Expatriates living in the U.S. and Americans abroad face different financial challenges from domestic U.S. resident citizens. International individuals, in other words, have specific financial planning needs that do not typically apply to their local counterparts. To better serve clients of this nature, it is important that financial professionals understand the differences between global and domestic planning.‍

The Definitions of International, Cross Border & Domestic Financial Planning

First, it’s worth defining the terms “global” and “domestic” planning.‍

Global planning refers to personal financial planning within an international context. Broadly, it is the process of managing one’s finances with consideration of international factors like immigration, residency, tax, and citizenship.

Because not all clients that fall into this category have uniform situations, global planning is pluralistic. It encompasses more nuanced types of planning, each of which has its own requirements:

• Inbound International - Financial planning for clients, their assets and/or their entities moving into a country
• Outbound International - Financial planning for clients, their assets and/or their entities moving out of a country
• Cross-border - A holistic approach to planning that looks at the movement of a client, their assets and/or their entities across two or more international jurisdictions

Thus, the three types of global planning are international and cross-border.

Domestic planning, on the other hand, describes financial planning from the perspective of a single country. Further, it does not involve the movement of people or assets across international borders. This distinction is particularly important because both inbound and outbound planning concern the perspective of one country; however, because they each also involve the international movement of a client’s assets, they fall under the broader global planning umbrella.

Global Planning vs. Domestic Planning

Based on their respective definitions, it is clear global and domestic planning require distinct approaches. But how exactly does this look in practice?‍

Data Gathering

For starters, domestic planning operates with baseline assumptions that are not afforded to clients that require global planning. Because there is no movement involved, neither of the natural person nor their assets, domestic clients bypass considerations like immigration and residency status. In the case of the U.S., a client of this nature would be an American citizen who is based in the U.S. and has no intention of moving or investing overseas.

The fact-finding process for global clients, on the other hand, is hardly straightforward. It involves considerations like:

• The client’s country of origin and domiciliary intentions
• The time frame of a client’s arrival in and/or departure from a country
• The source of a client’s income
• The location and value of a client’s assets and liabilities
• Whether the client has discretionary authority of a foreign trust or ownership of a foreign business entity

The due diligence required of financial advisors working with cross-border clients is thus more complex than when working with domestic clients. ‍

Goal Setting and Strategizing

Goal setting and strategizing also noticeably differ between global and domestic clients. While financial planning generally seeks to build wealth and reduce risk, clients encounter disparate circumstances based on geography.

For example, a domestic client in the U.S. might seek to invest in property in another state and spend half the year thereafter retiring. Although this long-term goal involves more than one location, both are contained within one country, the U.S. As such, the extent of strategizing necessary is confined to the U.S.’s federal and state jurisdictions and their respective laws.

A global client with similar interests, albeit on an international scale, faces additional considerations. In this case, the client could be an American citizen that intends to buy property in another country and move there for half the year during retirement. Given the multinational nature of this goal—and other goals held by cross-border clients—advisors must pay close attention to issues such as:

• The length of time a client expects to spend in the destination country
• The tax implications of foreign sources of income
• Finding a custodian that will accommodate an international move
• How the destination country treats capital gains taxes‍

Financial Statement Presentation

For cross-border clients, it is also pertinent to create a global balance sheet that tracks an individual’s assets, liabilities, and equity on a multinational scale. This grows more complicated when attempting to show asset allocation of investment accounts. A complete statement detailing the entirety of global clients’ finances helps both the advisor and client set realistic financial goals and mitigate against unforeseen challenges.‍

Guidance and Advice

Finally, the needs of global and domestic clients vary in terms of the guidance and advice required of the advisor.

Cross-border clients find their finances caught between the jurisdictions of two, sometimes more, countries—but they do not become well-versed in foreign tax regulations by virtue of being an expatriate or owning assets overseas. There are numerous layers of complexity, like the changing laws of another country, that complicate both short- and long-term planning for reaching a global client’s financial objectives.

Consequently, advisors will likely find themselves explaining legal and financial concepts to cross-border clients that would not be relevant to their local counterparts. For U.S.-based advisors working with global clients, these include:

• The varying definitions of residency from a legal and tax standpoint
• How to determine one’s residency classifications and subsequent tax obligations in different countries
• The intricacies of the U.S.’s citizenship-based taxation system
• Tax and reporting requirements
• Investment domicile and vehicle selection e.g., Passive Foreign Investment Corporations‍

Conversely, because domestic planning concerns only one country, explaining these concepts is largely unnecessary for such clients.

To be clear, advisors working with global clients are not expected to be knowledgeable about every nuance and detail in the U.S.’s tax code or regulations as they relate to other countries. Given the number of countries in the world and the wide diversity of client circumstances, such an expectation would create an impossible standard for financial professionals. To that end, it is crucial for advisors working with global clients to know what credible and relevant resources are available when they encounter questions and topics with which they are unfamiliar. ‍

Implications for Planners

With ill preparation, financial planners and advisors encountering a cross-border client for the first time will inevitably face challenges in providing guidance. Global clients, after all, come from a variety of backgrounds. This diverse clientele includes expatriates in the U.S. as well as U.S. citizens abroad—and all at different points of their international move (the subject of a future blog post). As such, they require a multifaceted approach to financial planning, one that fully accounts for the “big picture” of their wealth and mobility.