International and cross-border financial planning is one of the most common yet least understood areas of professional expertise in financial planning. There are 40 million foreign-born individuals living in the United States and 9 million Americans abroad. Serving these clients requires specialized knowledge to avoid major pitfalls.
Financial planning for the average client comes with its fair share of challenges—but tax, retirement and estate planning become all the more complicated when working with clients whose financial lives cross borders. Whether temporary or permanent, short-term or long-term, expatriate status presents multiple stumbling blocks for financial planning. The exact details of these hurdles vary depending on the countries involved but several challenges are universal. Financial professionals must be aware of these concerns when working with international clients. In this article we shall define what international and cross-border financial planning is, the different stages of planning an international and cross-border client progresses through, and the different types of international clients. We will highlight the differences between domestic planning and international and cross-border financial planning, look at the challenges in working with international and cross-border clients, and, lastly, provide resources as to where to find answers to common questions.
International and Cross-Border Financial Planning - What is it? Planning Stages and Types of Expats
The Definitions and Differences in International, Cross Border & Domestic Financial Planning
Financial planners must recognize the challenges of international and cross-border planning and be aware of the resources available to serve expat clients.
Financial planners engage in domestic planning when they work with a client whose entire financial life takes place in a single country. Coverage of domestic planning engagements is ubiquitous in mainstream financial planning literature. Some planners may not realize that what they consider “financial planning” is actually just “domestic planning.” For very many clients, however, comprehensive financial planning requires the planner to understand cross-border issues. Depending on the client’s needs, at any given moment a planner may engage in inbound planning, outbound planning, or cross-border planning.
● Inbound planning: Inbound planning applies when clients and/or their assets move into a country, e.g. an individual moving from abroad to the US. This category of global planning includes strategy and guidance before and after arrival in a foreign country. For instance, in the case of a non-citizen moving to the US, inbound planning involves helping clients to take care of their financial concerns in their home country and acclimate to the US’s financial system (i.e., its tax, retirement, investment, insurance, and related concerns).
● Outbound planning: This type of planning caters to clients and/or their assets moving out of a country. An American person planning to move abroad exemplifies a client in need of outbound international planning. It involves pre-departure preparation, such as helping an American client understand their financial obligations as a US taxpayer abroad and tie up their loose financial ends in the US. For these clients, advice is typically tax-focused (e.g. retirement account transfers, taxation of US assets, and tax-residency planning). If working with a US citizen, they will also require advice with regards to their ongoing financial reporting and investment constraints.
● Cross-border planning: Cross-border planning describes a comprehensive financial planning approach that accounts for a client and/or their assets from the perspectives of both countries involved in an international move. Arguably the most specialized type of financial planning, advising for cross-border clients requires knowledge of each country’s financial system as well as how they interact.
Advice by Stage of Move
It is important to consider the client’s stage of transition. Simply put, an international move is a complex process, with distinct strategy and guidance required for each stage. Broadly, these include i) Pre-departure, ii) Acclimation, iii) Global integration, iv) Independence and Retirement. Advisors must be prepared to address specific concerns at each stage, and work with clients as they transition through these phases.
Expatriate clients may consult with a financial advisor before their international move, as they first arrive, or well after moving. When an expat client ultimately seeks advice has a profound impact on the financial planning engagement. As shown in the chart above, the issues that influence a client’s financial life change through the stages of transition. Also, the longer a client waits before engaging with a planner, the more likely they are to experience a pitfall, and the more complicated it may be to gather data, and coordinate their financial life across borders.
Different types of International and Cross-Border Clients and their Advice Need by Stage
The expatriate population is hardly uniform. The term “expatriate,” or expat for short, is generally understood as an individual who resides in a country that is not their native one. The word also describes individuals who renounce citizenship to their native country. Advisors working with expats must thus be cognizant of this distinction as well as the individual’s intent to remain abroad.
Because clients come from all walks of life in terms of location, citizenship, and residency, there is no single investment, tax, or general financial strategy that fits all expat circumstances. For this reason, it is crucial for advisors to understand the different types of international clients and each group’s unique needs.
Generally, expatriates can be categorized as one of three types based on their intent to remain abroad:
Temporary movers are typically in their new country less than 3 years. Given their shorter stay, temporary movers rarely require in-depth cross-border planning as they will generally keep the majority of their assets in their home country as they’re not in the US long enough to accrue significant wealth.
