Your whole life you have done things correctly: worked hard, saved and prudently invested your money. Then one day, out of the blue, you receive a letter from your U.S. investment management firm saying they no longer want to work with you because you reside outside of the U.S. Worse yet, they give you 90 days to transfer out your account or risk having your holdings liquidated. Whether it is a taxable or tax-deferred investment account, a forced liquidation and closure of your account can have severe tax consequences. Furthermore, it can have a devastating effect on your long term retirement and savings goals. While the above scenario sounds dire, it does not mean you should make a rushed decision and simply partner with the first firm that confirms they can take over the management of your account(s). Instead, take the opportunity to rethink what advisory firm would best serve your long-term interests as a non-resident. In other words, seek out a true cross-border wealth management firm that can not only deliver on the investment management piece but also provide ongoing value added cross-border financial, tax and estate planning solutions. The last thing you want to do is work with another firm that does not specialize in working with non-residents of the U.S., only to find out down the road you are once again being terminated from their platform.
So what characteristics should you be looking for in a true cross-border wealth management firm? The following checklist is a good starting point for selecting a company that’s right for you:
Cross-border platform – Make sure the firm and its advisors are legally licensed and registered in the jurisdiction you reside. Confirm they are not restricted on how your investment account can be managed based on your non-resident status.
Fiduciary vs. Suitability – It is important to confirm that the firm’s advisors operate under the fiduciary standard of care, which is a legal requirement that an advisor act in the best interest of his or her client. The fiduciary standard helps eliminate conflicts of interest. In contrast, the less stringent suitability standard adheres to a rule in which recommended investments must merely be “suitable” for but not necessarily in the best interest of a client. Most large investment brokerages, banks and wire houses operate under the suitability standard.
Fee-only – Finding an advisory firm that is fee-only and is not compensated by commissions, trading fees or financial products can eliminate conflict of interests between the advisor and the client.
Business Model – You cannot be all things to all people. Advisors who claim they work with four or five different categories of clients (retirees, small business owners, professionals, divorcees, expats, etc.) fall back into that “generalist” category. If you want to be an expert in what you do, focus on your niche. A financial firm with a business model of working exclusively with cross-border clients is typically better suited to handle expats or non-residents of the U.S.
Credentials, Experience and Education – Just because an advisor has a certain credential, doesn’t mean that they are an expert. That being said, when looking to partner with a cross-border financial advisory firm, make sure to review the bios of the individuals working at the company. Have they been working with cross-border clientele for a long time? Do they have education or credentials in certain areas that focus on assisting cross-border clientele?
Cross-border Team – When building and preserving wealth, you’re only as strong as your weakest link. In other words, you may find a firm that can deliver on the investment management piece, but can they provide the ongoing cross-border or expat financial, tax and estate planning services you require? Look for a cross-border team that has dedicated portfolio managers who specialize in managing money for expats, and has international or cross-border tax experts and cross-border financial planners. All of these individuals have unique skill-sets that complement one another. Finding a firm that can provide comprehensive cross-border financial planning services in an integrated and coordinated fashion ensures no stone is left unturned when reviewing your situation.
Understanding of Tax – Understanding the tax rules and regulations of the jurisdiction in which you reside is extremely important when providing investment management services to non-residents. Further, if you are a U.S. citizen living abroad, you must also ensure the investment management strategy is tax managed based on U.S. tax rules. For example, the Passive Foreign Investment Companies (PFICs) rules will impact almost all foreign-traded mutual funds and ETFs. Ensuring you are not subjected to the punitive tax rules associated with holding a PFIC is critical. Make sure the firm you choose has a strong understanding of tax rules impacting non-residents and expats.
While no one wants to be faced with a surprise “move your investment account or else” deadline, don’t feel pressured to move your account to the first firm you speak to. Do your homework. Look to partner with a true cross-border wealth management firm that is positioned to provide long term value in addressing your unique and ongoing cross-border financial planning requirements.
Tags: cross border financial advisor, cross border tax planning, Canada us financial planning