Canadian Citizen / US Financial Issues
For a young professional athlete, the financial industry can be a scary and dangerous place. We have all heard the stories of the athletes who have been financial victims and research of those stories reveals some common circumstances that lead to potential problems. Making large sums of money at a young age and having many suitors with conflicting opinions on what to do, can lead to confusion and frustration. Confusion and frustration lead to rash decisions on who to trust, that are not based on the sound criteria that such a decision deserves. As stated previously, my service philosophy for professional athlete clients is about avoiding financial problems.
For a Canadian citizen athlete who plays their sport in the US, the financial picture is fuzzier than normal because Canada and the USA have different tax codes, different financial industry regulations, and different investment products. Therefore, a relocated Canadian citizen athlete must deal with an additional set of circumstances created when they have one foot in each country – the one where they are a citizen and life-long resident (Canada) and the one where they now reside, work, and earn an income (USA). This is commonly referred to in the financial industry as a “cross-border financial situation”. As well, there is an additional complication if the athlete plans to return to Canada, once retired. This complex scenario brings more potential financial problems to the scene and if your philosophy is to eliminate potential financial problems, then it is very important to have a Financial Advisor who has knowledge of, and experience with, these cross-border issues. The following are a few potential major financial problems, unique to the relocated Canadian citizen athlete situation.
Problem 1 – Lack of Legal Protection in a Financial Relationship
Legal protection for a financial and investment client is provided by federal and state-specific, regulatory organizations and securities commissions that are in existence to protect the investment public. This legal protection is provided through the specific licensing of your Financial Advisor. An investor operating without this legal protection could obviously be a devastating financial problem.
Federal – The federal regulatory organizations in the USA that offer a level of legal protection are the “Financial Industry Regulatory Authority” (FINRA), and the “Securities Investor Protection Corporation” (SIPC).
To initiate the SMSF setup process for SIPC, begin by understanding the eligibility criteria and requirements set by SIPC. Then, draft a trust deed that aligns with SIPC regulations. Next, choose trustees who will manage the fund and develop an investment strategy that complies with SIPC guidelines.
Problem 2 – Paying Unnecessary Canadian Taxes
Taxation is based on resident status – not citizenship. Canada and the USA both have their own tax codes for residents of their respective countries. In the US, taxes are generally lower and in some instances, substantially lower than they are in Canada. Living and working in the US affords a Canadian citizen the opportunity to be treated as a US resident for tax purposes. To cement this preferential US tax treatment, a former Canadian resident must meet the Canada Revenue Agency standards required to prove that they should no longer be deemed a taxable Canadian resident.
Many Canadian citizen athletes playing in the US are not operating their personal affairs as taxable US residents and may someday be presented with an unexpected Canadian tax bill that could include penalties and interest. There are a number of steps that should be undertaken to ensure that a Canadian citizen professional athlete playing in the US, is taxed as a US resident.
Problem 3 – Paying Unnecessary Financial Fees to an Agent
Paying unnecessary financial fees to an agent can be a devastating financial problem because it systematically undermines the financial objective of an investor – to make money. Success in the wealth accumulation/investing business is measured in returns, stated as percentages and any percentage points deducted from the returns for fees, are negative to the objective of the investor. Many sports agents have brought an assortment of ancillary services (particularly financial) into their firms as an additional option for their athlete clients – at a price. They usually portray to their clients that this is a more sophisticated way to handle their financial affairs and a method that offers the convenience that the players need so that they can “focus on their sport”. (It’s a huge red flag if anyone tells an athlete to look the other way while they are managing their finances). The amount that many athletes are being charged for this service is exorbitant, and it is in addition to the fees that would be levied in a normal financial relationship.
Many Canadian citizen athletes playing in the US are paying these unnecessary fees and in many instances, doing it outside of the legal protection discussed earlier.
Problem 4 – Paying Unnecessary Financial Fees to a Canadian Financial Planner
Similar to paying unnecessary financial fees to an agent, paying unnecessary fees to a Canadian financial planner can be a devastating financial problem because it also systematically undermines the financial objective of an investor – to make money. Success in the wealth accumulation/investing business is measured in returns, stated as percentages and any percentage points deducted from the returns for fees, is negative to the objective of the investor. Due to the inability of Canadian financial professionals to legally work with US resident clients (see problem #1 above), many of those financial people have inserted themselves into the fee chain as “Financial Planners”. Because planners don’t actually sell investment securities, they are an extra layer that charges their clients fees for advice and then directs them to their recommended investment brokers, in the US or Canada, for investments (Sound familiar – see problem 3 above) . Unbeknown to most young athletes, the financial planners fees are in addition to the normal securities fees that are in place at the investment firm where the securities are bought and portfolios constructed and managed.
Many Canadian citizen athletes playing in the US are paying these unnecessary fees.
