax. Some families were spending between £20m and £40m a year on their services. Those go to cleaners, shopping, restaurants or hairdressers. The golden geese are leaving. I want to try and keep them here.' Some non-doms are stubbornly holding out hope too, but optimism is fading. Wierzycka is still hoping 'that some reason prevails'. She is sad to leave. So are many others. 'I think the UK is one of the greatest countries on the face of the planet,' says one wealthy foreigner who is reluctantly headed to Dubai with his family. 'I have a huge affinity for this place, and I'm leaving because the financial impact on our family is so substantial.'
