WSJ Ask an Expert: American Expats Scramble to Keep U.S. Investment Accounts

Chad Creveling, CFA and Peggy Creveling, CFA |

The Wall Street Journal invited Creveling & Creveling to be part of a panel of experts for personal finance on its WSJ Expat site. The following article originally appeared on the WSJ site and has been shared with permission.

U.S. citizens living overseas have faced increasing difficulty in maintaining U.S. brokerage accounts for their investments. Most recently, a major U.S. broker sent a mass mailing to account holders announcing an upcoming amendment of its account agreement to include changes to its procedures for customers residing outside the U.S. This has left many American expats wondering why their broker is making changes, how it determines if they're living overseas, if their account may soon be closed and whether their cash deposits are still safe.

Given the rapidly changing regulatory environment governing cross-border investing, it's wise for overseas Americans to stay up-to-date on broker account policies and preferably to hold their accounts with those that welcome overseas Americans. To help clarify the issues, below Peggy and Chad Creveling of Creveling & Creveling Private Wealth Advisory answer some of the questions they've been receiving:

Q: I reside outside the U.S. and my U.S. broker is changing the agreement which governs my U.S. brokerage account. One change is that cash in my account will no longer be swept into a money market fund. Why? Will I continue to earn interest and is my cash safe?

A: Cash money market funds are a form of a mutual fund. To avoid breaking international laws and regulations prohibiting selling unregistered mutual funds cross-borders, U.S. brokers have been restricting their overseas customers from purchasing U.S. domestic mutual and money market funds. Instead of a money market fund, your broker will hold your cash in a cash account. Depending on policies you may still receive interest on the balance (although current rates are very low). Your cash should be safe: accounts held at U.S. incorporated brokers generally are insured with the Securities Investor Protection Corporation (SIPC) for a maximum coverage of $500,000, including a cash sublimit of $250,000. Your broker may have also purchased additional protection separately.

Q: The new agreement includes a clause regarding how they will treat my account if I'm "Residing Outside the United States." I use a U.S. mailing address on my brokerage account, so does this new clause apply to me?

A: It depends. By itself, a mailing address does not determine where you reside. Where you reside is where you physically live. A U.S. brokerage firm may ask: Do you spend more than six months of the year outside the U.S.? Do you qualify as a non-U.S. resident for U.S. income tax purposes? If you answer yes to either question your broker may consider you to be residing outside the U.S. However, for convenience a U.S. financial institution may allow a U.S. mailing address even if it considers you to be residing outside the U.S.

Q: The new account agreement says what my broker will do "if we determine that you live outside the United States." How would my broker determine that I reside overseas?

A: On existing accounts, a financial institution may determine that you live outside the U.S. if you tell them directly, or if the post office discloses that it is forwarding your mail overseas. A new account applicant may be asked to provide proof of residence in the form of a utility bill, driver's license, bank statement, mortgage statement or rental agreement.

Q: What happens if my U.S. broker "determines" that I live outside the U.S.?

A: It will depend on the U.S. broker's policies as well as which country you are resident in. U.S. firms such as Charles Schwab and Interactive Brokers are set up to work with U.S. customers overseas. These firms will open new accounts for U.S. nonresidents, as long as the laws in the resident country and the U.S. permit. Others will allow you to keep your existing account but will not open new accounts. In more restrictive cases some U.S. brokers have asked their overseas customers to close existing accounts. Additionally, some non-U.S. residents have reported that they cannot access their U.S. brokerage account when they try to log in from a foreign IP address.

Q: Can my U.S. broker close my U.S. brokerage account just because they determine that I live overseas?

A: U.S. brokerage account agreements may state that they can close your account "at any time, for any reason, and without prior notice." To date many U.S. nonresidents have reported having their U.S. broker accounts closed. Even if your U.S. broker is currently accepting U.S. nonresidents, this could change in the future. For example account agreements may state blanket phrases such as "if you or another individual associated with your account resides outside the U.S., we may at any time in our sole discretion terminate that relationship, or modify your rights to access any or all account features, products or services." Therefore it's important to stay abreast of your broker's policies. As noted above some U.S. brokers have specifically set up to work with U.S. expatriates. If you're concerned about your account being closed consider moving to one of these.

Q: Does it matter which foreign country I live in?

A: Most U.S. brokers maintain lists of countries where they will allow non-U.S. residents to open accounts or to maintain existing accounts. Which countries are permitted appears to depend on the laws of the relevant country and the U.S., as well as how the broker has structured its international business. In some cases permitted country lists are publicly available or you may need to call to ask for current policy.