These tend to be limited scope engagements and these clients rarely proceed beyond Stage 2: Acclimation. Advice needs are mainly focused on a brief overview of the US financial system and how to make the most of their time while avoiding pitfalls.
The most forward-thinking temporary mover may engage prior to their move. But, more typically it is only after they’ve landed and realize there’s a whole new financial system to learn.
Period/Domicile Uncertain Movers have been in the country for several years already with no specified return date - but they’re not certain they'll stay, either. They’re aware that they’re beginning to accumulate sizable assets within the US and they will likely have loose ends in their home country that need attention.
The focus of advice for these clients is maintaining global financial flexibility. More specifically, this can mean avoiding major tax traps, making long-term immigration plans, and buying, selling, and maintaining real estate across borders. Planning that takes into consideration both countries is optimal. These clients tend to go as far as Stage 3 - Global Integration.
Permanent Movers plan to stay in the US the rest of their lives. Most permanent movers will have been in the US for some time already. Their identity has likely shifted to being less of an expat and more of an American. For these clients, there’s likely a finite set of tasks that need to be performed to resolve whatever foreign financial complications remain before an engagement focuses on more traditional domestic financial planning such as retirement planning topics included in Stage 4: Independence and Retirement Planning. Depending on their age, length of stay in the US and location of family members, these topics may necessitate cross-border planning.
For clients who have just recently moved to the US but have already decided to make their stay permanent, the initial focus of work will be on global integration of their financial lives. For instance, they would initially require advice about the IRS’s reporting requirements and investment restrictions for their foreign accounts before forming a plan on how to transition these accounts.
Above all, it is important for financial planners working with expats to recognize that this group is not a monolith—in other words, individuals living in another country often have unique situations that require differing planning approaches.
Consider the following examples:
● An American expat moves abroad for a temporary work contract and rents a home. They intend to return to the US after the contract expires.
● Another American expat moves abroad for a temporary work contract and buys a home. They sell their property in the US, as they do not intend to return.
● Yet another American expat moves abroad for a temporary work contract and buys a home. However, they maintain their property in the US, without necessarily having made up their mind as to whether they will stay. Their idea is to rent the home where they’re not living.
There are countless more situations, like individuals on working holidays, for which there is simply no one-size-fits-all solution. Comprehensive planning thus makes all the difference for individuals anticipating a cross-border move, whether permanent or temporary.
Challenges in Working in international and Cross-Border Planning
Expatriates in the U.S. and American taxpayers working abroad encounter the complete gamut of financial planning challenges when it comes to tax, investments, retirement, and estate planning. As such, planners must be prepared to:
● Explain the difference between residence and domicile in determining various types of residency
● Help clients understand the financial impacts of terminating citizenship vs. keeping it
● Present a global balance sheet totaling clients’ worldwide assets and liabilities in a base currency
● Determine the tax reporting obligations of foreign assets
● Offer guidance in how to choose an appropriate global custodian and how to cost effectively and risk appropriately conduct foreign exchange.
● Advise on the best course of action for the transfer of overseas retirement accounts
● Most expats will be eager to maximize their financial position across their global holdings. For these clients, it is crucial to explain the financial pro’s and con’s of each different country and provide clear guidance in achieving the best outcome possible within the regulations of one’s given locations.
Given these complexities, how can a financial planner gain the expertise necessary to serve expat clients well? They must rise to the following challenges:
Awareness of issues and pitfalls affecting International and Cross-Border Clients
Not unlike working with any other specialized form of financial planning (e.g. divorce, special-needs etc), the most basic challenge in working with International and Cross-Border Clients is simply knowing what the pertinent issues are.
International and cross-border financial planning is littered with pitfalls that could have a massive financial impact on a client’s financial life. Two of the most commonly witnessed relate to Passive Foreign Investment Corporations (PFIC) and Foreign Bank Account Reporting (FBAR). Gains in offshore investment holdings that fall foul of the PFIC rules are taxed at the highest marginal income tax rate in each year the investments are held. A fine of up to 50% of the asset value may be imposed on foreign bank/investment accounts wilfully concealed.
