A common question that we encounter from private clients moving across the Canada-US border is, “Why can’t I just leave my portfolio with my current advisor/broker/portfolio manager?”

There are many nuances to consider regarding cross-border portfolio management, such as whether you have a good working relationship and history with the investment professional or group, whether the investment platform is sufficiently broad and diverse to meet your current and future investment needs, and whether the firm your investment professional is associated with is compliant to work with clients from a cross-border perspective.

In this blog post, I will clarify some of the regulatory issues regarding cross-border compliance.

Investment Industry Regulations

In both Canada and the US, advisors, brokers, and portfolio managers (“investment professionals” for simplicity) need to meet minimum requirements, including education, training, and relevant work experience before becoming licensed to work with clients. In Canada, the relevant regulatory bodies are the Investment Industry Regulatory Organization of Canada (IIROC) for advisors and brokers and the provincial securities commissions for portfolio managers. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are the relevant regulatory bodies in the US.

Cross-Border Reciprocity

While there is recognition and reciprocity of investment credentials on both sides of the border, investment professionals who are licensed only in Canada or the US need to formally apply for registration with the relevant regulatory entity across the border so that their education, training, and work experience is recognized.

In my experience, most firms are unwilling to embark on the cross-border reciprocity process because of their strong focus on domestic or regional clients and an unwillingness to incur additional legal complexity, risk, and reporting. It’s a business decision on their part not to serve clients who decide to move countries.

Client Solutions

Despite these challenges, there are a variety of ways to address the regulatory issue:

  • Some Canadian firms may have special teams with properly registered individuals who can work with non-resident clients moving to the US. While you will remain a client of the firm if you take advantage of this option, you would likely be severing the working relationship you have with your current investment professional.
  • Most US firms are not interested in cross-licensing because the US domestic market is so large, and losing a few individuals to a rival – and compliant – firm, regardless of asset base, isn’t worth the additional complexity.
  • Typically, registered accounts (RSPs, RIFs, and LIRAs in Canada; 401Ks and IRAs in the US) can be maintained with the investment professional in the country of origin; however, this will vary from firm to firm and from individual to individual within the firm; a firm might be registered to be eligible to work with cross-border clients while the individual investment professional may not be.

Regardless of whether a client is southbound or northbound, MCA has encountered all the situations listed above. We can help clients restructure portfolios within an existing, compliant firm or group of advisors, or, if necessary, we can work collaboratively with your current advisor to transition the assets to a new, compliant investment professional in the new country. At all times, our overarching goal is to implement solutions that comply with both investment and regulatory requirements.

An interesting follow-up question then arises: who is responsible for managing and overseeing asset allocation at the total portfolio level if different investment professionals are independently managing individual components on their respective sides of the border? I will outline some of the strengths and challenges of the multi-manager approach to portfolio management in a future blog entry.

In addition to tax strategy and financial planning, our team of experts at MCA Cross Border Advisors Inc. can also provide an independent review and analysis of your investment portfolio and help structure it so that it continues to meet your investment objectives and risk tolerance while remaining compliant with regulations on either side of the border.

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MCA Cross Border Advisors, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.