How advisors can serve U.S. expat clients

Although there are as many as seven to nine million Americans estimated to be living abroad at any given time, widespread knowledge among U.S. financial advisors on how to advise expat clients is lacking — particularly in those parts of the U.S. where few residents leave for more than a few weeks of vacation or the occasional business trip each year.

Indeed, the Financial Planning Standards Board, which oversees the Certified Financial Planner certification globally via a network of outposts, regards the business of working with regards the business of working with U.S. clients “whose interests cross borders” as involving “substantial complexity” along with “a substantial duty of care to get it right for the client.”

U.S. tax specialists are thought to be more tuned in to the process, in part because they have had to be, as taxes are at the root of many of the biggest issues American expats face, and also because many of the tax issues facing expats also affect some stay-at-home Americans.

James Sellon, a managing partner with the London-based expat advisory firm MASECO Wealth, which he co-founded in 2008, says the difficulties for those advising Americans became more complex “from the mid-2000s onwards.”

This was when regulators worldwide began responding to investment scams and scandals in their respective countries by tightening up on the types of products that could be sold to their residents and citizens, “and at the same time began raising the qualifications advisors had to have to advise these countries’ residents,” Sellon says.

Chris J. Ratcliffe/Bloomberg

Just the FACTA

Also around the same time, many countries, including the U.S., began cracking down on money laundering, tax evasion and the financing of terrorism and crime, with an ever-increasing tangle of new regulations.

In the U.S., this took the form of stepping up enforcement of the 1970 U.S. Bank Secrecy Act; introducing the post-9/11 U.S. Patriot Act ; and – from the perspective of U.S. expats — the most game-changing new regulation of all: the Foreign Account Tax Compliance Act.

Because it demands information from foreign financial institutions around the world on all of their American account-holders, FATCA shone a spotlight on the finances of America’s millions of expatriates and in the process, alerted the U.S. tax authorities to a vast U.S. tax base that until this point had been largely ignored.

The result is that expat Americans have become burdened with annual tax- and bank-reporting obligations, while from a banking, savings and investment point of view, few companies will have them as clients anymore.

Even American companies often shun American expats.

“Everything changed with FATCA,” remembers David Kuenzi, founder of Madison, Wisconsin.-based expat advice specialist Thun Financial, part of Creative Planning.

“With FATCA, they were targeting Americans in America who had bank accounts in, say, Switzerland, that they weren’t reporting properly. Americans abroad were never the target,” he says. “But of course, the way the regulations were written, they were caught up in it.”

And still are today, as American expats and their advisors report.

“In the case of Americans living in the United Arab Emirates, at one point there was only one investment provider willing to work with us to open new accounts,” says Vince Truong, a partner of Holborn Assets, Dubai, who is himself American.

“Now there are two that I’m aware of: Interactive Brokers, Charles Schwab and one international provider, Praemium,” Truong says.

The Financial Planning Standards Board recommends that CFP professionals in the U.S. who are facing the prospect of advising a client who has moved to a new territory “form professional relationships/partner with CFP professionals (and possibly other financial specialists) in that new territory, in order to properly serve” this individual, and any future clients of theirs who also end up there.

“CFP professionals’ ethical obligations require them to be competent in all areas in which they advise clients, and to provide full disclosure to clients with regard to the limitation of their scope of services or competency,” a FPSB spokesperson said.

The ‘I’m going overseas’ conversation

Below, some of the key points that those who specialize in advising Americans abroad say U.S. financial advisors need to know when one of their clients announces plans to move overseas – whether for a few years, or permanently.

• Make sure your client knows that all American citizens are expected to file a tax return to the U.S. every year, just as they would if they were still living at home. The deadline for filing, though, is June 15 rather than April 15. Controversially, this need for American citizens to report their worldwide income to Uncle Sam every year, “regardless of where [they] reside,” how long they live abroad, or whether they pay taxes in the country in which they now live, lasts as long as they remain U.S. citizens. A comprehensive summary of what the U.S. requires of its expats may be found here.

• Like Americans living in the U.S., expats can also check out their filing income thresholds and other requirements on the IRS’s website, which, for those with 2020 returns to file may be found here.

• Married couples who are both American can file jointly. Many Americans married to non-Americans find that it’s more tax-efficient to file as “married filing separately.”

• Expats, who often end up paying taxes and other deductible costs while abroad, can usually avoid being double-taxed if they are correctly advised and may end up actually owing little, if any, in U.S. taxes, depending on their circumstances.

• Even if your client appears to owe no U.S. tax, thanks to such deductions as the Foreign Earned Income Exclusion and Foreign Tax Credit, they should still file a return, as they “need to file in order to claim it,” a spokesperson for the IRS emphasizes.

• U.S. advisors also need to know, and to tell their clients, that there is a major “information reporting” requirement – in other words, not a tax requirement – that they need to be conscious of, and take into account: The Foreign Bank Account Report. The penalties for failing to file such FBARs can be massive.

• A client who delegates the preparation of their taxes to a tax provider is urged to ensure their provider includes a valid “Preparer Tax Identification Number,” or PTIN on the return, along with their signature. To see a list of expat tax preparation services on the American Citizens Abroad’s website, click here.

• Advisors must emphasize to any clients still building up their savings and pensions to take advice early on and regularly while abroad from someone who is well qualified to advise them. The expat investment landscape is full of dangers, including such seemingly-benign products as non-U.S. mutual funds. Says Holborn Assets’ Truong: “Have a conversation with your clients about not opening any foreign investment accounts without discussing it with you first.”