FINANCIAL PLANNING


International Clients: Don’t Dabble, Refer

By Raoul Rodriguez

Sometimes, good intentions and a little knowledge are dangerous. This is especially true when working with clients with significant financial entanglements outside the U.S. In 25 years of practicing internationally, I often encounter practitioners who won’t refer away clients despite their lack of international competence or, where required, foreign accreditation. Thus, I’m highlighting the importance of getting expert advice and, in some cases, giving up clients as a crucial and necessary step to representing a client’s best interests.

3 Areas of International Planning

International planning can be divided into three distinct practice areas: inbound planning, outbound planning, and cross-border planning. In a U.S. context, inbound planning deals with what U.S. laws and regulations say about assets and people moving into the U.S., while outbound planning deals with the U.S. perspective on assets and people moving out of the U.S. In both cases, we are looking at planning issues from the perspective of one country. Note that a country’s outbound planning has a counterpart in the inbound planning for the other jurisdiction. Cross-border planning addresses the planning perspectives of at least two different jurisdictions.

The Minimum You Need to Know

It is essential for any CFP® professional working with U.S. clients1 with international issues to, at the very least, be familiar with the U.S. consequences of international planning in terms of the client’s unique goals, needs, and situation.

For example, U.S. clients may need specialized help if they:

The U.S. has many unique laws that apply to persons in situations like these, making general financial planning often insufficient or even inappropriate.

Taxes and Other Problems

For example, consider the possible U.S. tax complications. These include the requirement to file uncommon informational returns, unique ways to calculate cost basis, additional federal taxes on certain foreign investments, restrictions or other requirements for gifts made or received, and different tax rates on various sources of income if international treaties are in force, to name just a few.

Not only is U.S. compliance itself complicated (and expensive!), but penalties for noncompliance often start at $10,000 per form submitted and can go much higher. Willful noncompliance can result in criminal referrals.

The operative word for the U.S. tax side is “complex,” and that is even before we get into the minutiae of estate planning, risk management, multicurrency cash management, and country risks, among other areas that may need to be addressed.

At the crux of the matter is the inconvenient fact that a U.S. person living abroad is often subject to tax in both the U.S. and in their other country. This is a unique feature of U.S. tax law.

As a result, for every single transaction, we may need to consider the tax implications from the perspective of both the U.S. and the other country.

Other Countries’ Perspectives Matter

Each country of the world has its own take on transactions undertaken by its residents. What makes for rational planning from the U.S. perspective could be disastrous—maybe even illegal—from the perspective of that other jurisdiction. But how are we going to know what that other country thinks about a proposed recommendation? We often don’t, and that is the point.

Professionals often deal with holes in their knowledge by saying upfront, “We are only able to advise on U.S. issues” and recommending that the client consult with a professional abroad because the professional on the other side of the border will be able to advise on local law.

The instinct to recommend that a client consult a subject matter expert in the relevant foreign country is good, but that’s a pretty weak answer for an advisor offering “comprehensive” financial services. Often, those foreign experts have serious gaps in their knowledge, too. The key is that they are unaware of the U.S. tax consequences of any local recommendations. Ironically, unless they are working with U.S. and non-U.S. professionals with the necessary cross-border experience, the client may be worse off.

Cross-Border Expertise Is Necessary

A U.S. person needs a plan that works in both countries at the same time. In other words, a cross-border plan. A cross-border financial planning professional has the expertise to provide competent advice in at least two different countries. For example, a U.S.-Canada cross-border financial planning professional is an expert in both U.S. and Canadian taxes, investments, estate planning, and insurance products.

Ideally, the cross-border financial planning professional is a CFP® professional in both countries of claimed expertise (see “Cross-Border CFP® Certification” at the end of this article).

Decide If Your Client Should Be Referred Away

Depending on the client’s situation, you may be able to work with them if you have U.S. inbound and international outbound planning expertise. Or you may need to reach out to other professionals in the U.S. and abroad with appropriate expertise.

If your client resides in the U.S. and has international interests, much will depend on the nature and value of those foreign interests. Are these only beneficial interests, or are they valuable assets? If they’re assets, does the client have a single bank account with minimal assets, such as U.S. $100, abroad? Or does the client have 90% of their net worth or a business or a pension and two rental properties abroad? The more complex the situation, the greater the need to work with a cross-border financial planner.

If your client lives abroad, they are likely to have complex planning needs, and there may be regulatory issues that prohibit you from working with them. These clients are best served by cross-border planners.

Where to Look for Help?

International financial planning is becoming more popular as a specialty, so today there are more international practitioners than ever. There are several organizations you can consult with if you have a particular need. For example:

Don’t Risk Harming Your Clients!

We do not know what we do not know. What is evident is that typical U.S. planning advice is often inappropriate, even harmful, for those with international issues. As fiduciaries, we need to recognize that fact. Don’t dabble. Instead, refer to international and cross-border financial planning professionals as appropriate.

 

Cross-Border CFP® Certification

A CFP® certification program exists in 27 different jurisdictions, according to the Financial Planning Standards Board (FPSB).2 While there are relatively few cross-border experts, there has been enough interest in dual certification that the FPSB and various countries have adopted rules to facilitate and regulate cross-border practices.3

Not all countries have a CFP® program, so it may be necessary to work with professionals who have gained their expertise via a different pathway. However, when professionals are providing financial planning advice to clients with U.S. interests, at the very minimum, they should be U.S.-certified CFP® professionals.

Certification may be important for reasons of compliance, in addition to competency. If the client resides abroad, their country’s securities authority may not look favorably on advice given to its residents unless that advisor is appropriately registered and licensed with the local authorities.

 

1. I use the term “U.S. clients” to mean persons who are U.S. citizens, U.S. permanent residents, or U.S. tax residents.
2. “CERTIFIED FINANCIAL PLANNER Certification Program,” Financial Planning Standards Board. 
3. “Holding CFP Certification in Multiple Territories,” Financial Planning Standards Board.

Raoul Rodríguez is a U.S. CFP® practitioner and enrolled agent with 25 years of experience working within the international space. His expertise is in U.S.-Mexico cross-border planning. Raoul can be reached at raoul.rodriguez@marinerwealthadvisors.com. The ideas expressed in this article are his own.

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