Schwab pulls out of France and Italy. Raymond James closes account in France. Does it really matter?
Charles Schwab has announced that they will discontinue service to accounts with address in France and Italy. Raymond James has announced they will close accounts in France. The parade of US investment advisory firms closing or freezing accounts located in Europe continues. While neither firm gave the reasons for closure, they follow a long list of US firms which will no longer accommodate European residents.
There are many reasons that US firms are either closing/freezing or refusing to open accounts for European residents. One of the most likely reasons is that European residents are subject to European regulations. This is obvious, and US firms could conform with European regulations if they wish to, but it appears that their business in Europe does not justify the significant expense of European compliance. The rules are different which also means the liability of the US firm is much higher. And the complexity rises when one realizes that advice must consider the various tax treaties which advisors in the U.S. are not trained to do, unless they specialize in the expat market, and they know all of the tax treaties in the countries in which they have clients, not an easy task.
Some investors react by stating falsely that the actually live in the US and provide the brokerage firm with a fake address or the address of a friend or relative. There are many problems with this. First, you must certify that you are not subject to FATCA, which you are. As a non-resident US citizen or green card holder, FATCA most certainly applies. Second, in France, for example, you will need to disclose that account to the French authorities because it is an account outside of France. If the French authorities have this information, they can potentially share it with the French regulators. If you fail to report the U.S. brokerage account, you are liable for the consequences in your resident country. Third, you could be subject to state income taxes or state estate taxes, if they exist. Fourth, the brokerage firms are now monitoring the location of where you log into your account, so if you falsify your account address, you may be caught by the brokerage firm who is liable for substantial penalties if they fail to conform to European regulation. Fifth, if the brokerage firm is unable to contact you after a certain period, then they could close your account. That would be even worse if your account was a tax deferred retirement account, as you could be subject to a full distribution and potential penalty should the brokerage firm close the account.
What seems interesting to us is the lengths people go to avoid opening up a brokerage account in Europe. Yes, some banks in Europe accept Americans for investing, but they usually do not provide the proper tax forms needed at year end, nor track short and long term capital gains over time, although others do. And there are some restriction for small investors which prohibit them from buying US ETFs and US mutual funds. However, those restrictions do not apply to IRA or other retirement accounts, which are always custodied in the United States, even with a European based brokerage firm. And for investors considered « sophisticated », mostly measured in terms of having at least 500,000€ in total liquid assets anywhere in the world, those restrictions do not apply. Meaning, that if you have a portfolio of this amount, you can buy almost any security that you want. For smaller investors and savers, using techniques such as dollar-cost-averaging remain an excellent option for investing over time. Bottom line, there is no reason to keep your brokerage account in the United States if you live in Europe.