Josh Hile:
Welcome to the Advisor View. I’m Josh Hile, CEO and founder of Citizen Mint, and we’re a platform providing simple access to exclusive tax-advantaged private market investments for wealth advisors, family offices, and foundations. And I’m really excited to be joined by Lucas at 49th Parallel. And maybe Lucas, you can just tell us about your background and how you created the firm and kind of we can start there.
Lucas Wennersten:
Yeah, absolutely. So my name is Wenersten. I own 49th Parallel Wealth Management, which is a portfolio management firm in Canada and a registered investment advisor in the US. I have both the US and Canadian certified financial planner designations. And so basically I got into the cross-border business. I just had an opportunity to join a cross-border firm. I ended up joining and getting both of my CFPs. Fell in love with cross-border financial planning. I had been doing mortgages before, but I already kind of had my eye on the financial planning industry. And so I ended up getting both the CFPs, ended up going to another larger firm that was Canadian-based. So I moved my family up to Canada after I was hired as a management consultant, spent about 3 years in Canada, and ultimately ended up moving back to the U.S. because COVID. We weren’t permanent residents in Canada, so I had had my 6-year-old a few months after getting there and we couldn’t leave the country because we couldn’t get back in because we weren’t permanent residents and we couldn’t have any visitors. So a couple years later, my son still hadn’t met his grandparents, and we, you know, everything was in lockdown in Ontario that whole time. And, uh, Omicron hit really was what happened, and I just thought that they were never going to open the border again. You know, we hadn’t seen family in a long time, and we’re realizing how important it is. And, and we have 4 kids, so it was a long time with no breaks and no date nights and stuff like that. So we ended up throwing in the towel and moving back south. I’m originally from Arizona, um, and we came back here in 2022, and then I decided, I decided to launch 49th Parallel Wealth Management in September of 2024.
Josh Hile:
Yeah, that’s, that’s amazing. And I, I think, um, one of the things is like, you know, for US-based firms, which is the majority of our clients, uh, it’s pretty unique to have that ability to work both with Canadian clients as well as US-based clients and kind of that cross-border. Maybe you can talk about that different differentiation and how you’re seeing clients go across borders, how it’s changed more recently or not changed, and kind of what you provide to those clients.
Lucas Wennersten:
Yeah. So one of the things that’s unique about our firm is that we are registered and licensed on both sides of the border. So traditionally, advisors need to be licensed and registered in the jurisdiction where the account is and also where the client lives. And so when you have clients who move across the border and might have IRAs or other qualified accounts here in the U.S., And then of course they’re going to be, you know, hopefully building more savings or might have other, you know, retirement plans in their home country. Um, it’s really helpful, you know, to be able to manage assets on both sides of the border and have a really good feel for what’s available and just the overall investment market on both sides of the border. Um, when people move across the border, everything changes. Uh, there’s tax treaties that override domestic tax law. The taxation of your different accounts is going to change. Estate planning gets a lot more complicated. Even things like insurance can get a lot more complicated. You introduce currency exchange risk, and so there’s a lot of different things that you have to kind of navigate between. In general, Josh, I think that most of the time people move for reasons other than politics and, you know, things like that. Usually it’s because they have family on the other side of the border, or they were here, you know, on a temporary work visa, you know, like a TN visa. Um, you know, things like that. It’s usually family related, work related, you know. Um, but more and more I am getting a lot more interest because of people, you know, primarily being interested in moving to Canada because of political reasons and social reasons here in the States. So that is a trend I’m seeing more and more of.
Josh Hile:
Yeah. And so, and is there a higher demographic of Canadian citizens versus U.S. citizens or dual citizens that you’re working with in most cases?
Lucas Wennersten:
The US is a much bigger country, and, you know, there’s a lot more opportunity here from a just a business, you know, even educational standpoint. So in general, I think that there’s more— just among the general population, I think there’s more desire in Canada for people to come down to the US to, you know, take advantage of business opportunities or, you know, just to get into a warmer climate. Um, so yeah, I see, um, on the US side Usually it’s people wanting to move up for family reasons and things like that. It’s a lot more common that businesses are expanding into the US than the other way around. It’s more common that tech companies, for example, are buying Canadian startup companies, and that, that, uh, brings a lot of cross-border movement.
Josh Hile:
Yeah, and I, uh, maybe, um, that kind of goes into types, like what kind of types of clients are you usually serving, um, in, um, both in Canada and in the US?
