Why can US citizen expats not invest w/Vanguard?

[ExpatInAsia]

I'm new here (first post ever) and maybe this topic has been beaten to death. If so, apologies! I was reading recently about Vanguard and being a Boglehead, and it sounded great to me! Problem: I was an apartment-dweller before moving overseas (no home in the US) and am an orphan (no parents' home to use as my US mailing address). Long story short: Vanguard's minions have repeatedly told me that US federal law (the SEC) + the laws here in Taiwan prohibit me investing with Vanguard. W/repeated exchanges, I've gotten no straight answers from the Vanguard staffers I correspond with (Me: "what laws? What rules? Cite them, please?" Vanguard Minion: "uh...uh...uh...I don't know what specific law says so...but the law says so!"). I can find no such US law, no such law in the Republic of China, and the US Department of State hasn't coughed up a law or international agreement that says "US guy can't invest with Vanguard." In fact, a SEC staff attorney responded to me with the comment that the SEC has no such rule or law!
--
I have US funds, earned in the US, in a US bank, which I can't invest with a US company, based on laws that don't exist!
However, citizens of other countries can be Bogleheads! Quite literally, a member of the Yakuza can invest with Vanguard, but not a passport-holding child of Uncle Sam who lives overseas (unless I'm missing something in Vanguard's explanations).
--
I dropped a line to the "Ask Jack" e-address a day or so ago and am wondering if anybody knows of a good Point Of Contact to take this question to at Vanguard proper?

Thanks and again, please redirect me elsewhere in Bogleheads.org if this posting needs to go elsewhere or if it's been beaten to death way back when!

[Alex Frakt]

It's not a law, it's Vanguard policy. They have decided it's too expensive for them to properly deal with the complex and varying laws that govern such situations. It's understandable given their overall goal of minimizing expenses and risks (i.e., fines and investigations from US or foreign regulators).

Since you are a US citizen, you could work around this by renting a US address from a mail forwarding service. But you'll have to decide if its worth the hassle. From previous threads on this, a lot of people use Fidelity. Their basic index funds are cheap and their service is typically better than Vanguard's.

[Stryker]

If you go way down to the bottom post on this blog from Andrew Hallam in Singapore, you'll find a poster asking much the same thing.

Another method, If you have access to the stock exchanges in the U.S. you can always buy Vanguard's ETF's. I'm an outright foreigner, and that's what I do.

[englishgirl]

It's a fairly common problem. See here: http://aaro.org/denied-bank-accounts

In a somewhat related situation, I can't open an account with Vanguard in the UK so I can move a UK investment there, because I have a US address. Even though I am a Vanguard customer in the US, and am not trying to hide any money in an offshore account - the money is stuck in a 401k-type account that I would just like to transfer to a company that will charge me lower fees.

[HueyLD]

Someone I know who is an U.S. citizen but lives in another country gets around such issues by renting a private POB in a UPS store near where she likes to go on vacation in the U.S. The UPS store scans all her mail (except the obvious junk) and sends her all scan documents regularly. It obviously costs money, but it allows her to have a U.S. "street" address for various purposes.

If investing directly with Vanguard is very important to you, then you may want to consider renting a private POB. However, Fidelity will also allow you to invest in all ETFs available, including Vanguard's ETFs. Investing directly with Vanguard is certainly not a pre-requisite.

[Default User BR]

About the only thing from Vanguard that you can't get most other places are Admiral shares of index funds. As noted, you can get ETFs, which generally have the same expense ratio, anywhere.

I have lots of Vanguard products in my portfolio, but don't hold them at Vanguard.


Brian

[jidina80]

It is a nusiance sometimes to deal with Vanguard as an expat. I maintain a U.S. address as my official address for Vanguard, and recommend you also do that. Almost all dealings with Vanguard can be done via the internet, and they DO accept calls (toll-free) from overseas about our accounts. I've never had a problem with Vanguard accepting forms such as Roth recharacterization on A4 size paper, either. There are a lot of expats, including those in U.S. military services, who have Vanguard accounts. If you have a U.S. social security number and passport, you have no worries. Just get the U.S. address.

