Investment Services

 Another confusing and potentially frustrating area often encountered is in moving your US investments to Canada.  Let’s dispel a common myth right off . . . yes, it is possible to move American investments to Canada without having to sell them first.  However, as some members of our firm have experienced, the simplest transfers can take months for the unwary. Following is some information to consider when moving your investment services to Canada.

WHERE TO SET-UP - A common question we get from our clients is “Where should I set up an investment account in Canada?” We believe the best value for the dollar is at one of the large discount brokerage firms like TD Waterhouse.  They offer investment services with low commission rates, a wide array of low cost mutual funds and exceptional internet-based services. TD Waterhouse is one of the largest discount brokerage firm in Canada. In the US, we use TD Ameritrade making it easier to transfer assets or provide a consolidated investment management solution when your assets span both the US and Canada.

SIN - For those making the transition to Canada and wanting to open an account as a Canadian resident, you must have a Social Insurance Number. This is to ensure any income from the account can be tracked for income tax purposes.

TITLING YOUR ACCOUNT - The other question you will see on the account application form asks how you want the account titled. Most folks have no idea so they check any box or they don’t check any at all, and the brokerage firm uses their default. In reality, the option selected can have potentially profound income tax and estate planning effects on your family in the event one of you dies or becomes incapacitated. This is not a decision that should be taken lightly.

US DOLLAR ACCOUNTS - Another big question we get from our clients is “Can you can set up a US dollar account in Canada?” Here we have to hand it to the Canadian brokerage firms because the answer to the question is essentially, YES! In Canada , it is commonplace to open a US dollar account at a Canadian brokerage firm.

The bottom line is the US brokerage firms are just not capable of opening and managing Canadian dollar denominated accounts at this time while Canadian firms are very adept at this.

Often times, relocating to Canada is followed shortly by a notice from your brokerage firm saying they can no longer provide investment services because you are non-resident of the US.  This is usually due to an over zealous compliance officer that doesn’t know what to do with a Canadian address on a US account.  There are Securities and Exchange Commission rules that prevent US brokerage firms from dealing with non-residents of the US (It doesn’t even matter if you are a US citizen).

To get around this issue, some Canadian expatriates think they will “trick” the broker and the securities regulators by providing a US address of a family member, friend or post office box to the broker.  Besides breaching Canadian and US securities regulations and being subject to fines and penalties, there are several other problems with doing this:

Another common area overlooked is what happens to accounts in the US if the account holder dies while resident in Canada?  Typically, the probate process has to be endured twice, once in Canada and once in the US .  See the Estate planning section of this website for more details. Finally, don’t forget . . . your Roth IRA is fully taxable in Canada!

There are several differences between Canada and the US when it comes to investment services.  Unfortunately, for most making the transition to Canada, they are unaware of these differences and end up making some costly mistakes or paying too much. This is typically the result of an over zealous broker, a smooth talking mutual fund salesman or variable annuity provider.  Following are some of the things you need to consider before investing your hard-earned dollars in Canada:

INVESTMENT EXPENSES - Canada has been ranked as one of the most expensive places in the world to invest, far above the expenses seen in the US.  Competition in the brokerage industry has resulted in lower brokerage fees and commission rates, lower mutual fund expenses and the advent of index funds and exchange-traded funds have reduced investment expenses far more in the US than in Canada .  With some of these discount brokerage firms and mutual fund companies beginning to move into Canada , reduced investment services expenses are on their way up there as well.  The most insidious thing about these fees is most investors don’t even know they are paying them unless you look at the prospectus sent to you (most don’t).  Most mutual funds in Canada typically have a 2 – 3.5% expense ratio compared to an average 0.25% – 1.0% in the US .  In addition, there is a much larger selection of low-cost mutual funds in the US with expense ratios around 0.10%.

TAX-PREFERENCE INVESTMENTS - There are no tax-preference investment alternatives available in Canada that are normally available in the US.  Your municipal bonds/ money market  funds and US government obligations are fully taxable in Canada. You could make a contribution to an annuity but be careful as they generally have high expenses. You should also note that your Roth IRA is fully taxable in Canada and must be declared on your Canadian income tax return every year.

MONEY MARKET “SWEEP” - Dividends or interest payments, maturing bonds or the sale of an investment results in cash in your account.  In Canada , this cash sits in a savings type account earning “savings” account interest rates unless you choose to invest the cash in a money market mutual fund.  These money market funds in Canada typically have a deferred sales charge and/or a high management expense ratio.  In the US , any cash in your account is typically “swept” on a daily basis into a money market mutual fund automatically.

MUTUAL FUNDS - Some investment services companies in the US have researched and become familiar with the different mutual fund families in the US such as Vanguard, American and PIMCO. Altamira , MacKenzie, AIM, Royal Funds, etc.  In Canada, however, no such funds exist.  The question then becomes “Which mutual fund families should I use?”  Altamira? MacKenzie? AIM/Trimark? There are in excess of 5,000 mutual funds you can select from but “Which mutual fund is right for your unique circumstances?”  We can provide assistance in this area.

Since we are Fee-Only financial advisors, we do not make any money based on the particular mutual fund or investment service selected, which allows us to put your interests first. We are proud to be a DFA approved advisor and the support they bring to our clients and us!

TD Ameritrade	Discount brokerage firm in the US
TD Waterhouse Canada	Discount brokerage firm in Canada
Index Funds	Good information on these low cost vehicles
Dimensional Fund Advisors	Mutual funds available exclusively to clients of fee-only advisors like us in Canada and the US
Vanguard	Mutual funds not available in Canada
iShares	The pre-eminent provider of exchange-traded funds in both Canada and the US
SPIVA Report	S&P Index Versus Active Funds Scorecard
Morningstar Canada	Information on Canadian stocks, mutual funds
Morningstar US	Information on US stocks, mutual funds
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