Getting U.S.-licensed creates a client stream

If you could access a million new clients, would you?

Bernardine Perreira has said yes.

With her American Series 7 registration and Series 63 licenses, she’s able to work with the million U.S. citizens living in Canada. She’s one of about 60 advisors at her firm who’ve taken advantage of the dual-country license option.

Perreira spent the first part of her career in the telecom and charitable sectors, and joined BMO as an advisor in 2008. She moved to Raymond James in 2012. “I’ve been on a continual continuing education program since I got into this business,” she says. Becoming cross-border licensed was just an extension of that self-imposed program.

Perreira passed her Series 7 exam in October 2014. This exam assesses whether a registered representative knows enough to sell corporate, municipal, government and investment company securities; variable annuities; REITs; direct participation programs; and options.

Reps must also pass the state securities law test, the Series 63. Perreira passed in December 2014, and is now licensed as an agent in California and Florida. (Since she’s fee-based, she can conduct business with clients across the U.S. with her registration.) Both exams are administered by FINRA, the U.S. self-regulatory organization.

She targets executives and professionals, and thought U.S. licensure was a good fit since these clients often take cross-border work assignments or retire in the U.S. And, she focuses on the LGBTQ community, whose members can have U.S. ties.

“When people couldn’t get married in the U.S., there was a flight to Canada,” she says. So, she’s seen couples where a Canadian has married an American, or both partners are American and they’ve emigrated north. She also helps people who inherit money from, or pass it down to, people across the border.

The advisor

Bernardine Perreira, CFP, CIM, Perreira Hurly Wealth Advisory, Raymond James City: Toronto Years in the business: 7 Clients: 50 households Minimum: $250,000 Compensation style: Fee-based

How she got it

Perreira, who already has several designations and is IIROC-registered, decided in spring 2014 to become dual-country registered. She spent about six months studying for the two tests, and she studied more rigorously in the final three months.

Unlike Canada’s registration process, candidates must apply for FINRA registration prior to sitting for the exams. Since she needed her firm to sponsor her, she contacted the CEO of Raymond James USA Ltd. to obtain approval. She then worked with her registration department to prepare her forms, some of which required submitting fingerprints.

The registration went through in August 2014, and she had a 120-day window in which to write her Series 7.

She found the 120-hour study recommendation for the Series 7, and the 30 hours for the Series 63, to be reasonable. Those time frames encompassed “reading the materials, reviewing and doing online quizzes. They had online tutorials, which were great.” Given the number of continuing education courses Perreira’s taken, she’s used to blocking out evenings and weekends to study. In the last three months, she spent about six hours each Saturday and Sunday “locked in a room.”

She also did a four-day, in-person preparation course with Kaplan Financial Education. “The course is offered pretty much everywhere in the U.S. But, I thought, ‘Where do I want to be in October? Somewhere warm and sunny.’ So I opted for Fort Lauderdale.”

But it certainly wasn’t a typical beach vacation. “I would go to a course from 8:30 to 4:30 every day. Then I’d go to my hotel and spend another three hours that evening studying.”

She says the course’s US$449 fee was reasonable, considering it covered a 700-page Series 7 manual, a 200-page Series 63 book, two additional workbooks and the classes themselves. Airfare and accommodation cost “another couple thousand,” but she says it was money well spent. “I could have just simply done all the online and self-study,” says Perreira. “But I thought it was important to spend a week in a room with Americans, hear the questions they were asking and be assimilated into the whole discussion.”

The exams themselves took place in Toronto, and she found out she’d passed the same day.

Canada vs. the U.S.

Perreira cautions that Canadian advisors shouldn’t write the Series 7 or 63 cold, as there are material differences between the Series 7/63 and Canadian securities courses.

“With the Canadian exams, we had to be proficient using a financial calculator, working out all sorts of ratios. On the U.S. exams you’re not even allowed to bring a calculator into the exam—they provide a basic, non-financial one. And, there isn’t an insistence on knowing financial ratios. It’s a lot broader; it gets into more [of] the historical aspect of securities and how they originated.”

The most challenging difference she found was in the questions about municipal securities on the Series 7. She says there were about 30 to 40 of them, and another 25 to 30 on options. “If you don’t do options trading every day, they can be tricky.”

She says the questions on issuing and trading securities, as well as suitability, were easier.

What it’s done

Being U.S.-licensed means Perreira has been able to retain and gain new clients.

