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.
The expatriate population is hardly uniform. 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:
Beyond accounting for the nature of a client’s move, it is also important to consider their stage of transition. Some expatriate clients consult with a financial advisor before their international move; others do so as they first arrive while others look for counsel well after moving.
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.
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 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.
For instance, in the case of Australia and the United States, the tax deductibility of life insurance premiums is dissimilar, with non-deductible premiums in the U.S. but deductible premiums in Australia for those paid through a superannuation fund. The death benefit proceeds received by a U.S. resident citizen beneficiary of a U.S. 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 U.S. would need to be cognizant of this distinction in the first place to provide the appropriate recommendation.
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.
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, 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.
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 mightn’t be aware of very clear 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 shortlist of pitfalls include:
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 in that country regardless of the location of the assets being advised.
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 U.S. assets overseas in short order. This is anathema to the Assets Under Management business model that presupposes a long-term portfolio.
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-U.S.-based securities. The key 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.
Finally, 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.
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 U.S. 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.
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 not only stay up-to-date on wealth management issues pertaining to international and cross-border clients, but of course, understand the challenges of working with this group in the first place.
Baker McKenzie. “Global Financial Services Regulatory Guide.”
Deloitte. “FATCA Frequently Asked Questions (FAQs).”
Financial Planning Association of Miami. “International Financial Planning: The New Frontier.”
Round Table Wealth Management. “Investing as an American Expat.”
Thun Financial Advisors. “Why U.S. Accounts of Americans Abroad Are Being Closed.”
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