Clients who don't have a dually licensed advisor at risk of falling into 'purgatory' of planning
For the average person, financial planning can be a complicated exercise that considers investments, taxes, estate planning, and many other moving parts. For those who move from one country to the other, the situation is even more complicated – and finding professional help is a bigger challenge.
“In my almost two decades of doing this, I’ve learned there's been a real need for cross-border planning and advice, and that need has not been fulfilled very well,” says Tanya Wilson, senior wealth advisor and associate portfolio manager at Gold Seal Financial Group with Wellington-Altus Private Wealth.
While cross-border clients represent a specific niche within the wealth space, the ones Wilson works with represent a vast diversity of human experience. She says some of her clients moved to the Great White North in order to start a new life, whereas others only stay for a temporary period of time, whether for a job or other personal circumstances.
"I have a number of recent clients who are U.S. citizens, and they moved to Canada because they have a partner here,” she says. “Before Covid, it was relatively simple for one person to hop on a plane and visit the other. But that changed when the pandemic struck, so they made the decision to be with their partner long-term.”
Each planning situation is different, but Wilson sees some recurring challenges during tax season. For example, while the principal residence exemption shields Canadians from having to pay tax on the increased value of their primary residence when they sell it, the same may not apply for dual citizens that have tax filing requirements in the U.S.
“The U.S. doesn’t recognize our tax exemptions, so for those clients, selling their primary residence in Canada may not be tax-free,” she says. “In the U.S., the first $250,000 of the growth in the value of their residence could be exempt from tax. But the remaining growth may be taxable, and it’s a lesson many dual citizens learn the hard way when selling their home in Canada.”
Another common wrinkle, she says, has to do with investments. Broadly speaking, U.S. citizens who own Canadian mutual funds and Canadian investment accounts could end up triggering additional reporting requirements to the U.S. tax service, which may view those funds and accounts as passive foreign investment companies.
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From a larger planning perspective, she says a lot of difficulties arise when clients have assets on both sides of the border, and have a separate advisor for each half of their portfolio. What often results, she says, is that the client gets disjointed financial planning and can end up following misguided advice.
“I find that in those situations, the two advisors don’t generally talk to each other. They work in silos,” Wilson says. “It’s like a patient having two doctors, and each one doesn’t know what drugs the other is prescribing.”
The ideal situation, she says, would be to have one advisor who has a full view of the client’s financial picture. Unfortunately, she says the majority of Canadian and U.S. financial advisors are not dually licensed on both sides of the border.
“Most advisors want to do really good work for their clients. However, if they’re a Canadian advisor whose client moved to the U.S., it’s very unlikely they can consider serving that client,” Wilson says. “The client goes into this purgatory of not being able to work with anyone, depending on their residency, because sometimes the wealth advisory firm isn’t able to provide the full cross-border service.”
That gap, she says, is what drove her to become fully licensed in Canada and complete the required Series 37 and Series 63 courses to be licensed in the U.S. Still, she recognizes that clients with dual citizenship need more than just a cross-border advisor in their corner.
“I think it's really important for clients to work with one trusted cross-border advisor when they have cross-border ties,” she says. “And it’s important for that advisor to work in close connection with that client’s trusted cross-border accountant, as well as a team of experts who can understand their full financial picture.”