When you lived in America, you probably bought mutual funds through your U.S. brokerage firm. However, now that you live overseas, you might have some difficulties doing the same. Recently, many people contacted me after receiving a letter from their brokerage saying, “You can no longer purchase shares in U.S. mutual funds.”

Who says you can’t buy shares in certain U.S. mutual funds?

Ultimately, the compliance division (lawyers) of the mutual fund companies must decide where they want to do business. Because of the Patriot Act enacted as a result of the 9/11 attacks on America, many new regulations were put into place to protect the country, including anti-money laundering and bank secrecy rules. The regulatory environment became so complicated for many firms that they simply decided to stop doing business outside the United States. This led to various banks, brokerage firms, and mutual funds companies sending “Dear John” letters to their clients, letting them know that they will either cease or severely limit the services available to them now that they have a non-U.S. address.

What should you do if you’re asked to leave?

Some folks believe that simply using the address of a friend or family member in America will solve the problem. Generally, lying about your address is not a good idea. For example, if you say that you live in New York just so that you can buy certain mutual funds, the State of New York tax authority might decide that since you have a NY address, you need to pay NY State tax. Do you really want to open that can of worms?

Fortunately, there are many investment solutions for people living outside the United States who want to have U.S. brokerage accounts. In fact, there are companies that specialize in that niche market. I spend most of my day dealing with people living in Israel who want to have U.S. brokerage accounts. If they are excluded from buying certain mutual funds, that usually does not adversely affect their portfolios because there are so many other choices of diversified, managed accounts from which they can choose.

If you received a letter from a brokerage firm or mutual fund that limits the services or product choices you are offered, watch the video “U.S. Brokerage Accounts for Non U.S. Residents“.

 

Douglas Goldstein, CFP®, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published July 30, 2014.

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