Getty Images/iStockphoto
Question: I live in Japan and I used to invest with a financial services company, but they are now eliminating their international brokerage accounts for everyone in Japan and transferring us to their Japanese brokerage. This concerns me, especially around PFICs. To do this, I think I might be forced to liquidate all my investments to move to the Japanese broker, then be forced into individual non-PFIC stocks. [Note: A PFIC is a passive foreign investment company, which is based abroad and where either 75% of the corporation’s gross income is passive or at least 50% of the company’s assets are investments that produce dividends. The IRS subjects PFICs to strict tax regulations.]
One of my options is to open an account with another financial planning group and allow them to manage my investments for a fee of 1.5-2% of the AUM. My assets are less than $200,000 USD invested, though I contribute about $20,000 USD per year. Is it worth it to take this route?
(Looking for a new financial adviser too? This tool can match you to an adviser who may meet your needs.)
Answer: As you know, your situation is complicated by the fact that you’re living abroad, and there are often different rules and regulations for investments in other countries. In general, when your money is invested abroad, you may experience different ebbs and flows and additional volatility due to currency fluctuations; you also have to consider different tax and other issues.
But before we dive into that, and how to work around those issues, there is one glaring thing here: The fee of 1.5%-2% is fairly high, and not all financial groups charge such high percentages, even for those with smaller balances. In other words: Shop around because those fees will eat into your earnings.
Have a question about your financial adviser or looking for a new one? Email questions and issues to [email protected].
What’s more, you have options even though you live abroad. “Look at the Global Financial Planning Institute [a resource for cross-border financial planning] and find an adviser with experience in cross-border planning between the US and Japan,” says certified financial planner Matt Bacon at Carmichael Hill & Associates. Taking this route may direct you to a custodian that’s more flexible for expats living in Japan, pros say.
Meanwhile, certified financial planner Eric Presogna at One Up Financial says you should look to see if there are other brokerage firms that offer international accounts for US citizens living in Japan. “It appears that Interactive Brokers offers this, though going that route would be a DIY arrangement whereby you may have to self-manage your investments,” says Presogna.
If you go DIY, keep in mind that investment income based overseas may be subject to capital gains and US income tax. Plus, the government of the firm’s country might also take a cut. Fortunately, you may be able to use a foreign tax credit to offset your liability, but as each country has its own tax laws, it can be beneficial to research tax issues before investing in foreign markets. This guide on PFICs may also be helpful.
If you’re planning to take the DIY route, there are some online personal finance courses you may want to consider enrolling in that deal with investing abroad. Udemy offers an online class called Investing Internationally into Real Estate, Stocks and Bonds; and Coursera has a class called Forex — Trading Around the World.
If that all gives you pause, you can also look for a financial adviser this way: “Search the profiles on the Garrett Planning Network, the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network to find an adviser who works with a lot of US expatriates, because there are tax implications that vary by country,” says certified financial planner Gordon Achtermann at Your Best Path Financial Planning.
(Looking for a new financial adviser? This tool can match you to an adviser who may meets your needs.)
Letters edited for brevity and clarity.
Have a question about your financial adviser or looking for a new one? Email questions and issues to [email protected].
link