[scone]

I talked to he Vanguard folks about this (at the last Boglehead conference) and they suggested I talk to Vanguard Australia. I haven't followed up yet, but here's the link, HTH:

https://www.vanguardinvestments.com.au/ ... l/home.jsp

If you find out anything new, please post, it's hard to find stuff on international finance, especially pertaining to family estates and trusts. I can't even find a lawyer who knows anything about it.

[AlohaJoe]

As another data point, I live in Australia and Vanguard has no problems with me having an Australian address. Granted, I set it up ~5 years so it is entirely possible their policies were different back then. I also have a Vanguard (Australia) account for local retirement planning.

I wonder if they just like Australia better, if their policies changed, or if I just snuck past a more care-free service representative when I changed my address?

[NAVigator]

I wonder if they just like Australia better, if their policies changed, or if I just snuck past a more care-free service representative when I changed my address?

No, if you already have a Vanguard account, established in the US, you can continue using it when you move to another country. My daughter moved to Europe about 6 months ago. I called Vanguard to ask about her continuing to use her account. There is no problem and she has since continued investing from her new country.

Jerry

[cbeck]

No, if you already have a Vanguard account, established in the US, you can continue using it when you move to another country. My daughter moved to Europe about 6 months ago. I called Vanguard to ask about her continuing to use her account. There is no problem and she has since continued investing from her new country.

Jerry

But you cannot open a new account, i.e. Roth IRA.

The best solution is to get a US address.

[Karamatsu]

This is a common problem at a lot of US financial institutions. They all try to pretend it's due to some law, regulation, rule, or just for some vague "compliance" without ever revealing just what it is they're trying to comply with. At the same time, brokers like Fidelity and Schwab have no trouble at all setting up and maintaining an account for US citizens abroad, with no US address required. So clearly those who refuse are not being entirely honest. It may be that regulations for handling overseas accounts have become complex, but that just means some companies think overseas customers are worth the trouble and others don't.

With that in mind, rather than try to set up a US address, which could conceivably lead to trouble down the road (state taxation, possible problems due to claiming to live in one place when in fact your residence is somewhere else), I think it's best in these situations just to use a broker that is set up to handle overseas accounts. Then you're covered, and you can get access to Vanguard funds through their ETF offerings.

[umfundi]

The financial institutions are leery of federal oversight on money laundering for drugs, terrorism, and tax evasion. I can't say I blame them.

There may be no specific law, but the feds can come down on them at any time. The constant answer I get is to get a US street address for your mail. Which also avoids identity theft issues with foreign mail.

Keith

[Valuethinker]

It's a fairly common problem. See here: http://aaro.org/denied-bank-accounts

In a somewhat related situation, I can't open an account with Vanguard in the UK so I can move a UK investment there, because I have a US address. Even though I am a Vanguard customer in the US, and am not trying to hide any money in an offshore account - the money is stuck in a 401k-type account that I would just like to transfer to a company that will charge me lower fees.

Can you move to a Self Invested Personal Pension? (SIPP)? Alliance Trust does a decent, simple one I think? The main problem will be money laundering (2 forms of ID, passport + drivers license/ utility bill) showing UK address? You could possibly use a parental address?

The other thought is whether an insurance company would sell you some kind of deferred annuity-- but I don't know about charges.

If you can get below 1% in the UK on charges you are quid's in-- I am paying 0.8% with a major insurer, and short of going the SIPP route, that's about as good as you can do I think.

[denjin]

I invest with them via Ameritrade, but I did have to use a US address to invest. Luckily the last address I lived at in the States was with a relative and I kept it as my bank account address - between the US bank account and the address it is registered at, it was enough. I also so have a US phone number (via Skype).

Additionally I do S&S ISA in the UK ( and company defined contribution pension ), but this is a real nightmare due to the onerous reporting they make Americans do for foreign funds. It's very easy to find funds at less than 1% TER, but be careful about platform and other charges. Most of them below .57% will have additional fees on them.

[TedSwippet]

...Can you move to a Self Invested Personal Pension? (SIPP)? Alliance Trust does a decent, simple one I think? The main problem will be money laundering (2 forms of ID, passport + drivers license/ utility bill) showing UK address? You could possibly use a parental address?

