Why can US citizen expats not invest w/Vanguard?

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TedSwippet
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Re: Why can US citizen expats not invest w/Vanguard?

Post by TedSwippet » Mon Sep 09, 2013 6:59 am

bpp wrote:I'm intimately familiar with the banking and investing problems faced by US citizens who live outside the US, and I appreciate ACA's efforts to improve the situation, but on the narrow question of SEC rules I think that letter of theirs has a factual error. They state: "SEC restrictions and regulations prohibit U.S. citizens to invest in certain securities which have not been filed with the SEC. Of course, these restrictions apply to all Americans, not just overseas Americans." I am pretty sure there is no blanket rule against US citizens buying non-SEC registered securities.

Here 'prohibit' seems to be shorthand for 'not actually banned, but so horribly complex, expensive, punitively taxed, and full of potential for damage that nobody in their right mind would consider it'. Massively punitive tax and reporting rules and regulation, both for funds and individuals that might hold them, are a de-facto ban even when not an actual ban. Here is an example of boilerplate found in pretty well every UK fund prospectus:

The Shares have not been and will not be registered under the US Securities Act of 1933, as amended. Subject to certain exceptions, the Shares may not be offered or sold in the US or offered or sold to US Persons.

So SEC fund rules don't ban non-US funds from marketing to US persons, they just make it so self-destructive that no fund would bother. Likewise, FATCA is not actual currency control, but has the same effect nevertheless. Congress commonly finds it easier to accomplish protectionist goals through punitive taxes rather than outright control. Sure you could do it, but would you with all the mines and traps the IRS has set for you? Spend a week or more of your 'free time' each and every year filling out ridiculously complex forms to have between 40% and 100% of your gains taken from you, or have a life? Your choice.

bpp wrote:As for SEC protections in general extending to Americans living overseas, all I can say is that the SEC told me they consider that outside their jurisdiction.

As a non-American living outside America (that is, an NRA) but working for a US company the SEC definitely does consider me inside their jurisdiction when it comes to trading in my company stock.

bpp wrote:So I went with Japanese banks and brokerages -- which was never a problem until the QI and now FATCA rules started closing off that avenue as well... Basically, all of the lower-cost options are closed off to me now, and I'm just praying things don't get any worse than they already are. (Though I confess to pessimism on that score.)

Congress is stuck on stupid with FATCA. You might be interested in reading this recent paper from the architect of FATCA, in which he admits, albeit grudgingly and with bad grace, that it has some 'problems' that are particularly acute for Americans overseas, and then offers a few half-hearted partial 'solutions'. Of course these problems result from his not thinking FATCA through properly. It remains to be seen if any of his 'fixes' occur. (Like you I am pessimistic.)

bpp
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Re: Why can US citizen expats not invest w/Vanguard?

Post by bpp » Mon Sep 09, 2013 7:15 am

Thanks for the link to the Harvey paper. Very very interesting.

I hope we can keep the conversation focused on how we can help each other out in understanding and navigating these problems, and not veer off into directions that will get the thread locked...

manwithnoname
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Re: Why can US citizen expats not invest w/Vanguard?

Post by manwithnoname » Mon Sep 09, 2013 8:28 am

I think the correct interpretation of the SEC rule is that US securities firms regulated by the SEC cannot hold unregistered securities in accounts subject to SEC regulation in the US. And foreign affiliates of US regulated brokerages are restricted from opening brokerage/bank account for US citizens outside the US to prevent evasion of US securities/banking laws.

TedSwippet
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Re: Why can US citizen expats not invest w/Vanguard?

Post by TedSwippet » Mon Sep 09, 2013 9:04 am

bpp wrote:Thanks for the link to the Harvey paper. Very very interesting.

One major problem that the author either failed to spot or chose to ignore is that FATCA further polarises and accelerates any decision on the part of a US expat to either return to the US or 'go native' and renounce, something already partly done by HEART.

All US citizens living outside the US are on a spectrum, with 'go (back) and live in the US now' at, say, the left, and 'stay outside the US forever' on the right. People will often shift back and forth along that depending on events and their desires. If a parent in the US becomes ill or infirm you move left. If you qualify for citizenship in your host country, start a business, marry locally and so on you move right.

FATCA makes it very uncomfortable indeed to remain in the middle of the spectrum rather than at one end or another. You can function normally at either end of it, but in the middle you are a second class participant in your local economy. So... if you think you might go back to the US in future, you might consider going now rather than fight the rising tide of regulation and damage to your retirement prospects. Or if you think you might want to live permanently outside the US, you might start planning to obtain a second citizenship with a view to renouncing your US one.