Lucas Wennersten:
As far as sectors that we work with and age groups and stuff like that, it’s pretty much everything all across the board. We do have some domestic-only clients on both sides of the border that don’t have any cross-border, you know, complications, but our expertise is in cross-border financial planning and investment management. So the majority, I’d say probably 80 to 90% of our clients, do have cross-border complexities. It’s everything from, you know, people that are in their early 20s, um, all the way into, you know, later stages of life that are retired and things like that. A lot of our clients are coming to us kind of around retirement age as well. So we do get the clients who either inherit money on the other side of the border, they move up for work, or, you know, sell a business on the other side of the border. But it’s very common that people will move for work purposes, spend a chunk of their career here. Sometimes it’s planned to be temporary, and then they end up making it, you know, more longer term. But people moving back to their home country around retirement is very common.
Josh Hile:
And maybe since you touched on it earlier, you can talk about kind of the tax work, because I, I would assume that’s the most complicated part of this, other than like probably tax and estate planning. But like, how do portfolios differ when taxes are involved, and how do you have to change essentially portfolios based on if the client’s living in Canada versus the US?
Lucas Wennersten:
So tax, as you probably realize, kind of reaches its fingers into everything. It touches everything in your financial life, and that’s even more so true when you look at the border context. And yeah, it does get a lot more complicated. Um, for one thing, I mean, probably the most important thing when you look at the U.S. tax system versus the Canadian tax system is that in Canada there’s no such thing as a joint tax return. Everybody files their own tax return in Canada. So there’s different strategies that you can use to income split, is what they call it. It’s called income splitting, where you’re trying to basically shift income from a higher income spouse to a lower income spouse so that that income is exposed to lower tax brackets. And it also extends into things like investments through what they call passive foreign investment companies. So any kind of foreign pooled investment vehicle like an ETF, private fund, mutual fund, anything like that is going to be considered a PFIC. And when you have a PFIC, you have to fill out Form 8621. And most of the time there’s going to be a mark-to-market election that’s made on that form, which basically means that you don’t really get any more tax deferral as a result of not selling securities because the growth in those securities is going to be taxed on an annual basis. Also, the interest, dividends, all the other investment income is going to be taxed on an annual basis, and it’s much higher tax rates than what you would experience on the personal level. So that’s something you want to really avoid. And I think so, just to—
Josh Hile:
and maybe I’m understanding this wrong— so you’re taxed on an annual basis even if you don’t sell the asset? So if you own a mutual fund and it goes up by 10%, you would be taxed on that 10% increase in value in for Canadian taxation.
Lucas Wennersten:
So yeah, if you take the mark-to-market election, that’s basically what it means is that you’re marking the value to market every year and then you’re paying capital gains. Well, it’s not even capital gains tax in this case, but you’re paying tax on those capital gains annually.
Josh Hile:
And because, yeah, they’re— I mean, they’re unrealized. And so What’s the other election you can do then?
Lucas Wennersten:
Not really up to you. There’s what’s called a QEF election. And in order to take the QEF election, first of all, it’s almost exclusively— I think it might be exclusively with mutual funds. And the fund company has to produce the QEF information that you need. So without the information and the slip that comes from the company, you can’t take the QEF election. You won’t be able to get the information that you need for that, for that election. So that’s very rare. I mean, there are funds out there that do provide the QEF information, but they’re not very common. And obviously there’s other things to take into consideration, you know, as far as exposures and performance and stuff like that as well.
Josh Hile:
Hmm. So essentially you’re going to be paying taxes on those unrealized gains no matter what. And then you— but on the back end of that, it makes it easier to rebalance your portfolio on a more consistent basis because you’re already paying taxes. And so you already have a higher cost basis on everything.
Lucas Wennersten:
That’s true. But like I said, the tax rates are a lot higher. Yeah, paying at the top marginal tax bracket rather than 15% or even where your normal marginal tax bracket would be. So it’s going to be very punitive. And for U.S. citizens living in Canada, you’ve really got two options. Assuming that you’re not going to use mutual funds that have the QEF election, which like I said, is very rare, you can invest in individual securities in Canada. So individual stocks and bonds. Which obviously limits your diversification a lot. Canada, last time I checked, was only about 3% of the world’s equity value. So typically in Canada, you’ll see with Canadian portfolios, they still have a really large exposure to the US market through Canadian ETFs and mutual funds, sometimes individual stocks. And that’s fine for Canadians, but for US citizens living in Canada, then those are all considered PFIX unless it’s the individual stock route. So when you have, you know, when you’re living in Canada, number one, you have to think about diversification. And then when you diversify globally, you have currency exchange exposure, and you got to start thinking about hedging. Obviously, hedging introduces new costs to the portfolio. And so trying to balance all that, you know, with people have assets on both sides of the border, um, can be challenging at times. You know, you can plan around it, and, and there’s ways to make it work, but it’s not as easy as just doing it, you know, on a domestic perspective.