The main problem will be this declaration on Alliance Trust applications: "I am not a US person (please tick). If you cannot give this declaration please do not continue with this application." Overreaching and extraterritorial US regulation causes many UK fund supermarkets, fund providers, and banks to no longer offer any products to US citizens or residents. This includes US citizens who live full time in the UK, perhaps for decades or even their whole lives -- you are lucky to be Canadian and not American!

If you can get below 1% in the UK on charges you are quid's in-- I am paying 0.8% with a major insurer, and short of going the SIPP route, that's about as good as you can do I think.

Eh? Now you've lost me. The UK investing wiki page lists dozens of funds with TERs averaging around 0.3% and bottoming out at 0.09%.

[sleepingrust]

As noted above, Fidelity is great with no-US-address Americans; everything is done on their website and by email.

[denjin]

If you can get below 1% in the UK on charges you are quid's in-- I am paying 0.8% with a major insurer, and short of going the SIPP route, that's about as good as you can do I think.

Eh? Now you've lost me. The UK investing wiki page lists dozens of funds with TERs averaging around 0.3% and bottoming out at 0.09%.

No one in the UK offers you a TER of .3 or less without some additional fees. There will be platform charges or something, unfortunately - not seen anyone offer below ~.5 for 'free'.

[cbeck]

This is a common problem at a lot of US financial institutions. They all try to pretend it's due to some law, regulation, rule, or just for some vague "compliance" without ever revealing just what it is they're trying to comply with. At the same time, brokers like Fidelity and Schwab have no trouble at all setting up and maintaining an account for US citizens abroad, with no US address required. So clearly those who refuse are not being entirely honest. It may be that regulations for handling overseas accounts have become complex, but that just means some companies think overseas customers are worth the trouble and others don't.

With that in mind, rather than try to set up a US address, which could conceivably lead to trouble down the road (state taxation, possible problems due to claiming to live in one place when in fact your residence is somewhere else), I think it's best in these situations just to use a broker that is set up to handle overseas accounts. Then you're covered, and you can get access to Vanguard funds through their ETF offerings.

I don't think you get it. It's not the US govt that they are worried about. Institutions like Vanguard are worried that they may become liable to the regulations of a country like Japan if it appears that they are soliciting business in the foreign jurisdiction even if they don't have a business address there themselves.

The solution of obtaining a US address does not involve making any claim of living at the address. It is perfectly legitimate to have a mailing address. It's true that the mailing address should be in a state without an income tax to avoid the risk of a tax domicile audit by that state. But it's easy to get such an address. I use a FL mailing address provided by a mail forwarding company, but I have never claimed that that was my residence. Brokerage firms and others can easily identify my address as a mail forwarding company just as they can easily identify my ip address as a foreign one. The fact that they don't shows that they do not actually have any concern with overseas customers per se, as long as they can credibly claim not to be soliciting business in those jurisdictions.

[TedSwippet]

...The UK investing wiki page lists dozens of funds with TERs averaging around 0.3% and bottoming out at 0.09%.

No one in the UK offers you a TER of .3 or less without some additional fees. There will be platform charges or something, unfortunately - not seen anyone offer below ~.5 for 'free'.

The additional fees don't have to swamp everything, though. First example off the top of my head -- Vanguard FTSE all-share index fund, through Hargreaves Lansdown. The fund TER is 0.15% and the HL's platform charge is £24/year. That squeezes overall annual charges to under 0.5% for any portfolio above £6,900, not much over half a year's ISA allowance. And for larger and realistic portfolios -- SIPPs and so on -- the total cumulative charge easily drops below 0.2%. Certainly well below 0.5%.

Perhaps 0.8% was competitive in the past for a UK tracker, but it's very uncompetitive these days.

[denjin]

...The UK investing wiki page lists dozens of funds with TERs averaging around 0.3% and bottoming out at 0.09%.

No one in the UK offers you a TER of .3 or less without some additional fees. There will be platform charges or something, unfortunately - not seen anyone offer below ~.5 for 'free'.

The additional fees don't have to swamp everything, though. First example off the top of my head -- Vanguard FTSE all-share index fund, through Hargreaves Lansdown. The fund TER is 0.15% and the HL's platform charge is £24/year. That squeezes overall annual charges to under 0.5% for any portfolio above £6,900, not much over half a year's ISA allowance. And for larger and realistic portfolios -- SIPPs and so on -- the total cumulative charge easily drops below 0.2%. Certainly well below 0.5%.

