Being an American expat adds a layer of complexity to your financial planning. US reporting requirements, currency considerations and investing limitations combine to make financial planning quite different from living in the United States. Finding a financial advisor specializing in assisting US expats is a way to plot a safe path through this complex situation, as financial advisors who primarily work with domestic clients in the US often don’t possess the specific skills and knowledge needed to handle the nuances of cross-border financial planning. In this article, we’ll explore some considerations US expats should take into account when choosing an expat financial advisor.
Why should expats use a cross-border specialist?
Knowledge of investment options
US Expat investors have limited choices when it comes to which brokerage firms and advisors they can deal with and to which investment products they may have access. Advisors should guide you through brokerage services suitable for your location and help you navigate complex issues, like avoiding problematic foreign mutual funds and handling cross-border investments. They should also be prepared for currency fluctuations that can impact your spending power.
Tailored retirement planning
Retirement planning for expats is complex and unique. An experienced financial advisor for American expats can help you set goals specific to your international circumstances and future plans. Factors including retiring abroad, healthcare costs, and travel expenses all come into consideration. Additionally, understanding the interaction between US and foreign retirement systems, like Social Security and Medicare, is crucial.
Navigating cross-border regulatory and tax considerations
Living abroad as an American expat comes with the challenge of filing taxes in both your country of residence as well as the US. That’s because the US taxes all US citizens and green card holders on their worldwide income. Not understanding your cross-border tax obligations can significantly impact your financial situation, both in the short term and over the long haul. To make informed decisions that affect your current tax liability and future savings prospects, it’s smart to choose a financial advisor who understands US expat taxes to help you make the right investment choices.
For example:
FATCA (Foreign Account Tax Compliance Act): American taxpayers are required to report their foreign assets to the IRS via Form 8938 if they exceed certain thresholds. Additionally, the FBAR (Foreign Bank Account Report) mandates the reporting of overseas bank and investment accounts.
Passive Foreign Investment Companies (PFICs): PFICs are non-US passive income-generating entities, often including foreign mutual funds. The tax regulations surrounding PFICs are intricate, and investing in a PFIC such as a foreign mutual fund can result in US tax liabilities as well as extra reporting.
Choosing an expat financial advisor
Identify your specific needs
Before beginning your search, clarify your precise financial requirements and goals. Different advisors specialize in various areas of financial planning, such as investment strategies, insurance products, retirement saving, or comprehensive financial planning. Knowing what you need will help you narrow down your choice of financial advisors to one whose expertise aligns with your objectives.
Experience with expats matters
Look for a financial advisor who has a proven track record of working with American expats. Financial advisors in the States won’t have experience of the challenges and intricacies of international investing, US reporting implications or currency risks. Added together, not working with an experienced expat financial advisor can result in significant additional costs.
Fee Structure
Consider your expat advisor’s compensation structure. Fee-only advisors are compensated solely for their advice and services, reducing conflicts of interest. They are often held to a fiduciary standard, which means they are legally bound to prioritize your best interests over their own. In contrast, commission-based advisors may prioritize products that benefit them financially.
Check credentials
Evaluate an advisor’s qualifications and credentials. The Certified Financial Planner® (CFP®) designation is widely recognized as a gold standard in the financial planning industry, signifying a high level of expertise and professionalism, and the Chartered Financial Analyst (CFA) designation is the only globally-recognized certification for portfolio managers.. Additionally, research an advisor’s regulatory history to ensure they have a clean track record and a history of ethical conduct. For US advisors, the Securities and Exchange Commission provides a website where such information can be viewed (https://adviserinfo.sec.gov/).
Firm values and personal compatibility
Explore the values and principles upheld by both the advisor and their firm. It’s important to find an advisor whose values align with your own. This alignment can foster a good working relationship and ensure that you achieve your financial goals without unnecessary friction.
Final thoughts
Living abroad as a US expat is a rewarding experience, offering exceptional opportunities for personal and financial growth. By carefully choosing an expat financial advisor who shares your values and understands your aspirations, you can attain your financial goals while enjoying the adventure of living abroad.
If you have any questions about financial planning as an American living abroad, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.