Josh Hile:
And how does that change kind of like your traditional model portfolios between— like, or does it— like between borders? Like, if it’s like citizen or U.S. citizens who are living in Canada or vice versa and how much you’re going to wait to municipal bonds or fixed income or privates or whatever it might be. Is there any big differences there?
Lucas Wennersten:
Yeah, most of it’s regulatory. I mean, obviously if you’re living in Canada and you’re a US citizen, munis are not going to do a whole lot of good for you. First of all, you’re in Canada and it’s a higher tax jurisdiction. They’ve got more compressed tax brackets. And so it’s the Canadian deferral that you really need. You don’t need that US deferral. You’re going to have foreign tax credits that’s going to offset all that. So one of the things that people don’t realize is that ETFs are considered equities. They’re exchange traded. And so Canadian custodians can buy US ETFs through our exchanges and custody them in Canada. So for some people that are here in the US temporarily, they’re not US citizens and they’ll be severing their US tax ties when they leave. It’s helpful to invest in ETFs exclusively if you can, so that they can transfer those securities back up to Canada. You know, once they sever their tax ties with the US, they don’t have to report capital gains anymore, and they get a step-up in basis. So in other words, their, their new cost basis when they enter Canada is whatever the market value was on that date of entry. So, you know, that’s— that kind of thing works out pretty slick. And we’ve talked about this before a little bit in that both for mutual funds and for privates, you pretty much need to have a U.S. address, like you need to be a U.S. resident. And so Canadian custodians are not going to be able to hold those securities to begin with. And so, you know, if you have people that are moving to Canada, that’s something that needs to be taken into consideration. If you have clients that have qualified accounts and you want to buy those types of funds in a qualified account, you can do that as long as you do it before they leave. Fund companies are not going to make you sell or do any kind of forced liquidation, but what’ll happen is you’re not going to be able to buy anymore. So you can try to kind of nail that allocation up front, but obviously it’s going to move around a little bit over time and you’re not going to be able to add to it. So you have to kind of build around over time. So those are some of the things that we run into. Obviously, we’ve got currency exchange issues that we deal with and we try to mitigate currency exchange risk as much as possible by migrating to the currency that people are going to need. For their retirement. But you want to be smart about that. And obviously you don’t want to convert when the currency exchange rate is not advantageous to you. But like what I was telling you about with, with PFIX, you know, sometimes it’s kind of pick your poison. Do you want to continue to invest in Canadian dollars or do you want to convert to US dollars and get access to the bigger US market? There’s a lot more funds available on the US market. I would argue that there’s probably better fund managers on the US side and that there’s more depth of experience and different types of alternatives that are available, different funds, different investing styles and stuff like that. Historically, the US market, if you look back around the last 50 years or so, the US market has outpaced the Canadian market by almost 2%. So when you’re looking at long-term portfolios that might be invested for 20, 30, 40 years, even though you might take a hit on the currency exchange upfront, it still might be better for you to have US access, you know, where you might have access to more funds, you know, different types of investments and potentially higher returns.
Josh Hile:
Yeah. And then I guess this is kind of a two-sided question. Do you use any privates right now? And then where are you seeing opportunities for clients and their portfolios?
Lucas Wennersten:
Yeah, we, we do use privates. Across the board, we pretty much use private debt. Not across the board do we use private equity, but we do have some exposure to that. We added some infrastructure exposure recently. We have a lot of managed futures exposure, commodities, gold, you know, other precious metals, things like that are part of our portfolios.
Josh Hile:
And what, what percentage of portfolios are usually in privates?
Lucas Wennersten:
It depends. I mean, most of the time it’s around 20%. Sometimes it’ll be higher than that. You know, it kind of depends on what the objectives are of the client. Yeah. And, you know, when they come over, I think is kind of important as well, you know, with what’s going on with the market and the economy and stuff like that. So I’ve had some clients that have been a little bit heavy in alternatives for the last year or so, you know, with Liberation Day and, you know, uncertainty around tariffs and stuff like that. They wanted to take a little bit more conservative approach. And as you know, with privates, you’re going to, at least on paper, you’re going to get a little bit less volatility. And from a yield standpoint on, you know, like private debt holdings, you’re going to get a significantly better yield than what you’ll get with, you know, most public bond funds.