Perhaps 0.8% was competitive in the past for a UK tracker, but it's very uncompetitive these days.

Oh, no arguments from me! I have most of my money in their 80% equity fund...and just a small amount extra in two .57 BlackRock funds. I just wanted to make sure people realised that in the UK the various companies such as HL are fond of adding some extra fees. The £2/mo definitely doesn't hurt too much once you have one year+ allowance in...

[ExpatInAsia]

Thanks to one and all for your very helpful and insightful comments. I'm not sure how to refer back to specific posters and quote them, but here are 2 follow-on questions:
1.) one person mentioned finding a broker who can sell me the Vanguard investments I want without a US address. If I'm recalling that comment correctly, how can I find such a broker? Would my US bank have someone like that on staff?
2.) some others have suggested a mail-forwarding service in order to have a US mailing address--any suggestions (reliable and a good price; they don't have to be Speedy Gonzalez, as long as the minimal amount of mail they receive gets to me--will accept Slow Boat to China at a lower cost if it comes to that), specifically for Texas (San Antonio or Austin, preferably)?

Thanks again!
--OOPS! I said "2 questions"--looks like I wrote 3!!!!

[cbeck]

:happy

2.) some others have suggested a mail-forwarding service in order to have a US mailing address--any suggestions (reliable and a good price; they don't have to be Speedy Gonzalez, as long as the minimal amount of mail they receive gets to me--will accept Slow Boat to China at a lower cost if it comes to that), specifically for Texas (San Antonio or Austin, preferably)?

http://www.sbimailservice.com/

I also recommend getting a US phone number. It might not be necessary, but it will help avoid headaches. I use ooma.com, but they are not the cheapest. You might google MagicJack for a low-cost solution.

[umfundi]

I also recommend getting a US phone number.

Skype might be a (no cost?) option.

Keith

[Karamatsu]

It's not the US govt that they are worried about. Institutions like Vanguard are worried that they may become liable to the regulations of a country like Japan if it appears that they are soliciting business in the foreign jurisdiction even if they don't have a business address there themselves.

That may be, but it isn't what they say. One broker, in particular, when summarily closing my account because of my foreign address attributed their policy change it to provisions of the PATRIOT Act, but as with the OP, they were not able to point to any provision in the Act that was forcing their decision. You'd think if their concerns were regulations in the foreign country they would just say so and be done with it.

As for the US mailing address, if you want to keep things above board, the important thing is to check the contract terms to see if they require US residency. Vanguard, for example, explicitly told me they require customers to be US residents, therefore merely having a US mailing address would not be sufficient to open an account. Of course... people can still do that, us a mailing address, but it's a form of deception. Vanguard may even suspect that it's the case (wink wink, nod nod), but in the end, if there is any liability, they will claim to have been deceived, and burden will fall on the customer.

Personally I have no trouble with Vanguard's policy, though.They don't want my business, Schwab and Fidelity do. Fine. But I share the OP's frustration when a company says they can't do something for compliance reasons but then can't/won't explain just what it is they are trying to comply with.

[NAVigator]

As I explained before, it is not a compliance issue to having an address outside of the US. It is a policy issue of Vanguard against someone outside the US OPENING an account. My daughter, a US citizen, has been a Vanguard customer for ten years. She immigrated to a country in Europe and has no problem keeping her Vanguard account and making transactions from her new location without a US address.

I called the rep at Vanguard to verify this. The one exception where an expat can open a Vanguard account is through inheriting assets held at Vanguard.

Jerry

[ExpatInAsia]

I tested their online application up to a certain point, and this is what it says:
--
More information

Vanguard funds are not registered for sale outside the U.S. You must provide a U.S. address.

Important information about opening a new account. The Vanguard Group Inc. and Vanguard Marketing Corporation are required by federal law to obtain from each person who opens an account certain personal information—including name, street address, and birth date among other information—that will be used to verify identity. If you do not provide us with this information, we will not be able to open the account. If we are unable to verify your identity, The Vanguard Group Inc. and Vanguard Marketing Corporation reserve the right to close your account or take other steps we deem reasonable.
--
Doesn't say "registered with who [whom?]" though!

