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.
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 to get in touch and we will be happy to assist you.