Moreover, financial advisors may work with any one of a wide permutation of expatriate clients—for instance, an Australian temporary mover in the U.S., an American permanent mover in Mexico and so on. Consequently, U.S.-based international and cross-border advisors must be familiar with, or know where to go to obtain answers on a wide range of financial issues from a transnational standpoint, including taxes, banking and money transfers, health and life insurance, investment accounts and estate planning.
Compared to working with domestic clients, there is additional information one must gather to appropriately serve a cross-border client. Additional fact-finding involves country of origin, migration history, location of family (especially children), domiciliary intentions (i.e. where do they think they'll be living in the short, medium, and long-term), accrued assets/pensions, and all foreign income, savings, assets, and liabilities.
Gathering this data is not always a simple process. Expat clients may not have ready access to all of their data, particularly if they left their home country many years ago. Financial planners working with international and cross-border clients must therefore be especially diligent in the data-gathering phase of the financial planning process.
Goal Setting and Strategizing
Cross-border clients also face unique goal setting and strategy issues. Some of the issues that must be addressed for inbound/outbound planning and cross-border planning are listed below.
For Inbound & Outbound Planning
● Determining the length of time a client expects to spend in the destination country
● Determining the US tax implications of foreign sources of income and capital gains
● Finding a custodian that will accommodate an international move
For Cross-Border Planning:
● Gaining familiarity with the pairwise tax/totalization/estate treaty, if applicable
● Making retirement account transfers
● Determining the treatment of capital gains taxes (i.e. which nation gets taxing rights)
Taken together, these first three challenges show that the onboarding process for working with cross-border clients is generally lengthier and more intensive than is the onboarding process for domestic clients. A related challenge of working with cross-border clients, then, is managing the client relationship during the relatively longer period between the first meeting and when recommendations are ultimately presented.
Financial Statement Presentation
For cross-border clients, it is also pertinent to create a global balance sheet that tracks an individual’s assets, liabilities, and equity on a multinational scale. This grows more complicated when attempting to show asset allocation of investment accounts. A complete statement detailing the entirety of global clients’ finances helps both the advisor and client set realistic financial goals and mitigate against unforeseen challenges.
Learning about the pro's and con's of financial products offered in one country vs another.
Cross-border advice often means making a recommendation about where a client should retain certain kinds of insurance or where they might consider holding investments. Without intimate knowledge of the pros and cons of different countries' financial systems, it is not possible to make an informed recommendation.
For instance, take the example of life insurance between Australia and the United States. When purchased through the Australian retirement account system, Superannuation, life insurance premiums are tax deductible, while the same premiums are almost never deductible in the US.
The cost of coverage in Australia is often much higher than it is in the US, even when accounting for the tax deductibility of premiums in Australia. Furthermore, death benefit proceeds received by a US resident citizen beneficiary of a US policy is almost always tax-free, but in Australia, a beneficiary deemed a non-tax-dependent of the insured will find the death benefit is taxable.
Further nuances exist, but an advisor working with an American taxpayer in Australia or an Australian expatriate in the US would need to be cognizant of this distinction in the first place to provide the appropriate recommendation. And while it is generally preferable to purchase life insurance in the US, there may be instances where a client is better off purchasing a policy in Australia given restrictions in underwriting criteria.
And, consider that the above example concerns just one product and only two nations! Complicating matters further, the diverse possibilities inherent in international and cross-border planning necessitate specialized knowledge of the financial products available in a specific country. Not only must advisors understand the advantages and disadvantages of different products relevant to a specific client, but they must also be aware of which products are more favorable for them based on their location, the products’ suitability, and the client’s ability to access these products.
Finding suitable products/service providers
Even after determining the suitability of products and services in the cross-border context, there remains the additional barrier of finding suitable product and service providers. Cross-border clients generally require all the same providers as a domestic client, plus some more. Foreign exchange and international accounting, for example, are common cross-border services unique to cross-border clients. It is also common to require the services of a more specialized advice provider such as an immigration attorney or tax attorney.
As is the case with domestic planning engagements, some specific providers are more suitable than others. Some providers offer higher quality products and services, some offer lower cost and more value, and others offer more prompt and courteous customer service.
To determine the suitability of a provider, a planner might look to professional association networks, reviews, peer recommendations, or their own experience: all of these sources of information may be more restricted in a cross-border engagement.
