Getting a letter from your financial advisor saying they can’t work with you as an expat outside the US is one of the byproducts of cross-border regulatory and tax complexity that financial institutions face. It’s becoming more common this year, and more letters are being sent to client that their advisor cannot support them any longer.
We often see letters with comments like:
- “No longer able to advise clients resident outside the US”
- “Firm policy / compliance decision”
- “Licence / registration restrictions”
US financial advisors are generally not qualified or licensed to deal with the financial system of another country, nor are they experts in their country’s tax treaties and rules.
Why the Letter?
The most common reasons your financial advisor in the US won’t work with you overseas anymore include:
- Regulatory barriers: In most countries, financial advisors are required to be licensed and regulated in their client’s home country. Registering and qualifying to work as an advisor in multiple jurisdictions is complicated and costly for most US firms.
- Tax complexity: The US has a citizenship-based taxation system that requires its citizens to file US tax returns on their global income, regardless of where they live or have bank accounts. US financial advisors must have an in-depth understanding of how US tax rules interact with local taxes and treaties to give tax-compliant investment advice, which most advisors do not have as a specialty.
- Product limitations: The most widely used non-US investment products, including many popular mutual funds and ETFs, are classified as Passive Foreign Investment Companies (PFICs) by the IRS and are treated with punitive taxation for expats. Financial advisors can make costly mistakes in recommending these products to expat clients.
- Compliance & Liability: Laws like the Foreign Account Tax Compliance Act (FATCA) and anti-money laundering requirements make working with international clients burdensome from a compliance standpoint, and many US firms will not take on the legal exposure and costs of working with expats.
Immediate steps after your adviser can’t advise you any further
- You may be concerned that your assets are not safe with your ex-adviser. Don’t worry. Typically, UK and US investments are held by third parties, so your money remains safe even if the advisory arrangement is terminated.
- Get a letter of disengagement to create a clean break for compliance purposes. This will be necessary to comply with record-keeping rules for the FCA (UK) and the SEC (US).
- Turn to a firm with dual-qualified advisers who fully understand the US/UK Double Tax Treaty and its interaction with the conflicting US tax rules and UK qualified advice.
- Obtain a full cross-border review with a focus on how your UK assets (SIPP, State Pension, IRA, 401k or ISA) sit within the US and UK reporting and tax regime.
Where do you go from here?
Your US tax reporting obligations are not affected by your advisor’s decision to stop working with you:
- Continue to file FBAR (Foreign Bank and Financial Accounts Report) and file any other tax forms required for your tax planning strategies, such as FEIE (Foreign Earned Income Exclusion).
- Find a new financial advisor who is qualified to work with US expats in your country of residence and can help with US tax planning. These advisors should understand your circumstances and the tax implications of both the US and your country of residence.
- Any replacement adviser should be skilled.
- For cross-border or expat situations, you ideally want someone who:
- Is properly regulated wherever you live (e.g. FCA in the UK) and
- Is experienced with US rules, tax, and products (401(k), IRA, brokerage, PFIC rules, etc.), or works alongside a US tax specialist.
- Can work with your existing custodian, or has a clear plan for a tax-efficient transfer.
- Talk to a professional: The US/foreign tax rules are complicated, so it is challenging to be compliant without a good understanding of both countries’ tax rules. Hiring a US/[Country] tax professional to help with your US tax return preparation and tax planning is highly recommended.
Questions for replacement US Financial Adviser
When you talk to new firms, ask them these simple quetsions:
- “Do you regularly work with clients who are US citizens / green card holders / US-connected?”
- “Are you able to advise on accounts held at [current custodian] or will everything need to move?”
- “How do you coordinate advice with US and local tax rules in practice?”
- “How are you paid, and what exactly will I pay each year (in % and currency)?”
Don’t let borders limit your financial potential. Edale is here to help you navigate the complexities of cross-border wealth with clarity and confidence.
Book your free consultation with Edale and take the first step toward a secure international financial future.