In an increasingly globalized financial services market, it is common for Canadian financial planners to work with clients who spend part of the year in the United States or who hold US citizenship or residency. However, many advisors underestimate the extent to which US securities laws apply, regardless of where the advisor is physically located.
Under the Investment Advisors Act of 1940, as well as corresponding state securities laws, providing investment-related financial planning advice to US residents without proper registration and licensing is not only prohibited but exposes the advisor to significant legal and regulatory risk.
A Broad Definition of Investment Advice
The US Securities and Exchange Commission (SEC) defines an ‘investment adviser’ as any person or firm that, for compensation, engages in the business of providing advice or analysis regarding securities (Investment Advisors Act of 1940, Section 202(a)(11)). The definition is intentionally broad to ensure robust investor protection.
Crucially, ‘investment advice’ is not limited to recommending securities. It encompasses a wide range of financial planning activities commonly offered by advice-only Canadian financial planners, including:
- Account selection and rollover recommendations: Advising a client to contribute to a Roth IRA rather than a traditional IRA, or recommending they roll over a 401k into an IRA, involves securities-based decision-making and thus constitutes investment advice
- Investment allocation within retirement accounts: Suggesting which types of mutual funds, ETFs, or asset classes to select within an IRA or 401k is unequivocally considered investment advice
- Withdrawal and conversion strategies: Recommending timing for Roth conversions or advising on optimal withdrawal sequences is also captured under this definition
- Asset allocation advice: Advising a US resident client to maintain a certain equity to fixed income allocation, or to perform tax-loss harvesting, requires proper licensing
Location of the Client is What Matters
A key point often misunderstood by Canadian financial planners is that US securities law focuses on the location of the client, not the advisor. In other words, if the client resides in the US or is otherwise considered a US person for regulatory purposes, the advisor is subject to US rules – regardless of whether the advice is delivered from Canada or anywhere else in the world.
Registration and Licensing Obligations
If an advisor is providing financial planning advice to US residents, they must generally register as an investment adviser with either the SEC or with the relevant US states.
Additionally, individual representatives must register as Investment Adviser Representatives (IARs) in each state where they have clients. This usually requires:
- Passing the Series 65 exam (Uniform Investment Adviser Law Examination), or qualifying via another acceptable combination (such as the US CFP designation)
- Filing Form U4 through the Investment Adviser Registration Depository (IARD) system
- Satisfying ongoing state-specific compliance obligations (including continuing education and annual renewals)
Regulatory and Legal Risks
Providing unregistered financial planning advice to US residents carries serious consequences, including:
- Cease-and-desist orders from US securities regulators
- Monetary fines and penalties
- Reputational harm that can impact both US and Canadian business operations
- Potential private litigation from clients claiming unlawful or unlicensed advice
Conclusion: A Caution for Cross-Border Advisors
Many Canadian financial planners mistakenly believe they can provide financial planning to US residents without addressing US licensing requirements, particularly if they do not explicitly recommend individual securities. Any advice involving asset allocation, retirement accounts, or securities selection (even if general) is likely to be classified as investment advice under US law.
Cross-border advisors must carefully assess their client base and ensure they are properly registered and licensed before providing such services. When in doubt, consult qualified US securities counsel to evaluate compliance obligations.
U.S. residents should always confirm that any financial planner or advisor they engage is properly registered with the SEC or the relevant state securities authority and that they provide copies of all required disclosures, such as Form ADV Part 2. It is critical to avoid working with Canadian financial planners who are not registered in the U.S., as they are not lawfully permitted to provide comprehensive financial or investment advice to U.S. resident clients. Proper registration ensures the advisor is subject to strict regulatory oversight and fiduciary standards designed to protect investors.