Compounding this issue is that, even if a planner identifies a suitable provider, they may decline to work with your cross-border client at all!
Broker Dealers and Custodians
Finding a broker-dealer and/or custodian who will service your offshore client can be especially troublesome.
International clients face a restricted set of financial products and services compared to their local counterparts. In fact, various financial institutions, both foreign and U.S.-based, restrict or will close the accounts of existing American clients living abroad—or refuse service to begin with. And, given the ever-changing compliance laws in countries around the world, and differing interpretations of those laws, custodians that may have supported clients in a particular country at one point, may abruptly cease service.
US custodians will work with client’s in specific countries outside of the US but not others, and not overlap each other. This is in large part due to growing offshore tax enforcement efforts and legislation like the 2010 Foreign Account Tax Compliance ACT (FATCA), which set additional compliance rules for financial institutions serving U.S. citizens, residents and green card holders. Banks and other financial institutions perceive more compliance risks from working with this population and have imposed restrictions as a result.
These concerns are of course not limited to US expatriates. Banks, brokers and other financial institutions may hesitate to work with any international client regardless of their nationality. Alternatively, some may be willing to serve an international or cross-border client but simply lack the know-how for their specific needs. Advisors working with international clients must thus identify custodians that are both willing and qualified to work with more diverse clientele.
Immigration Status and Residency
Cross-border recommendations are affected by a multitude of issues that simply don’t exist within domestic planning engagements. Of particular note are issues related to residency and taxation.
Planners must be aware of the various definitions of residency from both a legal, tax and estate tax standpoint. First off, residency and domicile are distinct concepts. Any given person may only have a single domicile - the location they intend to stay permanently. On the other hand, they may have different residencies despite living in a single location. For example, a person may not be a legal permanent resident of the US while living in the country on a temporary visa. Yet, for tax purposes, they may be considered a resident who must pay state and federal income taxes. And yet a third definition of residency may apply for estate planning purposes if that person dies without a clear legal residence. Given these complexities, it is possible (or likely) that a client will not know his or her own various tax residency or domicile statuses. Thorough data gathering, then, may require the planner to utilize specialized tools and resources to fully determine a client’s residency classifications and subsequent tax obligations in different countries.
These sorts of issues are not limited to immigrants to the US. US citizens are subject to a worldwide tax net that is relatively unique among the nations of the world. US citizens who reside in other nations - particularly if they also earn an income in those nations - must be careful to understand their tax obligations and reporting requirements to their host country and to the US. Failure to carefully comply with these requirements can be extremely costly and result in criminal or civil penalties.
Regulatory and licensing
Financial planners working with cross-border clients, then, have a relatively difficult - and expensive - regulatory environment. Different countries have different financial regulatory systems. If you’re providing advice to a client who is resident overseas, or advising on a US based client with assets overseas, do you know whether you’re providing advice in a manner compliant with regulatory obligations?
Advisors working with international clients may find themselves in a difficult position with regards to licensing and compliance. Can an advisor be said to have made a good-faith effort to operate compliantly in a foreign jurisdiction if they haven’t read the foreign financial regulations nor are appropriately licensed?
Certain countries (such as Australia) take a residency-based approach to the regulation of financial advice—that is, an advisor providing advice to a resident of that country, unless an exemption applies, is required to be licensed regardless of the location of the assets being advised.
Obtaining appropriate Errors and Omissions insurance coverage
The wide geographic scope of expatriate clients and the concomitant knowledge required to competently serve them increases the likelihood of a planning mistake. This is especially pronounced in the area of retirement account transfers, where advice on what tact a client might take can literally save or cost a significant percentage of an account.
The most common category of claim on an Errors and Omissions policy in the United States relates to investment losses. Investment losses in a cross-border context can be magnified when currency fluctuations are introduced. The question is whether one’s domestic E&O policy will even cover trading activity in non-US-based securities.
The key here is to review your policy and your exposures. Unlike those that work only with domestic clients, advisors that serve cross-border clients need to confirm their coverage specifically covers trading in foreign securities. Will your Errors and Omissions insurance provide coverage for investments in foreign securities? Earlier in his career, the author was surprised to see a specific exclusion in his E&O insurance on foreign domiciled stocks.
