As the growing international economy and prevalence of virtual communication continue to flatten the world, millions of individuals are finding it easier to cross national borders, leaving their native countries for opportunities to work and live abroad, whether going from the US to other countries or coming from other countries to work and live in the US. Yet crossing international borders introduces a number of unique issues and challenges, from financial reporting obligations to tax complexities, moving money across currencies to moving retirement benefits between countries… which on the one hand creates a unique opportunity for financial planners to specialize in the needs of cross-border clients to differentiate themselves… but also increases the burden of what financial advisors must learn to be able to effectively provide advice to an international clientele.
In this guest post, Ashley Murphy – Founder and Executive Director of the Global Financial Planning Institute in Minneapolis, MN – shares a framework for financial advisors to classify common issues that arise with inbound or outbound cross-border clients, and discusses some of the main challenges that advisors must be aware of when working with an international clientele. Additionally, he offers resources and suggestions for financial advisors to expand and hone their knowledge of the issues that their cross-border financial planning clients require from them.
The types of services cross-border planning clients require from financial advisors can often be categorized by their particular stage of transition with respect to crossing national borders. These stages include 1) Pre-Move, 2) Acclimation, 3) Global Integration, and 4) Retirement and Independence. Each comes with unique planning issues, and by identifying the specific transition stage that applies to their client, financial advisors can more readily pinpoint their international clients’ current needs and anticipate what they may require in the future. For example, clients in the Pre-Move stage may need help with immigration logistics and pre-move planning, banking and cash management, and ironing out family issues (e.g., identifying education standards for children, work options for spouses and other family members, etc.), whereas clients in the Acclimation stage may need help with worldwide tax questions and establishing or transitioning retirement plans. Clients in the Global Integration stage might need more help with longer-term immigration planning and coordinating and allocating their worldwide assets, and clients in the last retirement and independence stage may have the ‘usual’ planning needs (e.g., retirement and estate planning), but advisors will need to understand the international aspects of these areas to help their clients effectively.
Cross-border planning clients have unique considerations that financial advisors must take into account when helping them set their financial planning goals. For nearly every international client, advisors should know how long the client expects to stay in their destination country; the US and foreign tax implications of all income sources, including any capital gains; the protocols in place for foreign investment and performance reporting; and the account transfers that the client will need to make, along with the logistical issues that may arise from those transfers (especially when these transfers are between different countries). Notably, advisors should also be cognizant of Foreign Bank Account Reporting (FBAR) requirements and potential penalties related to Passive Foreign Investment Corporations (PFICs) that may affect their clients.
In addition to helping clients identify goals, advisors also must be familiar with the resources and services that their clients will need to make progress toward and realize their goals. For instance, advisors should be able to identify appropriate products (e.g., life insurance, disability insurance, investment funds, etc.), suitable broker-dealers or custodians to service their clients (as many won’t accept international clients, due to the additional compliance burdens), and competent experts to step in when specialized services are needed (e.g., international tax planning professionals and estate planning attorneys).
When it comes to servicing international clients, financial advisors will have their own operational needs. For instance, an advisor with cross-border clients will need to understand the relevant regulatory and licensing requirements in place with the foreign countries where their clients are located. They may want to review their Errors & Omissions (E&O) coverage to ensure that exposures unique to their international clients’ planning needs (e.g., trading in foreign securities) are sufficiently covered by their policies (which isn’t always the case). Furthermore, advisors may even wish to review their business model to ensure they are servicing their international clients most profitably, as the traditional AUM model (which typically is reliant on a long-term US-based portfolio) will not always be the best solution for the advisor.
Finding suitable products and service providers not only for clients but for financial advisors themselves can be a challenge when there may be limited means available to vet such products and services. However, there are resources to help advisors with their international research needs, such as the Financial Planning Standards Board (FPSB), which oversees international CFP certification standards, and the Global Financial Planning Institute (GFPI), which offers resources specifically to support advisors with international clients.
Ultimately, the key point is that while advisors with international and cross-border planning clients need to understand a wide range of rules applicable to the other countries in which their clients reside and be able to access services and products that their clients may need, there are resources and specialists available to the advisor that can help them serve their clients effectively. And because of the growing community of expats around the globe, financial advisors may find it worthwhile to establish competency in these cross-border financial planning issues to help their international clients… no matter where they may live!