Cross-Border Challenges And Other Issues In Today’s Financial World

Last fall I was honoured to receive the Top Under 40 Award from the IIAC (Investment Industry Assn. of Canada) and in no small way am indebted to those who helped me along. Indeed, building a portfolio of $100 million in assets under administration in seven years has a great deal to do with hard work, drive and customer service.

It also helps to have a focus, and my focus – and that of the Sartorial Wealth group at Raymond James that I lead – is cross-border wealth management solutions. We have clients all over Canada and the United States: business owners, retirees, sustainable investors, pro athletes (yes, even hockey players) and celebrities. Licensed and regulated in both countries, we advise those with cross-border investment accounts, which can be complicated for Canadians moving to the U.S., Americans living here, individuals and couples with dual citizenship, U.S. residents who expect to inherit Canadian dollars and vice versa.

While our clients come from a wide range of demographics, there are three things I want to address. First, my advice to young people and millennials now wrestling with high inflation for the first time in their lives. Second, a phenomenon called “Sudden Wealth Syndrome”, which may include lottery winners, pro athletes who sign their first multi-million-dollar contract and those who receive an unexpected inheritance. And third, being a BIPOC millennial – the acronym stands for Black, Indigenous and people of colour – in an industry not known to be diverse.

Let’s first talk about inflation. What is it? It’s the general increase in prices for those staple ingredients of daily life like food, gas and housing. When the cost of these things rises at only one or two per cent a year, investors can plan and strategize, and of course, financial advisors are there to help them do that. It all may depend on the particular investor – where they are in life, what their goals are and their comfort level with risk. What about when inflation and more importantly interest rates are rising quickly and you’re a young person who has never experienced it?

To be specific, what if you have money to invest but also a mortgage payment that suddenly doubles? In the early 1980s, mortgage rates went up to 21 per cent! Young people today didn’t experience that, but their parents may have. Similarly, we can go back further and look at history which is full of examples of hyperinflation. A 100 years ago during the Roaring Twenties, the stock market rose to new heights, and people thought it wouldn’t end. But it did with the stock market crash of 1929 and the Great Depression. At the same time, Germany had a government called the Weimer Republic with inflation rising at levels never seen before. Believe it or not, a loaf of bread in Berlin that cost 160 German marks at the end of 1922 cost 200 million marks only one year later. By the end of 1923, one U.S. dollar was worth more than four trillion German marks!

Inflation can hurt you and help you. Let’s see how it can hurt. Assuming you’re on salary, it means lower purchasing power and less money on hand for saving since basic necessities for life (food, fuel, housing, etc.) now cost more. Thus, any “cash” savings you might have on hand are now worth less. Young people who take on debt to go to school, never mind buying their first home, now face higher rates of borrowing, and that hurts.

How can inflation help? Inflation means debts at a fixed rate are now worth less, so that would look good if last year you locked into a mortgage at 2.5 per cent and pretty soon that goes up to 10 per cent. Any investor’s goal should be slow and steady reliable growth of a portfolio. Major swings up or down are generally deemed bad for markets and economic stability, which brings us to today. Young people have known nothing but low interest rates and high economic growth. In fact, this is what we have seen since 2008 and the great financial crisis. When it comes to growth of the S&P 500 and TSX, the last decade has been among the best performing in history.

However, the changing economic factors mean you need a financial plan constantly updated in order to make adjustments. The World Cup knockout stage kicked off earlier in December. What if you were the coach of a national team and it started to rain or the wind suddenly changed? Your strikers might not be so fast anymore, so you, as coach, must adapt. And it’s like that with your portfolio too.

I can’t stress enough the importance of having solid steps in place to help you get where you want to go. Here are things I recommend.

1.      Pay down debt. 
2.     Reduce or eliminate unnecessary expenditures.
3.     Try to earn more money, and that might mean negotiating for a raise, doing something on the side or upping your skills.

Now let’s move to Sudden Wealth Syndrome (SWS). The term was coined in the 1990s by wealth psychologist Stephen Goldbart who co-founded the Money, Meaning and Choice Institute in California, a group of professional facilitators and advisors who share a unique blend of senior-level psychological and business expertise. SWS involves no psychological diagnosis and no medical treatment. The things at play are your emotions and behaviour, socio-economic status and even your childhood concept about money.

SWS is more common than you think. Many professional athletes, some of whom may have made millions, wind up in serious financial distress, not to mention bankruptcy. A common problem is that people not used to handling money suddenly have it but are not prepared. There are many examples of agents, advisors, lawyers or family members who squander the fortune of a pro athlete who may not even be aware that there was a problem until it’s too late.