Perhaps your own thoughts have already begun to travel this path...

Random Poster
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Re: Why can US citizen expats not invest w/Vanguard?

Post by Random Poster » Mon Sep 09, 2013 10:36 am

TedSwippet wrote:One major problem that the author either failed to spot or chose to ignore is that FATCA further polarises and accelerates any decision on the part of a US expat to either return to the US or 'go native' and renounce, something already partly done by HEART.

All US citizens living outside the US are on a spectrum, with 'go (back) and live in the US now' at, say, the left, and 'stay outside the US forever' on the right. People will often shift back and forth along that depending on events and their desires. If a parent in the US becomes ill or infirm you move left. If you qualify for citizenship in your host country, start a business, marry locally and so on you move right.

FATCA makes it very uncomfortable indeed to remain in the middle of the spectrum rather than at one end or another. You can function normally at either end of it, but in the middle you are a second class participant in your local economy. So... if you think you might go back to the US in future, you might consider going now rather than fight the rising tide of regulation and damage to your retirement prospects. Or if you think you might want to live permanently outside the US, you might start planning to obtain a second citizenship with a view to renouncing your US one.

Perhaps your own thoughts have already begun to travel this path...


All very true.

I'm currently considering applying for Canadian Permanent Residency, with an eye on, eventually, obtaining Canadian citizenship. A post that I made recently on the Financial Webring Forum (see here: http://www.financialwebring.org/forum/v ... 2&t=116350) has been very enlightening.

There are a lot of trade-offs and potential future headaches that must be considered when thinking about living outside of the US permanently (or even, I suppose, for an extended period of time). I am becoming increasingly convinced that (i) one should either go all-in (and thus become a citizen of the other country and renounce their US citizenship), or not at all (and thus just resign themselves to simply visiting the other country for a few months at a time); and (ii) any decision to move outside of the US permanently is a lot easier to make if you don't have any money.

JW-Retired
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Re: Why can US citizen expats not invest w/Vanguard?

Post by JW-Retired » Mon Sep 09, 2013 11:04 am

We have our investments roughly split between Vanguard and Fidelity. By sticking to the "Spartan" suite of Fidelity funds, you can create a Boglehead index fund portfolio with costs every bit as low as Vanguard.

If you encounter the slighted inconvenience in investing at Vanguard for any reason, just use Fidelity funds.
JW
Retired at Last

Wagnerjb
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Re: Why can US citizen expats not invest w/Vanguard?

Post by Wagnerjb » Mon Sep 09, 2013 12:34 pm

Alex Frakt wrote: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.


I was an expat for 7 years, and this worked perfectly for me. My company provided a US mail address (the mailroom of our global HQ office), and the mail was put into the US postal service when my letter was received at the HQ office. I suspect the private mail forwarding service will work the same way. As long as you have a US address, Vanguard will deal with you (not sure if they will accept a PO Box).

Best wishes.
Andy

bpp
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Re: Why can US citizen expats not invest w/Vanguard?

Post by bpp » Tue Sep 10, 2013 3:34 am

JW Nearly Retired wrote:We have our investments roughly split between Vanguard and Fidelity. By sticking to the "Spartan" suite of Fidelity funds, you can create a Boglehead index fund portfolio with costs every bit as low as Vanguard.

If you encounter the slighted inconvenience in investing at Vanguard for any reason, just use Fidelity funds.
JW


Fidelity will not open an account for someone without a US address.

TexasInvestor
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Re: Why can US citizen expats not invest w/Vanguard?

Post by TexasInvestor » Wed Sep 11, 2013 2:22 pm

So if I live abroad but have my Vanguard address as my mother's US home address, is that okay? What would be the best way to transfer money I earn from my salary in Canada to Vanguard funds? Does Vanguard accept wire transfers from Canadian banks, or would I have to transfer the money to a US bank and transfer the money from there? Thanks!

Random Poster
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Re: Why can US citizen expats not invest w/Vanguard?

Post by Random Poster » Wed Sep 11, 2013 2:38 pm

TexasInvestor wrote:So if I live abroad but have my Vanguard address as my mother's US home address, is that okay?


It has, so far, worked for me (although, to be clear, I'm probably not using your mother's address...)

TexasInvestor wrote:What would be the best way to transfer money I earn from my salary in Canada to Vanguard funds? Does Vanguard accept wire transfers from Canadian banks, or would I have to transfer the money to a US bank and transfer the money from there? Thanks!


To be safe, I'd transfer the money to your pre-existing US bank account, which ideally you set up and linked to Vanguard before you moved to Canada. I suspect that the less Vanguard knows of your Canadian living situation, the better for you.

umfundi
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Re: Why can US citizen expats not invest w/Vanguard?