[bpp]

I tested their online application up to a certain point, and this is what it says:
--
More information

Vanguard funds are not registered for sale outside the U.S. You must provide a U.S. address.
[...]
Doesn't say "registered with who [whom?]" though!

Registered with the relevant authorities in other countries, I'd imagine.

[awrian]

I am a US Citizen and I live in Spain, all my investments are with Vanguard. I don't have a US mailing address. The only problem is I have to call if I want to buy an individual bond, otherwise everything is fine.
I tried to invest here in Spain but the commissions are so so so so so high. Is like a third world here.

[elgob.bogle]

A lot of "Recreational Vehicle" owners choose South Dakota as a "home state" due to their low taxes. This might work for you also. Here's one mail forwarding link: http://www.sdrvmail.com/

Good Luck

elgob

[Karamatsu]

Interesting about their on-line application. I think the devil is in the details. Looking back to what they told me in 2009, when I wanted to open account, was actually this:

Vanguard's U.S. mutual funds are for sale only to residents of the U.S,
Guam, Puerto Rico, and the U.S. Virgin Islands.

So you see the difference: even if all they need for the application to open an account is a US address, it appears that they still won't allow you (within their terms and conditions) to invest in their mutual funds. Since that's what I really wanted to do (avoid the spread, etc), there was no point in going further with the account, but if all someone wants is a VBS account (maybe trading Vanguard ETFs), then a US address of some kind seems to be all that's needed.

Of course, I'm only talking here about what the documents say. Obviously people living abroad do invest in Vanguard mutual funds, and I've never heard of anyone having trouble with that. There was a point where I was offered the option of investing in US-based mutual funds through my bank in Japan, but the catch was that, to do so, I had to sign a waiver saying that I would not hold them liable for any adverse legal consequences that might arise. They would not elaborate on what those consequences might be, so I dropped the matter, but it does seem to imply that there are, at least in principle, possible adverse consequences to be aware of.

[Red-y]

As for the US mailing address, if you want to keep things above board, the important thing is to check the contract terms to see if they require US residency. Vanguard, for example, explicitly told me they require customers to be US residents, therefore merely having a US mailing address would not be sufficient to open an account. Of course... people can still do that, us a mailing address, but it's a form of deception. Vanguard may even suspect that it's the case (wink wink, nod nod), but in the end, if there is any liability, they will claim to have been deceived, and burden will fall on the customer.

My experience has been that providing a US mailing address that represents a PMB (Private Mail Box) at The UPS Store etc. may not be sufficient. The major brokerage houses will screen the address you provide, and if it corresponds to a known commercial (as opposed to residential) address, they will contact you for more information before opening the account.

I tried to do this (use a UPS store 'apartment' number as an address) after I moved to Canada. The account application was flagged and I was not able to open a new account as a non-US resident.

And Vanguard's policy varies by country...as a US citizen/Canadian resident, I am persona non grata. I could have kept my IRA and Roth IRAs open with them, but no new money, no switching funds, no purchases of stocks/bonds/ETFs. All I could have done was reinvest dividends and capital gains in what I already owned. I therefore moved my retirement accounts to Fidelity, who lets me trade whatever I want and add new funds to these existing RETIREMENT accounts. I cannot open a taxable regular account at Fidelity as a non-US resident.

As people on this thread have commented, if you're looking at other countries besides Canada, you may be OK to keep the Vanguard account and transact. Call them. Call them again to be sure you get the same answer twice. Then get it in writing.

[umfundi]

As though a Barbarian invasion from the North is a real concern.

Keith

[kramer]

I have 2 brokerage accounts (Vanguard and Schwab) and 1 savings account and 3 checking accounts and 1 credit card. When I left the USA, I was able to change my mailing address to a mail forwarding location for all of these accounts with no problems. In fact, I did it with Scottrade as well back when I had 3 brokerage accounts. However, I have not opened any new accounts since leaving.

[cazaubon]

I am surprised that since Vanguard is now doing business in Canada that they still won't allow US Vanguard customers who are Canadian residents to manage their accounts remotely.

Is it any more expensive to hold Vanguard funds in Fidelity? My current 401K is with Fidelity and I assumed I would roll it over to Vanguard when I left the company and moved to Canada, but I don't want to pay more than what Vanguard charges.

