Cross Border Compliance: Guidelines for Advisory Firms

With 21% of Americans interested in moving to a new country, becoming an expat financial advisor could open up new opportunities to scale¹. Advising clients who live and work abroad raises new concerns surrounding compliance, however. In addition to observing U.S. regulatory guidelines, you must also navigate international regulations for advisor conduct. Familiarizing yourself with cross-border compliance rules can help ensure that your firm is well prepared to meet your clients’ needs, wherever they may be.

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Key Issues in Cross-Border Compliance for Financial Advisors

To work with clients internationally, you’ll need to understand the problems they’ll face and be prepared to help solve them. Challenges often center on four key areas: taxes, investment planning, retirement planning and estate planning. For example, clients may also need help with navigating day-to-day tasks, like international banking.

From an advisory perspective, your ability to meet your clients’ needs in those areas while remaining compliant hinges on your understanding of jurisdictional rules and local regulatory requirements. Specifically, it means addressing the following questions:

• What activities or services, if any, are prohibited or restricted in the jurisdiction(s) in which you serve clients?
• Does the jurisdiction have compliance rules you must observe regarding specific investment products? Are there any products you cannot recommend or sell?
• Are advisors held to a specific ethical standard when recommending investments? For example, are there any rules regarding suitability or are advisors held to a fiduciary standard?
• What compliance rules extend to marketing activities, such as email or text communications?
• Are there specific rules in place covering privacy, data protection or cybersecurity that advisors are expected to adhere to?
• What adaptations will you need to make, if any, to observe Know Your Client (KYC) and anti-money laundering (AML) rules?
• Are there additional recordkeeping rules that you’ll need to observe to remain compliant with local regulations?
• What regulations are you expected to follow when selecting a custodian in the client’s country of residence to hold their assets?
• Will you need to meet additional licensing or registration requirements to offer services to clients? If so, are these requirements tied to the types of clients you serve?
• What disclosures will you need to file, if any, and are there ongoing requirements you must meet annually?

Two things compound the difficulty many advisors face when tackling cross-border compliance. First, you’ll need to be able to answer these questions for every jurisdiction in which you serve clients. That could get tricky if you have clients spread out across multiple countries.

Second, rules and regulations change. Old guidelines are updated or abandoned altogether, and new ones are regularly forthcoming. Advisors must be vigilant about monitoring these changes and be prepared to adapt their practices, if necessary, to remain compliant.

Cross-Border Compliance and Regulatory Enforcement

In the U.S., the primary agencies that enforce compliance rules for registered investment advisors are the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the Financial Crimes Enforcement Network (FinCEN). The agencies you must comply with internationally are determined by where your clients live.

Let’s look at regulatory enforcement in Europe as an example. Financial advisors are subject to regulation by the European Union and the governments of the countries in which they operate. If you serve clients in France and Portugal, you’re required to adhere to the compliance rules set by the European Securities and Markets Authority (ESMA), the Autorité des marchés financiers (AMF) and the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários).

Regardless of the country, regulatory compliance bodies are tasked with the same core set of activities:

• Establishing compliance rules for advisors and enforcing them
• Ensuring that advisors have the proper registration and licensing required to offer services to clients
• Conducting compliance audits to ensure firms are adhering to the rules
• Taking enforcement actions against advisors when compliance violations occur

Failing to follow cross-border compliance rules could result in fines at a minimum. In the worst-case scenario, it could also put an end to your ability to offer advisory services in a particular country if you’re banned by a regulatory authority.

Developing Cross-Border Compliance Policies and Practices

Cross-border compliance rules for advisors vary. And your initial starting point should be researching the guidelines for the jurisdiction(s) in which you plan to operate. Identify the regulatory body or bodies that your firm will be answerable to, then examine the specific rules you must adhere to when serving clients in a particular country or locale.

You may also want to retain an attorney in the country in which you plan to operate, even if you don’t plan to establish a physical location there. A local attorney who is knowledgeable about securities laws can help you understand your regulatory obligations and the best practices you may want to adopt to ensure compliance.

There are also cross-border compliance solutions for financial advisors that can help you iron out the wrinkles in your compliance plan. Apiax and International Compliance Solutions (ICS) are two examples of companies that provide these types of solutions.

Apiax enables advisors to monitor cross-border compliance rules for more than 190 countries through a centralized hub². This tool is designed to ensure compliance at every stage of the advisory process, including:

• Client meetings
• Trade execution
• Investment management
• Email marketing
• Fund distribution
• Risk assessment
• Website marketing

International Compliance Solutions, meanwhile, provides comprehensive services to broker-dealers and investment advisors who work with international clients³. In the area of cross-border compliance, ICS helps advisors navigate rules outlined in the Foreign Account Tax Compliance Act (FATCA) and Foreign Corrupt Practices Act (FCPA), as well as LATAM financial regulations.

Investing in a compliance solution could help you avoid mistakes that may disrupt your ability to serve clients. When comparing compliance options for cross-border operations, consider the range of services offered, the level of support provided and the pricing structure.

Bottom Line

It’s difficult to condense cross-border compliance into a single set of rules, as every country and jurisdiction differs. In addition to compliance as it relates to your firm’s operations, you must also be cognizant of what’s expected of your clients, particularly concerning tax reporting. Becoming a cross-border advisor could lead to higher revenues for your firm. But it must be approached with a clear and comprehensive plan.

Tips for Growing Your Advisory Business

• Developing a compliant marketing strategy can help you to expand your reach and attract new clients to your firm. Collaborating with an advisor marketing platform like SmartAsset AMP can help you connect with high-intent prospects who are primed to work with a financial advisor. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
• Compliance software can help you streamline and automate operational tasks so you can focus on meeting the needs of your clients. For example, you may use a software program to digitize new client onboarding and KYC checks, so that you have more time to focus on other tasks. Look for compliance programs that integrate seamlessly into the rest of your tech stack and offer an easy setup process.

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