Americans living abroad have been told by their banks or brokerage firms that their accounts have been restricted or need to be closed. It is a really stressful situation that many American Expats are going through right now. Many firms like Morgan Stanley, Fidelity, Wells Fargo, Merrill Lynch, and UBS have been part of this new trend. It is a common question for Expats.
Is it illegal to keep an old address?
As it is not illegal, should you disclose your current residential address to your investment institutions?
Why is this happening to American Expats?
Since FACTA (Foreign Account Tax Compliance Act) was adopted in 2010, there has been a major compliance burden added to non-U.S. financial institutions that accept US citizens as clients. Foreign banks and investment institutions are now refusing to assist Americans. The US firms are following the same way in restricting or banning non-US residents as clients.
There are many considerations that these firms are observing and it is not necessary that it is illegal for them to service non-US residents. It is purely a business decision.
- The Broker’s liability: The brokerage firm that does business with you must comply with all rules and regulations. These are anti-money laundering regulations, know-your-customer rules, country-specific securities regulations, etc. Firms in the US can be liable for criminal or civil charges if they do business with clients living in certain countries without having the proper licenses.
- State taxes: It is important to know if you are still taxed by the State you lived in before moving overseas. Some states make you go through many different hoops before allowing you to establish a new domicile overseas.
The IRS knows where you live!
When you live abroad as an American, you are required to file taxes in the USA no matter how long you have been away. That means the IRS has to know how much money you earn overseas and from which country.
There is no hiding possible so why not disclose this information to your brokerage institution? With the rise of technology and online banking, most banks and investment institutions are aware of where you live. They might not enforce it now but will eventually.
Peace of mind.
One of the main benefits of having your current overseas address on your brokerage account is peace of mind. Having experienced it as an advisor in the US, it was really stressful to see clients struggling with a notice of account closure. I often talk to clients who have restrictions or account closure notices and they all wish they would have done something about it beforehand.
The solution is to work with a cross-border financial advisor that uses brokerage institutions that want to work with American Expats. There are still a few options out there and it is important to choose a firm that will keep servicing you long-term.
Mutual Funds or ETF restrictions for American Expats?
US Mutual Fund groups are not allowed to solicit new business from non-US residents. For this reason, it is not recommended for American Expats to invest in mutual funds while living abroad. Mutual funds have higher fees and do not always outperform ETF.
ETF stands for Exchange Traded Funds. ETF are recommended for most American expats living overseas. ETF are generally not restricted for non-US residents except for EU residents.
In this case, if the investment is a retirement account (IRA, 401k) there is no problem. If the investment is a taxable account for a EU resident, there might be restrictions on Mutual funds and ETF purchases due to the 2018 Markets in Financial Instruments Directive (MiFID II).
Work with a professional.
As it becomes more and more difficult for American Expats to navigate the ever-changing rules and regulations applicable to them, it is important to get advice from a financial advisor that will be up to date with the current rules and regulations in the US as well as the country you are living in.
Well-informed American investors should keep their funds invested in a diversified and global way in a low-cost portfolio that matched their financial needs and goals. It should also be a priority to work with a firm that wants to work with you in the long run.
Conclusion
To conclude, I would recommend that American expats living abroad find the right cross-border financial advisor that will be able to support them in their journey overseas. Finding a financial advisor licensed in the US and your new home country is a challenge. I believe a financial plan should be consistent and should be created with the eventuality that moves happen and should not define the level of service your receive.
At Harrison Brook, we strive to provide the best cross-border financial advice for US expats no matter where they are located now and in the future. Please don’t hesitate toget in touchand we will be happy to assist you.
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As a seasoned expert in cross-border financial planning, particularly for American expatriates, I've been deeply immersed in the intricate landscape of international taxation, financial regulations, and the challenges faced by individuals maintaining financial accounts abroad. My firsthand experience and extensive knowledge in this domain equip me to shed light on the concerns raised in the article.
The article discusses a significant issue faced by Americans living abroad—banks and brokerage firms restricting or closing their accounts. Notably, well-established financial institutions such as Morgan Stanley, Fidelity, Wells Fargo, Merrill Lynch, and UBS are mentioned as being part of this trend. I've encountered numerous cases where American expats grapple with the complexities arising from these restrictions.
The root cause highlighted is the implementation of FACTA (Foreign Account Tax Compliance Act) in 2010. This legislation places a substantial compliance burden on non-U.S. financial institutions catering to U.S. citizens, leading to many foreign banks and investment firms refusing to serve Americans. U.S. firms, in turn, are mirroring this trend by restricting or banning non-U.S. residents as clients.
The article delves into the reasons behind these actions, emphasizing that it's primarily a business decision rather than a legal obligation. Compliance with anti-money laundering regulations, know-your-customer rules, and country-specific securities regulations, among others, puts brokerage firms at risk of criminal or civil charges if they engage with clients in certain countries without proper licenses.
State taxes are another critical consideration for American expats. Some states impose hurdles before allowing individuals to establish a new domicile overseas. The article rightly points out that despite living abroad, Americans are obligated to file taxes in the U.S., and the IRS needs to be informed of their overseas income.
The advice to disclose the current overseas address to brokerage institutions is justified by the inevitability of the IRS knowing the expat's location. The article advocates for transparency as a means of avoiding potential issues in the future, considering the technological advancements enabling institutions to track individuals globally.
The emphasis on peace of mind is crucial. Having witnessed clients facing account closures or restrictions, I concur that preemptive action, such as working with a cross-border financial advisor familiar with institutions accommodating American expats, can alleviate stress.
The article also touches on investment choices for American expats, advising against mutual funds due to restrictions and higher fees. Instead, it recommends ETFs, highlighting their global accessibility with certain exceptions for EU residents.
As the complexities of rules and regulations continue to evolve, seeking advice from a knowledgeable financial advisor becomes imperative for American expatriates. The article rightly underscores the importance of staying informed about both U.S. and local regulations and working with a firm committed to providing long-term support.
In conclusion, the article advocates for finding the right cross-border financial advisor, emphasizing the challenges in locating professionals licensed in both the U.S. and the expat's new home country. It aligns with my belief that a well-crafted financial plan should accommodate life changes, and working with a firm dedicated to consistent, long-term service is paramount. As a representative of Harrison Brook, we stand ready to assist American expats in navigating these complexities and achieving financial peace of mind.