[Alex Frakt]

Is it any more expensive to hold Vanguard funds in Fidelity? My current 401K is with Fidelity and I assumed I would roll it over to Vanguard when I left the company and moved to Canada, but I don't want to pay more than what Vanguard charges.

It's not more expensive to hold them, but Fidelity will charge a transaction fee (I think it's $75) on all purchases and sales of Vanguard (traditional) mutual funds. If you want to use Vanguard ETF's, you'll pay Fidelity's standard brokerage trading fee (which may be $0 depending on your account types and balances).

[Karamatsu]

I cannot open a taxable regular account at Fidelity as a non-US resident.

I didn't realize that. I do know that Schwab will open a new taxable account for a non-resident US citizen. They did that for a friend of mine a few years ago, anyway. Some paperwork had to go back and forth to verify his identity but it wasn't difficult. It may have helped that I introduced him, but I doubt it. My reputation isn't that impressive!

[Red-y]

Is it any more expensive to hold Vanguard funds in Fidelity? My current 401K is with Fidelity and I assumed I would roll it over to Vanguard when I left the company and moved to Canada, but I don't want to pay more than what Vanguard charges.

It's not more expensive to hold them, but Fidelity will charge a transaction fee (I think it's $75) on all purchases and sales of Vanguard (traditional) mutual funds. If you want to use Vanguard ETF's, you'll pay Fidelity's standard brokerage trading fee (which may be $0 depending on your account types and balances).

Buying a Vanguard mutual fund in a Fidelity account involves a $75 fee to purchase; it's free to sell any VG mutual fund shares. You can't buy Admiral class shares, only Investor class shares. Generally the ER on the ETF is the same as the equivalent Admiral class, so that's the way to go.

I'm paying $7.95 per trade on ETFs and I have a pretty high account balance...as far as I know, the only free ETF trades at Fidelity are the 30 iShares ETFs they've designated as free for any one to trade.

[roblpm]

The main problem will be this declaration on Alliance Trust applications: "I am not a US person (please tick). If you cannot give this declaration please do not continue with this application." Overreaching and extraterritorial US regulation causes many UK fund supermarkets, fund providers, and banks to no longer offer any products to US citizens or residents. This includes US citizens who live full time in the UK, perhaps for decades or even their whole lives -- you are lucky to be Canadian and not American!

I have a slightly different problem in that I am British, lived in the UK all my life but happen to be a US citizen as well. Never filed a US tax return and trying to start figuring out how I am going to do it. I have an Alliance Trust SIPP (the US person thing says resident when you look at the blurb, not citizen so I thought I was OK!) with Vanguard Life Startegy Funds (only £40k though!).

So I really dont know what to do!

So does anyone know any UK fund supermarkets who will deal with US citizens?

Does anyone know any funds available in the UK that are not classed as PFICs?

Does anyone have any good ideas! Nightmare! In order to renounce your US citizenship you need to have done the last 5 years returns ........................!!

[Karamatsu]

Wow, that's a thorny issue and I think you really need professional legal representation on the citizenship and back-filing issue. That's not a place to make mistakes. If you want to continue holding your citizenship then the answer is probably just to file. The IRS may still have an amnesty program for that, but you should check with someone who knows for certain, as well as how many years back you have to go, whether you can use the Foreign Earned Income Exclusion, etc. If you don't want to continue your citizenship then you may have choices depending on whether you are willing to forego entering the US... ever. But I don't know. It's a terrible position to be in.

As for funds, the only way to be sure you avoid PFIC issues is to check and make sure that the fund does all the necessary reporting. US domiciled funds purchased through a British broker, for example, may be OK (check), and may even send you a 1099. There may also be some local funds that, for one reason or another, are willing to jump through the necessary regulatory hoops in order to capture the US expat market. You'll have to check around. The other route you can go, but you have to be very careful, is to knowingly invest in PFICs and take the mark-to-market election, but this is risky and negates the tax efficiency of holding equities. Best not to go there unless you really know what you're doing because you'll be paying taxes on income that you do not actually receive. There are ways around this, but it all gets very messy.

[KyleAAA]

Well, you can invest in their ETFs. That's likely what I would do in your situation.