Solutions for American expats barred from using US brokers

Published:  23 Dec at 6 PM
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Tagged: Thailand, Money
US expat investors are now mostly banned from using US-based investment brokers due to the effects of FATCA on withholding requirements and additional reporting, but there are now solutions which allow trading in low-cost index funds.

Rather than assuming extra burdensome paperwork due to FATCA, the majority of US-based brokers are not now accepting new expat investors, with some even freezing the accounts of existing offshore clients. Expats in Singapore and Thailand are the latest to fall foul of the ban, leaving companies in the Isle of Man and other offshore jurisdictions seemingly the only options for expat investment.

However, offshore insurance companies offering investments are Trojan Horses in disguise, as many expats have found to their dismay. Portfolios are mostly not diversified, fees are tricky to understand and as high as 5 to 7 per cent overall, and withdrawal before a pre-selected date will take a massive bite out of the investment. Tax penalties are another major risk, and these companies are a license to print money for unqualified expat IFAS due to their generous commissions.

For even beginner investors, specialised brokers provide low-cost exchange traded funds which allow inexpensive building and rebalancing of your portfolio. These brokers don’t hold your hand or give advice - plenty of which is available online - they simply execute investment trades. Anyone with $10,000 or more to invest can open an account, do some homework and begin, with charges set at as little as $1 per trade for those investing over $100,000. For the less wealthy, they levy an average of $10 per month.

For do-it-yourself investors without a degree in finance, the best way forward is to take advantage of the simplest solution. Two Vanguard funds, Total World Stock ETF (VT) and Total Bond Market ETF (BND) charge very low percentages and give exposure to both foreign and US stocks. Both base their weightings on global market capitalisation, with Total Bond Market ETF charging 0.06 per cent per year and Total World Stock weighing in at 0.14 per cent.

Being in charge of your own investments may seem like a major challenge, as are many other learning processes which lead to success. At the very worst, you’ll avoid FATCA and, more importantly, any attempt by unprincipled, commission-hungry expat FAs to part you from your hard-earned cash.

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