Although the impact of COVID-19 has somewhat limited mobility from country to country, we’ve seen a greater interest in individuals and families who are considering — for lifestyle, political or other reasons — moving to another country. These are typically residents looking to purchase property or spend time in other countries, or those who already own property.

For these clients, financial planning is critical, and it becomes more of a process and not just a transaction or an end to itself. With different immigration income and estate tax rules, a fluctuating currency and the regulatory hurdles from various federal, state and provincial jurisdictions, there are unique financial planning issues that need to be considered. If not taken care of or adequately addressed, this could create not only a frustrating headache, but potential liability exposure to you and financial losses to your clients. Advisors should be aware of these differences and the sources to tap for additional information and how best to serve those living, or moving permanently or temporarily, between countries.

There are a significant number of citizens of your own country who live or work abroad, so there’s a rather large market for potential clients who you might need to serve in this area. As part of a comprehensive cross-border financial plan, all these areas must be considered.

Paths and rules

Clients can’t just move to the country of their choosing just because they want to. There are specific rules and generally a legal immigration process they need to go through first. (Please seek advice from immigration or estate planning counsel or attorneys as needed.) If we quickly look at the issues related to immigration, we can see there are a number of paths to get clients — as I like to call it — from here to there.

The first thing we often look at is where they were born, as this path might then provide them with the opportunity to sponsor their spouse or other family members to live in their country of birth.

Some countries provide employment, business or investment visas that we can look at for clients. This might lead to permanent residency. Some visas are temporary, which means the financial, tax or planning implications for these clients will be very different for those who are looking for long-term residency or ultimately citizenship. Other countries provide retirement visas if you can demonstrate your ability to provide for yourself from a financial — and, in some cases, a health care — perspective.

Financial accounts and products

Steer clear of errors made with clients’ investment accounts or insurance products — an area where we see significant abuse by clients and/or their advisors. Clients usually have bank investments, retirement accounts and insurance products in one country while living in another — or they may have them in both countries. If this is the case, you as the advisor might have restrictions on your ability to properly manage or administer accounts and products the client might have. This is generally because of restrictions imposed by the insurance company or investment custodians you or your clients might be working with.

There may also be regulatory hurdles imposed by federal, state and provincial authorities and your compliance officers as well. Therefore, it is important to know what you and your client can and cannot do with respect to their investment accounts or insurance products.

Mistakes in this area can be costly from an income tax perspective and could have legal implications for you and the company you have a relationship with. Many of the large institutional custodians in various countries will go as far as to boot folks off their custodial platforms. This is without consideration of the size of the account or the ultimate tax implications that might be created. The regulatory liability to the firm and the advisor is the primary consideration for why many institutional custodians are making these choices on behalf of your clients.

Do not attempt to escape these challenges by using an alternate address to make it look like your client still lives where you are licensed or registered. This is a serious mistake that we see often. In many cases, custodians in both countries can see where clients are logging in to their accounts from. The tax and investment management planning related to your client’s tax residency is critical and could become jeopardized because of different accounting for how cost basis is determined in one country versus the other. Furthermore, certain types of tax-favorable investments in one country might not be tax favorable in another country your client might reside in.

Banking and currency exchange

Instead of using a traditional retail bank, we often recommend clients use a wholesale foreign exchange provider. The savings for your clients can be significant, and most of these firms will guarantee to beat the retail rates. The only time we see retail banks being competitive is if the client has a significant private banking relationship, and the bank is willing to do whatever it takes to keep their clients happy.

General awareness of these common mistakes in cross-border financial planning will help you avoid potential issues and line up sources to tap for additional information when your client excitedly tells you about their new overseas adventure.

View Ritchie’s presentation from the 2021 MDRT Annual Meeting Virtual Event at mdrt.org.

Terry Ritchie is a cross-border specialist. He practices and lives in both Canada and the U.S., and consults on behalf of individuals, corporations, legal and financial professionals, and professional athletes on either side of the border. Contact him at terry@cardinalpointwealth.com.