Post by umfundi » Wed Sep 11, 2013 3:20 pm

Random Poster wrote:
TexasInvestor wrote:So if I live abroad but have my Vanguard address as my mother's US home address, is that okay?


It has, so far, worked for me (although, to be clear, I'm probably not using your mother's address...)

TexasInvestor wrote:What would be the best way to transfer money I earn from my salary in Canada to Vanguard funds? Does Vanguard accept wire transfers from Canadian banks, or would I have to transfer the money to a US bank and transfer the money from there? Thanks!


To be safe, I'd transfer the money to your pre-existing US bank account, which ideally you set up and linked to Vanguard before you moved to Canada. I suspect that the less Vanguard knows of your Canadian living situation, the better for you.

Just my opinion:

Call Charles Schwab. They will understand exactly what you are wanting to do. Yes, it may be a little more expensive than trading at Vanguard.

This is not difficult, but it is a paperwork hassle. Do not engage with someone who does not want to do it.

There are lots of things you can run afoul of, including the IRS and currency exchange laws. Start with a company that understands and will be on your side.

My sister has a bank account that started as Standard Federal, taken over by LaSalle, taken over by BofA. They would not allow such an account now, but it is grandfathered in. A couple of years ago they froze the account and demanded that she send in a W9. It took weeks to convince them that she should (and had) filed a W8 and that filing a W9 amounted to perjury.

Keith
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bpp
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Re: Why can US citizen expats not invest w/Vanguard?

Post by bpp » Wed Sep 11, 2013 5:48 pm

I second what Keith (umfundi) says. If Vanguard does not want your business, don't sneakily force it on them.
Signing a contract under false pretenses would not leave one in a very strong position should any kind of issue arise.

TexasInvestor
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Re: Why can US citizen expats not invest w/Vanguard?

Post by TexasInvestor » Wed Sep 11, 2013 6:50 pm

Thanks for the advice guys. Sounds like Schwab is the way to go. Can I buy Vanguard Index funds through Schwab, or only ETFs? I guess that would be an easy boglehead investing solution to living abroad.

umfundi
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Re: Why can US citizen expats not invest w/Vanguard?

Post by umfundi » Wed Sep 11, 2013 7:00 pm

TexasInvestor wrote:Thanks for the advice guys. Sounds like Schwab is the way to go. Can I buy Vanguard Index funds through Schwab, or only ETFs? I guess that would be an easy boglehead investing solution to living abroad.


You got it. You can buy Vanguard funds and ETFs through Schwab, though there is probably a cost like $20 per transaction, as opposed to possibly free at Vanguard.

Call Schwab and talk to them. I think you will be pleased.

Keith
Déjà Vu is not a prediction

jimmyli
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Re: Why can US citizen expats not invest w/Vanguard?

Post by jimmyli » Mon Sep 18, 2017 2:43 am

I'm a US Citizen living and working in China, so am very grateful for the discussion going on here.

Most of the discussion focuses on having a US address in order to open an account with Vanguard. I have a permanent address in the US, so this is not an issue for me. However, the Vanguard registration process also asks for an Employer's address, and only allows US addresses to be entered. The implication is that one needs to be employed by a US-based company.

I'm wondering why no one has addressed this issue, and why there is only focus on the US home address factor but not the US employer factor?

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in_reality
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Re: Why can US citizen expats not invest w/Vanguard?

Post by in_reality » Mon Sep 18, 2017 5:59 am

jimmyli wrote:
Mon Sep 18, 2017 2:43 am
I'm a US Citizen living and working in China, so am very grateful for the discussion going on here.

Most of the discussion focuses on having a US address in order to open an account with Vanguard. I have a permanent address in the US, so this is not an issue for me. However, the Vanguard registration process also asks for an Employer's address, and only allows US addresses to be entered. The implication is that one needs to be employed by a US-based company.

I'm wondering why no one has addressed this issue, and why there is only focus on the US home address factor but not the US employer factor?
Perhaps it's a recent change in their procedure. Not really sure.

In any case, are you looking to invest? If so, I recommend Schwab. Their International One Brokerage account is set up to hand expats. Luckily, China is one of the accepted countries. It all depends on your country of residence if you can open an account with them. Otherwise, Interactive Brokers is usually a good choice.

If you are thinking about it, I would do it sooner rather than later. The list of available countries is always changing.

http://international.schwab.com/public/ ... intro.html

cherijoh
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Re: Why can US citizen expats not invest w/Vanguard?

