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Key Takeaways and Insights:

Investors who chose to live overseas or anywhere outside the U.S. border face inevitable complications to their financial life. Included in this risk are the brokerage firms they choose to work with back home. Creating a sound financial strategy is key to avoid getting trapped by unfriendly financial institutions and complicated regulations. There are seven warning signs that can help safeguard you against firms that should be avoided.

Talk to a Cross-Border Investment Specialist

  • You need an advisor with a proven track record of understanding the nuances and evolving tax regulations which affect your situation.
  • Certain investments are only tax-advantaged within domestic borders.
  • There are likely different rules in your new country regarding wills, trusts, beneficiaries, and more.

Investors who chose to live overseas or anywhere outside the U.S. border face inevitable complications to their financial life. Included in this risk are the brokerage firms they choose to work with back home. Creating a sound financial strategy is key to avoid getting trapped by unfriendly financial institutions and complicated regulations.

If you are relocating for work or for pleasure, your best guard against unexpected investment disasters is working with an expat-friendly financial advisor who has the expertise to understand these issues. Going it alone as a self-directed investor can be rather difficult. A well-informed advisor can help navigate the challenges of interacting with the U.S. brokerage firm. But how can you tell one from the other when they all seem to offer the same services?

Here are seven warning signs that can help safeguard you against firms that should be avoided.

They don’t have expertise in the tax situation for expats.

Coordinating tax planning between foreign resident tax systems and the U.S. is the foundation of cross-border wealth management. You need an advisor with a proven track record of understanding the nuances and evolving tax regulations which affect your situation.

Their investment programs are too U.S.-centric.

As an expat your financial nest egg should be more internationally diversified than a typical American. Your lifestyle and day-to-day expenses are based in a different country (and currency), so your asset allocation should reflect that.

They focus heavily on U.S. tax-advantaged products.

Certain investments are only tax-advantaged within domestic borders. For example, municipal bonds, which are typically exempt from U.S. taxes, do not generally work for residents of a foreign country. Similarly, many insurance-based investments and real estate structures do not carry the same tax benefits when living abroad. This is important, as many tax-advantaged investments deliver lower gross yields, and for most expats those returns would still be fully taxable.

They don’t have expertise in retirement accounts for expats.

Managing your U.S. accounts according to your new life abroad requires navigating local retirement plans in your new home and considering the implications they may have for your existing U.S. assets. For example, while Roth IRAs and other traditional investment accounts offer U.S. investors the benefit of tax-free growth on domestic soil, for expats, these accounts are often not respected by foreign tax authorities. You may be in the situation of planning for retirement, just a few short years away, and discover that the retirement strategies you’ve adopted don’t apply in your new resident country.

Also, it is possible to be double taxed on income as a result of not fully understanding the complex tax interplay between the retirement savings plans of two countries. Your advisor should understand this risk and help determine which retirement savings plans to participate in that provide the biggest benefit.

They don’t understand the administrative challenges of a global life.

When it comes to logistics, moving abroad is a challenge since every part of your life needs to be replicated in your new home. U.S.-based financial institutions, which you will most certainly still need, often make it very difficult to open new accounts, transfer funds across borders, or complete many other basic financial steps. You need a real person who understands these challenges to help make the experience as seamless as possible.

They don’t understand estate planning risks.

You may find that the estate plan you created in the U.S. may not travel well abroad. There are likely different rules in your new country regarding wills, trusts, beneficiaries, and more. For example: Have you ever heard of forced heirship rules? It is a civil law system where entitled heirs are determined by applicable laws, not your wishes. This system is followed in many countries around the world. Foreign laws could easily invalidate parts of your current plan, or even worse, trigger added taxes that dramatically affect the legacy for your heirs.

You need an expert who understands the interactions of tax treaties in both countries and can help you find the answers you need.

They don’t have expertise in real estate investment strategies.

If you decide to invest in foreign property, commercial or residential, you need to understand the risks when it comes to U.S. tax laws. For example, foreign rental properties need to be reported to the IRS. Also, be careful when renting out your former residence while abroad. If you rent it for more than three years out of the prior five years, you will lose the primary residence gain exclusion in the U.S. (up to $500k in tax free gains).

Additionally, non-cash depreciation expenses are a wonderful tax shelter for owners of income property. However, it doesn’t apply on foreign soil as almost no country outside the U.S. allows for a tax deduction for depreciation.

All these factors show why it’s important to work with a firm that has experience exclusive to your current situation abroad.

The Cerity Partners Difference

If you are running into any of these issues, or fear that your investments may be at risk, the Cross-Border Planning team at Cerity Partners is here to help. We maintain relationships with several custodians who are committed to the financial success of expats and multinationals. If you are currently living abroad or have a foreign address with investments held in the U.S., we may be able to help.

To learn how, let’s talk.


Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment, tax, or legal advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security. For information pertaining to the registration status of Cerity Partners, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  For additional information about Cerity Partners, including fees and services, send for our disclosure statement as set forth on Form CRS and ADV Part 2 using the contact information herein. Please read the disclosure statement carefully before you invest or send money.


Meet the Author

Andrew Fisher

Andrew Fisher

Partner

Andrew is a Partner and Market Leader for the San Francisco Bay Area. He serves as a senior client advisor, assisting successful families on a variety of financial planning and wealth management issues. He focuses on optimizing wealth through efficient investing, risk management and tax strategy. With his broad base of finance and investing experience, Andrew enjoys helping his clients find creative solutions to complex financial problems.

Andrew is widely regarded as a leading advisor to international and cross-border families, who often face more complex wealth management and tax issues resulting from their multinational lives, particularly when an individual is a citizen or tax resident of the United States. He frequently writes and speaks to the unique financial complexities faced by international families. He is also the author of The Cross-Border Family Wealth Guide, a personal financial planning book for internationally oriented families.

Prior to joining Cerity Partners, Andrew served for 15 years as President and Chief Investment Officer of Worldview Wealth Advisors. He previously worked in international equity research following the global banking and telecommunications sectors at Montgomery Asset Management, HSBC Securities, and Donaldson, Lufkin & Jenrette (now Credit Suisse). He began his career with PriceWaterhouseCoopers in Los Angeles.

Andrew graduated Cum Laude from California Polytechnic University, San Luis Obispo, with a degree in Finance and a minor in Spanish. He holds both the Chartered Financial Analyst (CFA) and Certified Public Accountant (CPA) designations. Andrew is a past president of the CFA Society of Portland.

Connect with Andrew

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