Josh Hile:
Yep. Yep. And what, what are you most excited about from like a portfolio standpoint, or where are you looking to like allocate capital for the next year based on the current market environment?
Lucas Wennersten:
Yeah, I mean, I believe in diversification highly, and I’m always looking to diversify amongst, you know, new sectors, different trading styles, obviously geographically. So I think there’s been a lot of good headway that’s been made, you know, over the last several years as far as alternative strategies becoming available more publicly, either through ticker symbols or in a mutual fund structure. So I’m excited about that. And I expect that to continue. I think there’s obviously a lot of opportunity there for fund companies, probably more and more demand from investment managers over time. I think AI is going to take a bigger, bigger role in the market, you know, in general, how practices are run, you know, communication and all that kind of stuff. One of the good things about, you know, tech and as it develops is the capabilities that we have as advisors to be able to access information, model portfolios, optimize portfolios, you know, and that kind of thing. So, um, I expect that alternatives will become a bigger and bigger piece of portfolios going forward. We’re already seeing that with institutional money. You know, institutional funds typically have much higher higher allocations to alternatives than retail investors do. And I’m not saying that allocations should be too high, but alternatives do offer different return streams than public equities. A lot of them have low correlation levels and lower volatility. So I think they’re a really important part of portfolios and can really help improve risk-adjusted returns and help investors to have a better investing experience overall.
Josh Hile:
Yeah, yep, definitely 100% agree on all those points about just especially on the like really when you’re trying to get into privates, you’re really looking for that diversification, volatility dampers, um, also like income orientation and even the tax-advantaged nature of some of these privates that you can get into and really take advantage of non-taxable income within those. Um, one of the things you mentioned before we were jumping on this call is adding kind of, you know, CPA like, or tax planning services to your practice. And maybe you can talk about like how that is impactful both for your clients as well as from a growth perspective, essentially. Like, I would assume that’s incredibly valuable to your clients and can be a referral source for you to be like, hey, we can add tax planning and really help you on these tax situations because clients love saving money on taxes.
Lucas Wennersten:
Yeah, absolutely. I mean, we were already doing tax planning, you know, as part of our comprehensive financial planning, but really our tax preparation assistance service was born out of a demand from clients. You know, it’s a lot more difficult to find cross-border CPAs than it is domestic-only CPAs, obviously. And the cross-border CPAs tend to get very busy. Sometimes the communication is not the best. And so, you know, our clients were telling us, we wish you guys were doing taxes. We wish it was more of a one-stop shop. And so that’s really what we, what we aim to offer. The only things that we don’t offer are banking, insurance, and legal, legal work. And so we went out and we found a few different relationships that are, you know, reliable, that we can depend on, where we’ll have priority with them and, you know, preferential pricing. And, um, so we basically facilitate the tax prep. We, you know, work with the client, gather all the information, make sure the file is complete. Once it’s complete and we’ve got all the information we need, we hand it over to our CPA partners, they prepare the returns, and then we kind of take it from there. If there’s any questions, we answer it the client. And it has been really great. To your point, it’s, you know, it’s very insightful as far as what’s going on in clients’ situations. It’s led to a lot of new prospects coming in. It started out where we were just going to offer it to existing clients, and we decided to expand beyond that. So we’re offering, you know, just tax prep only for some new prospects. That has led to a lot of financial planning. I do hourly consultations, personal planning consultations. So obviously when you’re running across tax stuff, it’s going to lead to other conversations about, you know, why is this being taxed this way? And, you know, what should I do about it? So yeah, from a growth perspective, it’s been great for our firm. It’s been great for raising awareness and everything. All the other services that we offer, you know, have benefited from new prospects that are coming in because of tax. Everybody needs tax, you know what I mean?
Josh Hile:
So yes, they do. And I think that’s actually one of the best value adds financial advisors can add. And I think a lot of people underlook what people can do from a tax perspective because for some reason, um, there’s a lot of, uh, or there’s a lot of clients who think that their CPA should automatically be looking for like tax savings. And it’s like, well, that’s not their job in most cases. Like, that’s not what they’re trying to do. They’re trying to like— you tell them what to do and they’re going to file your taxes, but they’re not tax strategists in a lot of cases. And usually you have to bring in a financial advisor to really help on that side of things.
