Why American Brokerages are Avoiding You
Let’s just say that you’ve moved to France, leaving behind in the U.S. an old retirement account and a small brokerage account where you had put a bit of money in stocks or mutual funds. You’ve just made sure all of your European brokerage account investments are out of funds and into stock shares, government bonds or cash to avoid the PFIC tax problem I discuss in this article. You aren’t worried about the retirement account thanks to the PFIC regime special exceptions. So, you should be all set…right?
Unfortunately, no. This is where the legislation from this side of the Atlantic comes in. You have probably already read here and elsewhere that the U.S. reporting requirements mean that a lot of foreign banks do not want to work with Americans. But there are also European Union regulations that mean that U.S. banks and brokerages might not want to work with you.
The MiFID II Regulations
In January 2018, the European Union released its new regulations to protect consumers in the financial industry. Complete with new reporting and transparency requirements, especially around fees and investment risks, the new legislation applies to just about everyone involved in finance. That includes your financial advisor, insurance agencies, brokerages houses and banks, among others. In general, all of this is a good thing. The financial industry is notoriously complex, and a lot is a stake for consumers. But the new rules also mean that big financial companies needed to make some substantial—and costly—changes to their procedures and materials. Many of the big U.S. financial companies just decided to not bother.
As a result of this, brokerage houses and firms routinely deny account applications for Americas living abroad. And many Americans who already have accounts have had those shut down once it becomes clear that they are now EU residents.
If you are already living abroad, you probably use a U.S. address for certain business and personal matters you can’t simply drop just because you moved. Many Americans abroad list this address as a “residence” for the purposes of credit cards, bank accounts or investment accounts. If this is actually a residence for the person listed on account, that will work. If not, you risk having the account closed involuntarily if the brokerage or bank finds out and it is on the long list of financial instutions who have enacted this policy.
So what can you do to keep things above-board?
Let me start by saying that it isn’t easy. American expats are collateral damage in what has become a very fractured global effort to protect financial consumers, and fight terrorism and prevent money laundering. There are a small number of investment firms who specialize in cross-border finance for Americans. And they work with an even smaller number of brokerage houses who are willing to comply with the international requirements (Interactive Brokers is famously helpful here).
If you have large accounts or a complex financial issue, you may need to go that route. But here are some things to consider:
Are your accounts IRA’s, 401k’s or other retirement accounts? If so, you will have to leave them in the U.S. and in your name. Many custodians/brokerage houses will allow you to do this, but it will depend on that institution’s policies.
Do you have small accounts earning very little and/or accounts you expect to use in the next year or two? In this case, it is probably worth closing the account and keeping the money in some form of higher-interest savings account that you already have in the U.S. or a new one in France (this article includes a partial list of French account options).
Do you have a non-retirement account with large capital gains? If you end up having to close this and aren’t able to find a new brokerage to hold it, be ready to look at options for tax mitigation. This can mean harvesting tax losses elsewhere, looking for extra deductions in a particular year or making charitable donations with your investments. A good financial planner can assist with identifying tax mitigation strategies that would work for your situation.
No one answer to this problem will work for everyone. There are resources out there for American expats with money to invest. The real challenge is in identifying what you need or want from your investment accounts in the short, medium and long-term. When you know that, you will be in a better position to make use of what’s available.