Likewise, there are people who win lotteries, suddenly wealthy widows and those who receive an unexpected inheritance without knowing how to handle their new wealth. However, there are things to do to try and prepare for this or at least deal with the psychological issues that may accompany the money.

I assure you that it’s best to take firm actions if you come into sudden wealth. That means introducing the planned heir to your accountant, lawyer, financial advisor and people whose expertise and advice they will need if they want this money to last. Tools like trusts or annuities exist for a reason, and it’s best to discuss all these options with those professionals.

Psychologists and financial professionals also have other suggestions. Maybe keep the winnings discreet and for good reason. When your circle of friends and even family learn about your new wealth, they may treat you differently and expect gifts or loans. Another bit of advice is to do nothing. That’s right. The best professional advice is to wait months or a year before making any changes. By all means, speak to an accountant because there will likely be taxes to pay, but other than that, nothing is really urgent. Then speak to a financial advisor, and figure out your goal. The advisor’s job is to help you achieve that goal.

On the cross-border front, transferring an RRSP or a 401(k) across the border can be and often is a problem. Despite Canada and the U.S. sharing one of the word’s largest borders, our financial and tax systems couldn’t be more different. Most of the U.S. retirement plans (401k, 403b, IRA, Roth IRA, Sep IRA, to name a few) don’t exist in Canada. By the same token, Canadian retirement plans like RRSPs, TFSAs, LIRAs don’t exist in the U.S. While many of these account types share similarities with corresponding ones in each country, they aren’t identical, so a straight transfer usually isn’t possible. So what can you do? For starters, determine if that asset ever needs to leave the country based on securities and tax laws. More often than not, these plans — if earned while an individual was a legal resident of each country — can be maintained despite the residency changing. The issues tend to lie with financial institutions not being adequately licensed to work with clients who don’t reside in the same country. Basically, the advisor must be able to keep you, not the other way around.

The analogy I use to explain what needs to move and what doesn’t, in both countries, is as follows. Imagine that retirement accounts in each country are a cement pole buried in the ground. You earned it and are entitled to keep it, but need to be with an institution that’s allowed to keep you. Non-retirement accounts are like luggage. You can’t travel without it, so it must move with you to your country of residence.  

Many of the same rules apply to the case of cross-border inheritances as well. In the U.S. unlike Canada, retirement accounts can be passed to both spousal and non-spousal beneficiaries and still have significant tax advantages. The Secure Act of 2020 changed some of these rules a bit, however, there are still many great planning options for Canadians inheriting wealth from Americans. 

The last thing I want to address is personal: being a person of colour in an industry where it is not the norm. As a BIPOC millennial growing up in central Canada in the 1980s, my experience was shaped by a unique combination of cultural and historical factors.

Growing up in Winnipeg, a city with a diverse population and rich history, I was exposed to a variety of cultures and traditions. I remember attending multicultural festivals and events where I was able to learn about and celebrate the diversity of my community.

However, despite the vibrant culture and history of Winnipeg, I also faced challenges and discrimination that many BIPOC individuals experience, especially after 9/11. I remember feeling like an outsider in some settings and experiencing prejudice from my peers and even from authority figures. Trying to travel when you look like me was difficult for many years after 2001.

At the same time, I was growing up during political and social change. The ‘80s and ‘90s were a time of increasing awareness and activism around issues of race and inequality, and I was fortunate to have parents and mentors who taught me the importance of standing up for myself and others.

Overall, my experience as a BIPOC millennial in central Canada was a mix of pride in my cultural heritage (south Asian and Muslim) and the challenges in navigating a sometimes hostile world. But through it all, I found support and community, and I developed a strong sense of self and purpose.

The financial industry in Canada has historically not been very diverse. This is likely due to a combination of factors, including systemic barriers to entry and a lack of representation at the leadership level. As a result, being a BIPOC millennial, I faced unique challenges when entering the industry, including discrimination and lack of support. But I was fortunate to find a mentor who opened many doors for me.

However, it is important to note that the financial industry in Canada has made progress in increasing diversity, equity and inclusion. There have been initiatives to increase the representation of BIPOC individuals at all levels of the industry, and many organizations have committed to promoting diversity and inclusion in their hiring and promotion practices.

Despite these efforts, there is still work to be done to create a truly inclusive and diverse financial industry. BIPOC millennials entering the industry may still face challenges and obstacles, but with determination and support from their peers and allies, they can overcome them and succeed.

Shiraz Ahmed is a Sr. Financial Advisor & Portfolio Manager with Sartorial Wealth of Raymond James Ltd. Raymond James Ltd. is a Member Canadian Investor Protection Fund. Raymond James (USA) Ltd is a member of FINRA and SIPC.