Post by cherijoh » Mon Sep 18, 2017 6:27 am

ExpatInAsia wrote:
Thu Feb 14, 2013 3:01 am
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! :confused
This means there are two issues. The registered for sale issue and the Patriot Act - that has the "know your customer" regulations that require having a street address (not a PO Box). I do know that regular bank accounts are definitely subject to the Patriot Act and banks that haven't enforced it have gotten some huge fines. Investment companies like VG and Fidelity may fall into a gray area where VG is being extra conservative and assuming it does apply while Fidelity doesn't agree.

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in_reality
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Re: Why can US citizen expats not invest w/Vanguard?

Post by in_reality » Mon Sep 18, 2017 6:56 am

cherijoh wrote:
Mon Sep 18, 2017 6:27 am
ExpatInAsia wrote:
Thu Feb 14, 2013 3:01 am
That post was 4+ years ago. jimmyli's was recent.

cherijoh
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Re: Why can US citizen expats not invest w/Vanguard?

Post by cherijoh » Mon Sep 18, 2017 7:35 pm

in_reality wrote:
Mon Sep 18, 2017 6:56 am
cherijoh wrote:
Mon Sep 18, 2017 6:27 am
ExpatInAsia wrote:
Thu Feb 14, 2013 3:01 am
That post was 4+ years ago. jimmyli's was recent.
oops! :oops:

a__
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Re: Why can US citizen expats not invest w/Vanguard?

Post by a__ » Sat Oct 14, 2017 10:34 pm

jimmyli wrote:
Mon Sep 18, 2017 2:43 am
I'm a US Citizen living and working in China, so am very grateful for the discussion going on here.

Most of the discussion focuses on having a US address in order to open an account with VG. I have a permanent address in the US, so this is not an issue for me. However, the VG registration process also asks for an Employer's address, and only allows US addresses to be entered. The implication is that one needs to be employed by a US-based company.

I'm wondering why no one has addressed this issue, and why there is only focus on the US home address factor but not the US employer factor?
Hey Jimmy, I wonder if you've come up with a solution here?

I'm in the same boat as you, in SE Asia. I want to open a new Roth IRA, but don't have a US-based employer address to give.

The thing about giving the address is that you only have to do it once, and this can and will change for nearly everyone who opens an account. Imagine if you were working (in the US) for company A January - March, then left that job and took time off..then you decide to open an account in April. You have income for that year, but aren't working on the day you apply...then you get a new job in June at Company B. By itself, your employment location (or lack thereof) shouldn't impact your ability to hold the account at all.

I still have earned income an taxable compensation, so as far the IRS is concerned, I'm not sure this should really matter. I can think of 3 options:
1. my Megacorp does have a US subsidiary, I could use that even though I work for a different subsidiary based in Asia
2. select unemployed
3. select self-employed

I'm leaning towards #3 since I did have self-employment income for previous years, before I moved to Asia. And who knows, I still might have a chance to earn something this year!

My guess is VG collects this information to cover some kind of rare case of liability or a fraudulent application. I haven't tried the other brokerages mentioned to see if they're willing to work with my situatoin, but I'd prefer the simplicity of sticking wth VG, since I'll return to the US sooner or later, and would open it there anyway.

Money Market
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Re: Why can US citizen expats not invest w/Vanguard?

Post by Money Market » Wed Nov 01, 2017 4:37 am

I wonder if Vanguard detects accounts opened through foreign IP addresses now? That employment question definitely wasn't there when I opened my accounts with them.

m2go
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Re: Why can US citizen expats not invest w/Vanguard?

Post by m2go » Wed Nov 01, 2017 4:46 am

Alex Frakt wrote:
Mon Feb 11, 2013 12:09 pm
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.
I'll note that Fidelity closed my account which I opened while traveling abroad, because they don't deal with US expats. I got a nastigram by fedex that instructed me to withdraw my shares within two weeks or somesuch, or they'd liquidate them and send me a check.

(This was particularly ridiculous because I was on a 1 week foreign trip and just wanted to take care of some items while on the road. In the end the agent I talked to upon my return fixed this by opening a new account at Fidelity and "moving" my accounts there. Evidently, this might not work when you truly reside abroad.)

m2go
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Re: Why can US citizen expats not invest w/Vanguard?

Post by m2go » Wed Nov 01, 2017 4:47 am

Money Market wrote:
Wed Nov 01, 2017 4:37 am
I wonder if Vanguard detects accounts opened through foreign IP addresses now? That employment question definitely wasn't there when I opened my accounts with them.
Fidelity does. See my other post. VPNs can fake location data, though.

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