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What to Do If Your US Broker Wants to Close Your Investment Account When You Live Overseas

Ines Zemelman, EASep-01-2016

Some U.S. brokerage firms have been changing their procedures for accounts held by Americans residing overseas.

It is growing increasingly difficult for US Citizens living abroad to maintain brokerage accounts back home in the US.

We are approached regularly by clients of many leading US brokerage firms (most frequently - ML) who are told that they have to close their account and move funds elsewhere within 30 days.

You may experience difficulties moving funds to a different US money-market fund if you identify yourself as living outside the United States.

The issue causing this is focus on compliance by the banking industry (as the regulators are now giving it much more scrutiny). The banks are following laws which prohibit cross-border sales of unregistered mutual funds.  This results in US Expats not being eligible to purchase US-domiciled mutual funds or money market funds.

The manner in which you will be treated by your broker if you are residing overseas ultimately depends on their policies and procedures and the country of your residence.

Some brokers will let you to keep your existing account once you have moved overseas but will not permit you to open a new account.  And then there are brokers that requested that overseas customers close their existing accounts. In some cases (probably due to ill-thought out IT security policy - as they want to prevent foreign hackers from accessing their systems) you can’t login the brokerage website from an overseas IP address<

Unfortunately you don’t have much recourse once the decision has been made

The agreement between you and your bank or broker most likely stipulates that your account may be closed for any reason at any time without any prior notice (see: http://money.cnn.com/2014/05/07/pf/bank-account-closing/).

In our practice we haven’t yet seen a case when a client was able to get the broker to reverse the decision to close their account. As such we would not recommend fighting this battle - as there simply isn’t much you can do (unless you want to spend a lot of money on legal fees and very uncertain outcome). The decision was made by a paper-pusher in compliance who doesn’t care if you are profitable client and applies to thousands of clients that fit your profile (they probably do this to all clients in a given country at a time). As with any bureaucracy, they have to demonstrate action by doing something to justify their existence.

The simplest way to handle it is to open an account with a different firm that actually wants your business. Some firms - like Interactive Brokers and Charles Schwab cater to the Americans living overseas.  These brokerage firms are happy to take your business - so do give it to them.

Just because you live overseas does not automatically mean that your account will be closed.  Usually it comes down to the the country you reside.

The majority of US-domiciled brokers have a list of countries in which they will allow a US Expat to open an account or maintain an existing account. The list depends on a variety of factors including international laws, the laws of the country in which you reside, and the internal structure of your brokerage firm as an international investment house.

It’s probably impossible for you to know ahead of time if your account is in jeopardy of being closed (as your broker wouldn’t know and you will never be able to speak to the people who make these decisions). If you have not yet been contacted - you may elect to lay low and not worry until you have to deal with this issue.

And now we get to the best part of this article. The simplest solution is to not inform your broker that you are residing outside the US. Call it ‘Don’t ask, don’t tell 2.0’.

There is no law requiring you to inform your broker of your physical residence. They ask from you a mailing address - which is what you can provide.

As such you would obtain an American mailing address (with your mail being scanned and sent to your electronically). We describe how it works in this article. As far as your broker will be concerned - you will be resident in the US because your mailing address will be US-based.

TFX - Ines Zemelman