What to Do If Your Account Is Closed
The Foreign Account Tax Compliance Act (FATCA) has made it more difficult than ever for American expats to maintain U.S. brokerage accounts. Recently, a wide range of financial institutions has severely restricted the investment capabilities of Americans living abroad. Some have even closed expats’ accounts, leaving them scrambling to move their assets.
The reason behind many of these crackdowns is a renewed focus by financial custodians and mutual fund companies to enforce restrictions on non-U.S. residents. While these restrictions have existed for years, they were previously seldom enforced. However, brokerage firms have been under additional pressure to comply with anti-money laundering and anti-tax evasion legislation, which imposes sanctions if a financial institution isn’t able to verify the source of a client’s overseas income. Due to the challenges of tracking this overseas income information, many firms have decided to close their doors to non-U.S. residents.
If you discover your brokerage account will be closed due to a move abroad, consider taking the following steps.
#1 – Determine whether exchange-traded funds (ETFs) are an option.
Depending on your current country’s regulations and your broker’s specific restrictions, it’s possible you may still be eligible to invest in U.S.-based ETFs while living overseas. ETFs provide diversification benefits similar to those of mutual funds, with the potential for additional tax and cost efficiencies.
#2 – Shift to individual stock and bond holdings.
You may also have the option to hold individual stocks and bonds while living overseas. A benefit to this approach is that you may have added flexibility to determine your specific account allocation. On the downside, a portfolio of individual securities may be riskier, more time-consuming and more expensive to trade and maintain than funds.
#3 – Be cautious when maintaining a U.S. address.
In order to maintain their U.S.-based investment accounts, some American expats continue to claim a U.S. mailing address while living overseas. You should understand that this option carries risk, as it likely violates your investment firm’s terms and conditions. If your investment institution detects frequent logins from overseas, it may freeze your accounts. Also, maintaining a stateside address while living abroad may subject you to state tax liabilities. We generally don’t recommend this approach.
#4 – Work with a U.S.-based international wealth advisor.
While many U.S. brokerage firms are closed to individual expat investors, it’s still possible to maintain a U.S. brokerage account through an approved third-party advisory firm. For example, Creative Planning maintains relationships with several brokerage firms on behalf of our clients, which allows these clients to maintain their U.S.-based investment accounts while living overseas. In addition to accessing U.S. investment accounts, partnering with a qualified international wealth advisor can help you avoid other potential investment pitfalls.
Are you ready to start working with a qualified international wealth advisor? At Creative Planning International, we specialize in helping expats and cross-border families maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and help clients develop operationally and financially efficient wealth management strategies customized to their unique set of circumstances. Because we serve in a fiduciary capacity, you can be confident we’re acting solely in your best interests.
Moving abroad doesn’t need to derail your financial goals. Give us a call — we’ll be happy to help.
