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What kind of problems do you experience as an expat?

jtk

New member
Hi Adam. To answer this question, the biggest problem I feel is lack of coherent information.

There are lots of articles about how US expats should never invest with foreign banks (in this case, banks in your country of residence) due to PFIC taxation. And how many foreign banks/companies refuse US citizens as a result of FATCA. And how most US-based banks refuse US-citizen expats, though there is never any explanation as to why that is the case. Many say "because of FATCA" and "reporting obligations", but seeing as how FATCA exists to force foreign banks into disclosing US citizen information back to the IRS, it is unclear why US-based banks would refuse an expat.

There are lots of questions no one seems to address, and for the residency country I will use Norway as the example:

1. Many recommend using a US address (of a relative, as example) in order to claim "US residency" to open an account. The legality of this is never discussed.

2. Taking #1 into consideration, Norway requires their residents to declare worldwide earnings. This is never addressed in relation to #1 above. If the US-based bank in question requires US residency and you successfully open a US-based account using a US address for "residency", what complications arise when you, as a real tax resident of Norway, have to declare those earnings?

3. PFICs, FATCA, MiFID II: Due to PFIC taxation, it is generally recommended for US expats to only invest with US-based companies into US-domiciled ETFs. MiFID II, however, apparently doesn't allow European residents to invest in US-domiciled ETFs. So....what?

4. Clear implications of investing in PFICs. Very little information is given besides "heavy taxation will occur" and "complicated paperwork." It would be nice to understand this in a little more detail, including whether Norwegian/resident tax would be deducted in addition to the PFIC US-tax rate, or if you would pay resident tax rate + the difference in tax then to the US (tax treaty?).

5. What actual, real-life options do US expats have besides being recommended to speak with a tax expert? Naturally, that is important and should be done. However, I wish some real example recommendations (ie. banks/companies/services to look into, etc) were given. I would prefer to have as much knowledge and information as possible before paying high fees to a tax expert only for them to use their allotted time to simply educate.

This is my frustration. And judging by the myriad of posts on Reddit by US-expats, I am far from the only one with these questions.
 
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jtk

New member
Hi Adam, thanks for the reply. Could you please link it? I may have read it, but I am not sure. I saw one article from 2019 or 2020 I believe. It was one where you talked about working on a robo-advisor app for expats if I recall correctly. A real robo-advisor accessible to expats is really something I would like. Canadians have one, why can't we!? That's a bit of a joke but completely relevant because it is true (CI Direct Investing).

A primary reason I'd like one is because I do not have $50k on hand to invest (an example). I want to save/invest monthly with something like Betterment, Wealthfront, or the myriad other options US residents have without some wild minimum.

By the way, I just earlier watched your interview with the guy from Beacon. You two were fantastic, he obviously knows his stuff and seems like a treasure trove of valuable knowledge. Have you done any more videos with him?
 
You are also correct in suggesting that robo-advisors are a great option if somebody doesn't have a sizeable lump sum to invest. I will soon be having access to a US license but usually it is best for people with 100k or more, as monthly investment options in the US can't be done efficiently through advisors.

So I, like you, would quite like to see a robo advisor deal with this niche of people who want advice but aren't able to get it efficiently.
 
One option you might want to consider is "index hugging". In other words, rather than investing in funds and ETFs, try to mimic the market by buying the top 20% of the S&P500 by market cap.

I guess you have already heard about this option though. It reduces the risks associated with holding individual positions.

It isn't perfect, but it reduces these issues you allude to.
 

jtk

New member
I have thought about the index hugging, though it makes me nervous since I am completely new to this. I will research more, however.

I know Schwab has a robo-advisor feature, though whether or not it is available to international customers is an answer I haven't been able to find. They have a $25k minimum for international. Also, they do not accept Norway residents (had this confirmed by them earlier today). As far as I can tell, it looks like they may only accept residents of countries in the drop-down list they provide. I saw somewhere this number has been shrinking as well.

Another I found is Dunhill Financial who say they have partnered with some platform called Praemium to offer expat services with compliant reporting. I am not sure if it involves robo-advising since the information is a little sparse and Praemium's information is confusing (I believe they are just the platform, an intermediary of sorts). Dunhill is $25k minimum as well. I found an old 2016 press release saying Cross Border Planning, a company from Belgium, was releasing a robo-advisor called OmniWealth for expats, but that is almost all I could find. What brought me to Dunhill was that there was another later article saying Dunhill merged with Cross Border Planning (perhaps absorbing the OmniWealth, which used to be OmniWealth.eu which does not exist anymore). That was down a bit of a rabbit hole.

There's a number of robo-advisors in Norway, but that's pretty likely to be only for non-US persons. One company, NordNet, states clearly they do not accept US-connected people. This is probably pretty similar across most countries. I'd have to check if the larger banks accept us for investing (and if it is compliant), or if they only accept for bank/savings accounts.

Basically, it looks like practically nothing is available to us. Not locally, not US-based. The only thing available is either Interactive Brokers or going through an expat-friendly financial advisor.

I am a little surprised this does not exist considering there is around 4.8 million Americans living abroad. Perhaps "niche" compared to 330 million, but 4.8 million is the size of Ireland.
 
Yes index hugging can work. Schwab are a funny one in that they have been inconsistent. I have heard that they have sometimes refused US expats living in certain countries, whereby IB are more consistent.

I do think the space will change. I will soon be able to offer US services, but the minimums will probably be at least $100,000 for obvious reasons.

There is certainly a niche for offering American expats investment options from 20, 30, 40 or 50,000 USD. The key will be using technology though.
 
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