They chuckled and hung up the phone, didn’t they? Yep, you called XYZ Brokerage of St. Louis, Missouri to open your first investment account with them, but they weren’t interested in that paltry sum from a US expat. Or maybe you were a longtime client of XYZ Brokerage and had your account frozen or closed because they found out you were a US expat.
A lot of US financial institutions have decided that it just isn’t worthwhile dealing with you as an expat. Most 401ks and 403b seem to be fine, but taxable brokerage accounts and IRAs have seen closures left and right. There are just so many regulations and threats of penalties that your brokerage may only want to deal with expats that have more than $5,000,000 to invest (yes, that’s a real-life example).
If your $5,000,000 is more like $5,000, what can you do? You know it is more expensive, less transparent, and also often highly taxable in the US if you invest through a brokerage in your country of residence, but can you even open an account with a US brokerage? Yes, you probably can.
Here are some suggestions that may make it possible to open new US financial accounts. There are two scenarios: (1) you want to open an account with a brokerage that doesn’t particularly want your business as a limited-income US expat or (2) you find a brokerage that wants to work with US expats.
Opening a US account not designed for US expats
We’ve made these first two points elsewhere, but they bear repeating.
> Maintain and use an active US address
If you are having your brokerage mail your statements to your foreign address or simply just never had a US address to use, you’re just asking for trouble. As far as I know, we are fully within our rights to maintain a US address and that alone resolves a lot of problems. Having your official US address remain with a relative or close friend should be an easy solution. (Although you may want to be aware of state and local tax implications.)
> Keep your US drivers license (or state ID) up to date
While our US passport is our go-to document abroad, financial institutions often require a state-issued ID of some sort. There is no address on a passport. Every state’s regulations are different but planning ahead is key. Can you renew it online? Can you renew it online multiple times or just once? Are you planning a trip Stateside? If you have an ID that will likely expire before your next trip to the USA, see if you can renew it early while you’ve got two feet on American soil. Speaking of American soil…
> Do it while stateside
It might be wise to open new accounts when we are in the US for 2 weeks, 2 months or 2 years. If we can receive mail at our US address and have access to an American cell phone number, many problems can be averted. Some banks and a lot of brokerages are requiring the ability to call you back to verify your identity when opening a new account or are requiring two-step verification via text message. That’s a lot easier to arrange while in the USA.
> Proving you have a US address
When opening new accounts, more and more institutions are asking not just for a state-ID to prove your address but for a copy of a utility bill in your name at the given address. That may be problematic. Are you actually paying an electric bill in the USA? Probably not.
Sometimes a little creativity may be in order. I’ve used or know of others who have used a credit card bill, a state tax bill, an account statement from another financial institution, or a shipping invoice (like a package from Amazon) bearing the address in question.
I once had to prove my address to open a bank account at PDQ Bank, so I sent them my credit card statement for my card issued by, you guessed it, PDQ Bank. Yes, it is usually much easier to get a US credit card than a US bank account. Even though they asked specifically for a utility bill, I just gave them their own credit card statement. I guess PDQ Bank decided that they themselves were a good enough reference.
> Answering those pesky questions
While we should not be lying about our international lifestyle or our work abroad, this is not the time to volunteer information that is not required. I recommend truthfulness but not necessarily expansiveness. Brokerages, in particular, are asking more and more questions ranging from your risk tolerance to how much you earn. Here are some of the harder questions for expats. How would you answer them?
Question: “What is your job?”
Saying, “I’m a pastor who helps churches in Thailand, the USA and so on” sounds a whole lot better to them than, “I am a missionary, living mostly in Thailand for the past 6 years.” If they don’t ask you where you perform your work, don’t offer it.
Question: “Are you a resident of the US?”
Believe it or not, there are many legal and tax meanings of terms like “residency” and “domicile.” If a financial institution were to ask me if the US is my primary tax residency, I would say, “no.” Most of us are non-resident, US citizens whose tax residency is in the foreign country in which we live. At least that is my understanding. However, the bank or brokerage clearly wants a “yes” answer here. As a US citizen with a valid US address, I believe that we do have a form of legal residency in the US (as well as overseas). If we can truthfully answer “Yes,” that will cut through a lot of red-tape that may otherwise be impenetrable. If that doesn’t seem truthful in your situation, you’d better try the second scenario.
Question: “Who is your employer?”
If you can truthfully give them the name of a US organization, that’s really going to be a huge benefit. If the truth is that you are employed by a foreign organization, that’s going to be a big red flag for any US financial institution. I’ve heard of many expats saying that they are “retired,” when that is not the case. I do not think that is either honest nor wise. I suppose we could leave it blank, but that will probably raise questions about where our income is coming from.
Opening a US account that actually wants your business
Opening a bank account isn’t usually terribly difficult if you have a US address, but as we saw above, brokerages make it difficult. The truth is that they have to make it difficult. They are required by law to “know their clients,” and some investments, including mutual funds, are not supposed to be sold to US expats. So if the machinations above seem shady or impossible for you, do you have any other options?
The good news is that a few brokerages have decided to openly target the needs of US expats. Because my investments are in accounts I opened long ago, I’ve not walked this path just yet, so I interviewed Mark Zoril (the $96/year financial advisor) about it. For starters, I asked, “Do you have an opinion of Schwab International?” He replied:
In my experience, Schwab International is a very limited option in just a few countries and requires $25K to open. This can be a barrier to many. That being said, I think Schwab has a great trading platform and great low-cost ETF’s!!! And if you use their platform and buy their ETF’s there is no charge.
For our European colleagues, Mark adds, “Schwab UK can also open accounts for American’s abroad. They do this on a limited basis – for many people in the European area.”
Knowing that wasn’t going to work for everyone, I was curious if he had any other suggestion. Mark said that at PlanVision…
Most of my clients use Interactive Brokers and it works well. It is easier to setup your account and the cost, for Americans, is $10 a month. So, it is not too pricey.
Do your research and pick what’s right for you between Schwab International, Interactive Brokers or other brokerages that are hoping to garnish business in the US expat market. Whatever you do, make sure that your brokerage is an American brokerage, reporting to the US government. Investing in a foreign brokerage can open up all sorts of reporting and taxation issues in the US. Don’t do it!
So, whether we are dead-set on trying to open an account at Vanguard USA (great, low-cost funds but not-available to non-US residents) or are happy with Interactive Brokers, we have solid, low-cost, brokerage options that will allow us to invest in diversified index funds. There is no excuse for we as expats to not start investing and doing it today.