Having a business model that allows you to serve expats profitably
Another major challenge in working with expats is devising a profitable business model. Unlike domestic accumulation phase clients, expats commonly have either the bulk of their money overseas and intend to keep it there or are seeking to transfer their US assets overseas in short order. This is anathema to the Assets Under Management business model that presupposes a long-term portfolio.
Investment Information and Reporting
Investment management of a global portfolio is a challenge not just from avoiding PFIC pitfalls and appropriately allocating a portfolio but researching foreign investment and performance reporting.
A shortlist of pitfalls include:
● Failure to notify clients as to their tax reporting obligations under FATCA, where penalties may be as much as 50% of the asset value for willful non-disclosure of a foreign bank or investment account
● Failure to identify the presence of Passive Foreign Investment Corporations (PFICs) within the portfolio of an American tax resident abroad. This would leave that investor exposed to punitive PFIC taxes and reporting.
● Failure to advise clients on the tax inefficiencies of certain types of U.S. retirement accounts (e.g., Roth IRAs, Roth 401(k)s, HSAs) that may end up being double-taxed in the event of an overseas move.
Inadvertently stumbling through one of these pitfalls can clearly cause major harm to a client!
Identifying Resources & Attaining the Competence to Serve International and Cross-Border Clients
Of course, advisors cannot be expected to know every section of the U.S.’s Internal Revenue Code or the tax code of any other country. Nor can they be expected to track all changes in international law that might affect a client. For this reason, advisors working with expatriates must be aware of credible resources to turn to when seeking information for their clients. After all, any wrong information perpetuated by an advisor could trigger unfavorable tax obligations or other financial mishaps, loss of reputation and risk legal action from a client.
Unfortunately, there is a dearth of qualified experts on the subject of inbound/outbound international and cross-border financial planning. Moreover, the resources that exist—such as documentation about financial services in different countries—are not consolidated in any single site or location; indeed, they’re often behind membership paywalls. This challenge presents another problem in itself: a high barrier to entry into international and cross-border financial planning.
Resources and where to go to find out more:
● Global Financial Planning Institute (GFPI; https://www.gfp.institute/)
○ The GFPI offers education, tools, resources, and a community for cross-border financial planners and other financial services professionals. Among its offerings is a Global Financial Planning Master Class that considers cross-border issues in a 10-week webinar format.
● The Society of Trust and Estate Practitioners (STEP; https://www.step.org/)
○ STEP sets international trust management and estate planning standards, educates member practitioners, and upholds its standards. Additionally, it seeks to inform public policy on best practices in international estate planning and help connect families with practitioners. They’re based in the UK with chapters all over the world.
● Association of International Certified Public Accountants (AICPA; https://www.aicpa-cima.com/)
○ The AICPA provides education, support, and advocacy for accountants around the world. In particular, it confers the Chartered Global Management Accountant (CGMA) certificate to accountants with a specialization in global accounting.
● California Society of Certified Public Accountants (Cal CPA; https://www.calcpa.org/)
○ Cal CPA hosts an international tax conference with a focus on personal financial concerns. Like the AICPA, they also provide education and support for accountants, particularly those serving clients in California, where many expats live.
● The Internal Revenue Service (IRS; https://www.irs.gov/)
○ The IRS is the primary source for information on international tax laws and treaties, include the Foreign Account Tax Compliance Act (FATCA) and Foreign Banks and Financial Accounts (FBAR).
○ The “Big Four” routinely write white papers on issues relevant to cross-border financial planning and other financial services. These white papers help professionals digest the relatively sophisticated and dense language of the laws and treaties.
● Other cross-border specialist service providers
○ Cross-border financial planners should develop relationships with other financial service professionals who specialize in this space. Tax and immigration attorneys, CPA firms, bankers, brokers, and others who serve cross-border clients have a wealth of experience and resources that can greatly inform financial planners.
● Community forums with other financial planners
○ There are at least two community forums of financial planners who work with cross-border clients. Such forums allow members to discuss cross-border planning issues, seek referrals, and gain assistance with specific planning issues. Members of the Financial Planning Association can join its International/Cross-Border Knowledge Circle while members of the XY Planning Network can join its International and Cross Border Community Forum.
