Our financial situation has changed greatly as a result of a recent move to Canada. This move is not permanent however, and I'm curious what differentiates a cross border financial planner from someone who operates only in the US or Canada?
Canadian and American citizens cross the 49th parallel for many personal and professional reasons. Additionally, temporary and permanent cross-border movements enhance the complexity of investment management and financial planning. The primary cause for this situation is that taxable and retirement assets are accumulated on both sides of the border. Relocating without proper planning often results in a disjointed financial plan that manifests into higher taxation, poor estate planning and enhanced risk. Prior to a move, it is important to recognize that significant differences exist between Canada and the U.S. when it comes to financial planning and investment matters. Individuals with cross-border planning requirements should review their situation with a team that has a comprehensive cross-border platform with which to address their unique needs.
It is important to note that it is difficult to locate an advisor who is legally licensed or authorized to provide financial advice on both sides of the border. This is because few firms comply with applicable regulations or have the appropriate structure. The overwhelming majority of Canadian advisors are solely authorized to provide advice on Canadian investment accounts or to a Canadian domiciled client. The same is applicable for U.S.-based advisors. For example, one might accumulate Canadian assets such as RRSPs, TFSAs, pensions, taxable accounts and U.S. assets such as IRAs, 401ks, 529s, annuities, etc.
There are common pitfalls when hiring non-affiliated, single country investment advisors. First, the investment strategy and philosophy employed by one advisor is often different than the other advisor. Second, both advisors may invest client assets in similar investments, unknowingly increasing risk due to lack of diversification. Third, neither advisor comprehends the taxable impact of their investment approach in the context of a cross-border tax strategy. Forth, financial planning initiatives do not incorporate cross-border assets. Fifth, non-aggregation of assets often add to management costs. Last, many advisors will recommend that clients move cross-border assets to the country in which that advisor is registered to conduct business. Unfortunately and all too often, this is not in the best interest of the client. The optimal strategy is to employ an advisory team that has the ability, platform and knowledge to manage assets on both sides of the border under one cohesive strategy.
Clearly, it is important to incorporate a financial plan with an advisory team that is well versed in the Canada-U.S. tax treaty. The Canadian and U.S. tax systems operate under unique mandates. This dichotomy creates the risk of "double taxation" for expatriates. Double taxation occurs when both Canada and the U.S simultaneously tax the same income during the same tax year. The Canada U.S. tax treaty is the most powerful tool for mitigating double taxation. It is also noteworthy that Canada and the U.S. exchange citizen and resident tax information. This collaborative approach allows both governments to pursue and punish tax evaders.
An experienced cross-border attorney should analyze an existing estate plan prior to a move. In like manner, a U.S. cross-border attorney and a Canadian cross-border attorney are often consulted when assets remain on both sides of the border. Cross-border estate planning is a sophisticated field and is subject to frequent change. The estate planning laws in Canadian provinces and in U.S. states are not uniform, which can lead to different interpretations. Tax ramifications, ease of administration and financial objectives should all be considered when constructing a cross-border estate plan. Collaboration between cross-border financial advisors, CPAs, CAs and other practitioners creates a cohesive strategy and is highly recommended. Importantly, a knowledgeable cross-border financial advisor has the ability to identify shortcomings and work under a team approach.
There is no "one size fits all" cross-border financial planning strategy. Therefore, it is important to partner with a qualified team of tax, legal and investment professionals who specialize in Canadian and United States cross-border transitioning and asset management. Please contact Cardinal Point Wealth Management at http://www.cardinalpointwealth.com/US/contactus.html to review your unique situation.
"Cross-border financial advisor" is not any type of term of art or professional designation of note. Many advisors, including me, have clients with international connections: U.S. citizens living abroad, non-U.S. citizens working in the United States, individuals or firms with assets and/or liabilities outside of the U.S., or some combination of the foregoing.
The main point you and your advisor will want to keep in mind is that your lifetime liabilities (the present value of your future expenses) will depend, in part, on the Canadian dollar exchange rate. As long as your advisor understands this point, and how to account for and hedge this exposure, it really does not matter where your advisor is physically located.
I recommend that you work with a fee-only advisor to avoid the conflict of interest inherent with a commission-based broker. It also would help if your advisor has familiarity with international investments and FX risk.