Cardinal Point bore up under a year-long paperwork gauntlet; second U.S. office already in the works

February 9, 2011 — 3:08 PM UTC by Steve Garmhausen

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At times, our northern border – the largest land border in the world — seems more a formality than a barrier. Canada is by far our largest trading partner, sending everything from energy to beef to interesting people our way. But that border is still a big impediment in the wealth management business, as this spotlight makes clear. With the growing wealth among Canadians, which held up better in the financial crisis than that of Americans’, it only makes sense that an advisory firm would step in to carve a niche doing cross-border business. Cardinal Point Wealth Management, profiled here, is owned by Jeff Sheldon, his father, and two other partners, as well. One final note: It’s RIABiz’s practice to include AUM, but in this case Cardinal Point did not want to disclose its assets under management because of what it said were cross-border tax complications.

Name: Jeff Sheldon, president, Cardinal Point Wealth Management LLC

Location: San Jose, Calif.

Years in business: 10

How did you break into the advisory business?

In the very beginning, I was very interested in general in finance. My father was in the business, and when I was graduating from college just over 10 years ago, I thought it made a lot of sense to do it myself. But my father wasn’t just going to hire me—I had to present him with a business plan about how to better service clients, create business opportunities and so on.

He approved and allowed me to work in the practice, in Toronto. Within two years, I was responsible, along with another partner, for bringing in close to $30 million.

So the practice started in Toronto. How did your firm end straddling Canada and the U.S.?

The Canadian practice was growing, adding $10 million to $20 million a year. The one thing that kept happening was that wealthy Canadian clients would go and retire in Florida. Or they’d be transferred to a U.S.-based company. We were losing very large accounts not because we were giving poor advice or doing anything wrong, but because from a strictly legal standpoint, we could not serve those clients anymore.

Once Canadians become residents of the United States, in almost all cases, their Canadian financial advisor cannot look after their investments accounts because they’re not regulated in the United States. On the other hand, Canada is booming, and you’ve got a large contingent of U.S. executives moving to Canada. U.S.-based financial advisors have to give up that client once they become residents of Canada, even if they’re a U.S. citizen.

We’d had a lot of prospective clients referred our way in the United States, be we always had to turn them down. We just got tired of this.

We ended up doing research to determine if there was a great enough opportunity to open up an RIA in the U.S. and co-brand it with the Canadian firm. Most importantly, we wanted to determine whether clients moving across the border were receiving the right financial advice. Canada and the United States have different tax laws, each treats retirement accounts differently, and so on. We did a lot of research and opened the RIA in October of 2009, then started bringing on assets in January, 2010. Where we’re different is that we’re licensed on both sides of the border.

We have two separate entities: the U.S. firm and the Canadian firm. We work with 80 families. Our clients are in the range of $2 million to $5 million of investable assets, and our largest client is $20 million.

You were not a U.S. citizen when you started the business here. What was the red tape like?

We couldn’t just run the company from Canada; we needed a physical presence down here. To get registered, we literally had to open a separate entity. We had to write certain exams, and actually get visas to be able to work here. It was very time consuming. It took a year, and it was not easy, to say the least. But it was worth all the trouble.

So you set up an office in San Jose. Why there?

At the end of 2007, I came down and worked with a turnkey asset management company (Bellatore Financial Inc.) in the Bay Area; I knew the owner of the company very well. For two years I took a leave from Cardinal in Canada with the plan that in three years we were going to set up Cardinal U.S.

I worked in a business consultant role. I would go in to these advisory practices, some as small as $25 million and some as large as $400 million, and assess what they were doing right and where they could improve. The insight and hands-on experience was wonderful for me. Any spare time I had, I was working on a business plan and preparing for the future of Cardinal U.S.

When we opened the office in San Jose, it was just to open an office—we knew we had instant assets to add. We always knew San Jose would not be an ideal location. We always knew we’d have to go to the Sun Belt, where the snowbirds are located. At the same time, we gained clients in California, and we want a presence in California to service the west coast.

And you will soon open an office in Florida.

In West Palm Beach, in March. The number one buyers of Florida real estate are Canadians. That’s creating a tremendous opportunity for us. The timing of this move couldn’t be better for us, especially with the aging Baby Boomer demographic. See: Which metro areas are the most fertile ground for advisors?.

And I’m tired of flying six to Miami, Fort Lauderdale, West Palm Beach to meet with those clients. Now we’ll officially have an East and West office, as well as Toronto. (Cardinal will soon relocate the San Jose office to Newport Beach, near Irvine.) I will head the Florida office—I’ll probably spend 75% of my time there—and we will have at least one licensed advisor in each office.

Has your U.S. business been successful?

Yes. We’ve added 16 families in the United States. A couple of them had been our clients in Canada. We also partner with Canadian and U.S.-based advisors. If, for example, a Canadian advisor is losing a client because they’re moving to the U.S., we will partner with that advisor to transition that client to us. We will make sure the client is taken care of, which is every advisor’s main concern. They are compensated through a referral-based arrangement. The same goes for U.S.- based advisors who’ve got clients moving to Canada.

What has been your best day as an advisor?

Last year, we were presented with the opportunity to work with a large client transitioning from Canada to the United States. There was a lot of competition for this account, and we ended up getting it because we listened to the individual’s concerns, and when we gave advice, it was based on the cross-border elements that should go into dealing with this client. It really validated what we were doing.

What has been your worst day as an advisor?

The worst days were when we were waiting for our U.S. visas, waiting to get things up and running. We lost out on a number of opportunities with certain clients.

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William said:

April 6, 2011 — 7:14 PM UTC

Interesting interview. My question applies only to a US RIA (not a broker/dealer) structure. If there is a Canadian resident that wishes to establish an advisory relationship with a US RIA firm, or wishes to move assets to the US and have the US RIA firm oversee them, is a there a Canadian regulatory requirement of the RIA to register/have physical presence in Canada? I would assume this is the case if they are Canadian accounts (maybe not?), but for US accounts I would assume not…regardless of the citizenship.


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