Developing and Maintaining Competence
To be clear, some advisors may be perfectly well-intentioned in attempting to serve their international clients in a compliant manner; however, because they are not well versed in the field, they might not be aware of certain pitfalls they’re leading their clients into and proffer less than what the CFB Board’s Code of Ethics and Standards of Conduct would define as “competent” financial advice.
A CFP® professional must provide Professional Services with competence, which means with relevant knowledge and skill to apply that knowledge. When the CFP® professional is not sufficiently competent in a particular area to provide the Professional Services required under the Engagement, the CFP® professional must gain competence, obtain the assistance of a competent professional, limit or terminate the Engagement, and/or refer the Client to a competent professional. The CFP® professional shall describe to the Client any requested Professional Services that the CFP® professional will not be providing.
Without awareness of the issues and pitfalls, additional facts to gather, compliance and licensing requirements, having appropriate E&O insurance, being able to locate suitable products/service providers, knowing the relative pros and cons of each country’s financial systems, obtaining foreign investment information and a global performance reporting tool, how can a financial planner possibly serve the client competently, compliantly and professionally?
Besides developing one’s own competence, a financial planner may better serve clients by partnering with other financial service professionals who serve cross-border clients. Depending on the specific need, a planner may choose to establish ongoing working partnerships with CPAs, attorneys, bankers, or others. Such partnerships allow the planner to quickly refer clients to these individuals when necessary. And, these professionals may also refer prospective clients back to the planner.
Larger financial planning firms may choose to hire one or more specialists onto their staff. For example, a financial planning firm that consistently serves clients in the “pre-departure” or “acclimation” phases may benefit from keeping on retainer an immigration attorney. Such a firm would then be more of a one-stop-shop for clients as they grapple with both the legal and financial aspects of their transition. Generally speaking, the presence of inhouse specialists enhances working relationships among the financial service professionals as well as between the professionals and the clients. On the other hand, inhouse specialists are also generally more expensive to the firm relative to external partners.
Given the challenges in obtaining knowledge and education specific to international and cross-border planning, the lack of specific resources available, the planning pitfalls, the liability exposure, the need to devise a profitable business model, and the difficulty of finding a custodian or product provider who will actually work with your client in the first place, it is safe to say that not all financial professionals are adequately prepared to serve international clients.
Whether it’s a foreign citizen in the U.S. or an American abroad, the financial advisory landscape for any international client requires significantly more preparation than for a domestic client. To act in accordance with the CFP Board’s definition of competence, it is the responsibility of international and cross-border advisors to stay up-to-date on wealth management issues pertaining to international and cross-border clients and to understand the challenges of working with this group in the first place.
And, given these challenges, some readers may wonder whether it is worth the effort to serve expat clients at all! People around the world are more mobile than ever, fluidly changing location for both personal and professional reasons over the course of their lives. There is already a large expat community around the globe and this community only appears to be growing larger at an accelerating pace. Moreover, these well-traveled clients are also more wealthy than the typical person and more in need of financial planning. Developing competency in cross-border financial planning may therefore be well worth the effort for financial planners hoping to work with this growing client base.
We recognize that, for many planners, it is too time-consuming to develop cross-border competency - particularly if they serve few cross-border clients. What if you have a question on a limited, country-specific issue? Or, what if you have a client going abroad or coming from abroad now? If these questions speak to you, your best option at the moment is likely to seek help from your peer planners in the FPA International/Cross-Border Knowledge Circle and XYPN International and Cross-Border community forum. These planners may be able to answer your question, help you themselves, or provide a referral. That said, whether you find help there depends on the kindness of strangers. Fortunately, efforts such as the Global Financial Planning Institute are underway to better provide cross-border support and resources for the financial planning community.
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Deloitte. “FATCA Frequently Asked Questions (FAQs).”
Deloitte. “Taxation of foreign nationals by the US—2016.”
Financial Planning Association of Miami. “International Financial Planning: The New Frontier.”
International Tax Blog. “U.S. ‘State’ Tax Residency (Domicile).”
KPMG. “U.S. taxation of Americans abroad.”
Round Table Wealth Management. “Investing as an American Expat.”
Thun Financial Advisors. “Why U.S. Accounts of Americans Abroad Are Being Closed.”
The CPA Journal. “U.S. Tax Residency.”