Shortly after she registered with FINRA, one of her top clients, a doctor, took a Chief Medical Officer job in the U.S. “If I didn’t have [the dual licence], I may have been able to hang on to his RRSPs and LIRAs but all the non-registered money would walk out the door.” She’s also now managing his spouse’s Individual Retirement Account (IRA; like an RRSP).

The doctor, who’s been with her more than five years, also has an American UBS advisor. Perreira examined his portfolio and found it too cash-heavy and not tax-efficient, so she hopes he’ll consolidate with her now that she can manage that money.

She also gained a Canadian-citizen client who’d been working as a university professor in Chicago for about a decade. “He moved back to Canada, I met with his accountant, and he had his 401(k) [employer pension] left in the U.S., and he was trying to figure out what to do with it.” Perreira knows some employers close ex-employees’ 401(k)s once they become foreign residents, so she and his accountant encouraged the professor to be proactive. “We took his 401(k) and rolled it into an IRA,” which also allowed him to have control over his investments.

Perreira’s registration means the IRA can stay in the U.S., and in U.S. dollars. But, if the client had worked with a Canada-only advisor, the IRA would have had to collapse—triggering U.S. withholding tax, which is usually 15% (U.S. citizens pay at least 10%), says Debbie Wong, a CPA, CA and vice-president of Wealth Management Solutions at Raymond James in Vancouver, who works with Perreira. Clients younger than 59.5 years old have to pay an additional 10% penalty for early collapse. That U.S. tax, and the 10% penalty, can offset the client’s Canadian tax owing, thanks to the Foreign Tax Credit.

But, if the client doesn’t owe enough Canadian tax that year, the offset cannot be carried forward.

If the client wanted to transfer the IRA funds to an RRSP, he’d have to do so within 60 days of the year-end of the collapse. (The transfer would not affect his RRSP contribution room.)

For all these reasons, Wong says, she usually advises clients with large IRAs to avoid rolling them into RRSPs. She also suggests any IRA holders start their tax planning prior to leaving the U.S. to give them more options, such as converting the IRA to another version.

Perreira’s book is currently 10% cross-border, and she wants to grow to at least 25%. In spring 2015, Perreira brought on a business partner, Elizabeth Hurly, who also wants to become dual-country licensed. She intends to guide this partner so they can both offer cross-border services.

How to study for the exams

Mark Sanchirico, Kaplan Education’s Series 7 expert, outlines six strategies for candidates.

1. Read the materials as if you’re reading a novel.

“There isn’t going to be 100% comprehension when you do your first read-through,” says Sanchirico. “If you strive for that, you’ll get hung up.” Instead, if you encounter a difficult section, flag it and move on. Same thing on test day: if you hit a series of tough questions, pause, flag those questions and move on.

2. Find out what kind of student you are.

Students, he says, are either mechanics, who are good with calculations, or readers, who are good at comprehension and memorization. “Recognize which one you are, so that when you’re studying, you can see which units require a re-read.”

3. Study consistently.

“If you put this material down for three or four days, when you pick it back up, there will be things that have escaped you.” He recommends studying for at least six to eight weeks, but “don’t worry if it takes you longer.”

4. Train yourself to focus.

When Sanchirico taught full-day Series 7 classes, he’d notice students getting tired in the afternoon. He’d tell them, “It’s a six-hour exam. If you’re going to fade on me today, how do you intend to get through that test?” And to find focus on test day, he suggests students “approach every question as if each is the last question on the test, and you need to get it correct to get a 72%.”

5. Don’t look for trick questions.

“They give you all the information to answer the question in the question body, or it’s revealed in the answers themselves. If you’re always looking for the monster under the bed, you will get questions wrong.”

6. Don’t underestimate the Series 63.

When asked if people who passed Series 7 need to study for Series 63, Sanchirico responds, “Oh heck, yeah.” He warns, “Don’t take it lightly just because the book looks light.” The Series 63 contains legalese, and includes baffling questions like, “Who is a person?” (The correct response is the legal definition.)

Sample costs for American licensing

US $27.75: fingerprinting fee

US $45.00: annual Web CRD Processing Fee (your firm may pay this fee)

CA $410.00: FINRA E&O insurance premium (for Bernardine Perreira)

Tip: Don’t be late on test day

FINRA is clear on the consequences: “If you arrive at the testing center late, you may be required to waive your fully allotted time, deducting the amount of time [that you were] late for the appointment [from your testing period]. If you do not wish to test with the reduced time, FINRA will charge your firm a cancellation fee, or you may be required to pay for a new enrollment in order to reschedule an appointment.” 

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.