Lucas Wennersten:
So yeah, yeah. And, you know, not all advisors can talk about tax for licensing and registration because of limitations there. And from my personal perspective, like, I did prepare tax returns on both sides of the border for the first 8 or 9 years of my career. And I would not feel comfortable doing this, you know, even as a tax prep assistance service if I didn’t have, you know, more experience and was aware of what should be on there and how to, you know, could, could find things that were incorrect and things like that. I mean, our CPA partners are fantastic, but— and I’m learning a lot, you know, particularly about like corporate structure planning and stuff like that in the cross-border sense. Um, there’s always room to learn, but you got to be careful. I mean, if you’re going to offer a tax prep assistance program, you know, make sure that you find reliable CPA partners that are going to be, um, not only good with you but also, you know, will answer questions for you and stuff. And, uh, you know, make sure that it’s something you’re going to be comfortable Yeah.
Josh Hile:
So maybe looking forward, where do you see your business going? And maybe just like financial planning in general going over the next 3 to 5 years, what do you think that looks like?
Lucas Wennersten:
I hope in general that the industry moves more towards a fiduciary standard where, you know, the sales and the advice are kind of separated either regulatory-wise or, you know, through different job titles and stuff like that. You know, but in general, I think that in markets there’s always things to be worried about. You know, there’s always bad news on the TV, but I expect markets to continue to grow. I expect, you know, more and more investment options to be made available to investors. You know, I think it’s great that alternatives are growing and even on the equities side of things, there’s always things that are changing. You know, factor investing has grown a lot over the years. I’m a big fan of factor investing. So, you know, we’re always looking for new opportunities and grateful for firms like yours that are out there finding them and, you know, bringing them to market.
Josh Hile:
Yeah, definitely. And just to close out, and I always like to ask something a little bit interesting. So what do you do outside of work? What’s your go-to?
Lucas Wennersten:
Really? I mentioned I have 4 kids and I do a lot of coaching, uh, probably more than I’d like to do. So I’m really a family man.
Josh Hile:
What sports?
Lucas Wennersten:
So my kids are 6, 9, 10, and 11. Last season, uh, they all played basketball, and I signed up to head coach one team and to assistant coach another, but the city was having a hard time getting enough coaches. And then, you know, at the end of the day, after several emails, I ended up taking on 4 teams as the head coach. So I had, you know, a 5-6 team, I had 9-year-old boys, and I had 10-year-old girls and 11-year-old girls. So that was fun. This season we’re all doing baseball stuff. I’ve done soccer, volleyball. I played baseball and basketball growing up, so that’s— those are what I know. But, you know, it’s— when kids are that young, you don’t have to know a whole lot. It’s more about wrangling them together, keeping them focused, you know, and trying to teach them a little bit while, while having fun.
Josh Hile:
Yeah, definitely. Wow, 4 basketball teams. I can’t even imagine the practice schedule there. That’s crazy.
Lucas Wennersten:
It was hectic. Yeah, Saturdays were just completely shot, you know, as 4 games spread out all day. So I’m glad that’s not the case this year. But you know, I have— it’s not that I have to, I want to go to their games. Yeah, I don’t need to put it like that. But you know, if I’m going to be there, particularly with practice and stuff, if I have to be there, I want to be there. I want to get involved, you know, I want to help out, you know, do what I can to help the kids. So it’s fun. And that’s, to be honest, I mean, that’s really all I do. I work quite a bit at this point, probably more than, you know, most people. And thankfully I work at home. Most of the time. My kids are homeschooled. Uh, another quick story, I’ll try to make it quick, is—
Josh Hile:
yeah, yeah, no, no, go for it.
Lucas Wennersten:
When we moved to Canada, my older two were in what they call JK and SK, which is kindergarten and preschool. So they have French immersion programs there, and so we were like, cool, we’re gonna put the girls in a French immersion program, they’ll know French fluently by third grade. A couple months after school started, uh, COVID hit, they went to remote learning, which is a complete waste of time, you know, for 5 and 6-year-olds. And then on top of that, the teacher was speaking French the whole time, which we don’t have any, any exposure to before that. So that’s when we ended up pulling them. Uh, we’ve been homeschooling them ever since. So even though I said I work a lot, I do, you know, I spend a lot of time with my kids and they’re here all the time as well. So yeah, I see them all the time.
Josh Hile:
That’s amazing. I love it. And, um, I thank you so much for coming on and, uh, talking us through this. And, um, we’ll definitely include, uh, information about your firm so that people can find you, especially those looking for these specialty kind of tax services and just what you can provide them there.
Lucas Wennersten:
Excellent, Joshua. I appreciate you having me. It was fun talking to you.
