More than one million Canadians traditionally head south every winter, many of them to the U.S. That’s on top of a large number of other Canadians considered temporary “residents” in the U.S. Although both advisors and investors are keen on maintaining their relationships, advi-sors should be aware of the difficulties they face in navigating the patchwork of regulations at the U.S. federal and state levels.

Before June 2000, Canadians resident in the U.S. faced restrictions on how they managed their mutual funds and other assets in registered retirement accounts. After lobbying by several Canadian groups, including the Investment Funds Institute of Canada, the Securities and Exchange Commission essentially removed all federal barriers to managing these assets. But each state has its own securities rules, or “blue-sky laws,” which can vary significantly. Advisors have to comply with both state and federal requirements.

Some 48 states have provisions that allow Canadian-registered dealers to do business on behalf of clients resident in the state without having to become registered in that particular state. Generally speaking, these states allow a dealer registered with a Canadian self-regulatory organization to transact business on behalf of:

> A resident of the state whose investments are in a Canadian self-directed, tax-advantaged retirement plan; or

> A Canadian in the state temporarily with whom the advisor has had a client relationship before the client headed to the U.S.

Nebraska and West Virginia currently do not exempt Canadian-registered dealers from state registration requirements. It is important that dealers and advisors know the rules in those U.S. states where most of their snowbird clients are residing to ensure full compliance with local laws and regulations. IFIC will provide an updated survey of state requirements on its Web site early in 2009.

An additional consideration is that a state may exempt a Canadian-registered dealer from registration requirements but require filings for individual advisors. There are 14 states that require advisors with Canadian-registered broker-dealers to file with a state securities regulator. (Even then, the filing requirements may vary among states.)

In other states, if the mutual fund dealer has filed with the state, then the advisor doesn’t have to be on file as well. Some states popular with snowbirds (such as Arizona) require advisors to make separate filings with the state securities regulator. When in doubt, ask a reliable source — generally, a lawyer in the specific state.

In a similar vein, mutual fund companies are increasingly receiving unsolicited purchase orders from non-residents in jurisdictions outside the U.S. Here, knowledge of local laws is even more important. Although it may be tempting to rely on existing lists of countries that allow and don’t allow non-residents to make purchases, there is no substitute for engaging a local lawyer to ensure compliance. The kinds of questions that a lawyer can help answer include: can the investor receive continuous disclosure, as noted in Canadian law; can an investor continue to participate in an automatic distribution reinvestment plan?

Some jurisdictions may consider reinvested distributions to be new purchases and require different rules.

The patchwork of regulations at the U.S. federal and state levels affects not just Canadian advisors and snowbirds. They also affect U.S. advisors whose clients move outside their states for some months in the year. There are some harmonization efforts underway. In May 2008, officials of four Canadian securities regulatory authorities and the SEC announced they were holding discussions on a framework for a potential Canada/U.S. mutual recognition agreement. This could provide certain Canadian financial services providers with greater freedom to operate in the U.S. and help eliminate dual regulation, redundancy and regulatory overlap. IE



Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada in Toronto.