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5 Key Questions U.S. Expats Should Ask their Financial Advisor
Author: Joel Baretto, CFP®
April 17, 2024
As a U.S. citizen residing overseas, you encounter intricate financial and tax planning obstacles. Dealing with multi-jurisdictional tax intricacies, dynamic regulatory demands, and investment limitations can prove challenging while managing your finances as an expat.
Thankfully, seeking assistance from a seasoned cross-border wealth advisor can assist you in making informed choices regarding investments, tax matters, savings, estate planning, and other financial aspects. However, it is imperative to ensure that the advisor you engage is not only qualified but also capable of effectively overseeing your financial affairs as an American living abroad. To ascertain their suitability as an expat advisor, consider posing the following five inquiries during the selection process.
1. Do you act as a fiduciary advisor for your clients?
Arguably, the paramount question to pose revolves around the advisor’s role as a fiduciary to their clients. By acting as a fiduciary, the advisor is bound by a legal obligation to consistently prioritize and act in the client’s best interests.
Beyond offering advice that aligns with your best interests, a fiduciary advisor is also obliged to furnish continuous guidance and support throughout the entirety of your professional association. Typically, fiduciary advisors implement a fee structure based on a percentage of the assets they manage on your behalf. This approach ensures that the advisor’s incentives are in harmony with your own, promoting a shared pursuit of favorable outcomes.
In contrast to fiduciary financial advisors, certain advisors adopt a commission-based approach and tend to focus on transaction-specific recommendations rather than providing comprehensive guidance aligned with your long-term objectives. These advisors operate under a “best interest” standard, which necessitates that the recommended investment suits your current needs.
However, since they often earn commissions based on the investment products they sell, advisors adhering to the best interest standard may face incentives to prioritize certain products over others and engage in frequent portfolio transactions. Consequently, this situation can give rise to a conflict of interest, where the advisor’s pursuit of profitability may not always align with what is genuinely in your best interest.
In conclusion, it is of utmost importance to ensure that your chosen expat advisor operates in a fiduciary capacity, thereby offering comprehensive cross-border wealth management services designed to prioritize your financial well-being.
2. How will you assist me in navigating the intricacies of cross-border investing?
Committing an investing error as a U.S. expat can have severe financial repercussions. One such mistake is inadvertently investing in a Passive Foreign Investment Company (PFIC), which can lead to significant tax implications. This emphasizes the importance of ensuring that your prospective advisor possesses a comprehensive understanding of various investable assets and cross-border regulations.
When evaluating a potential advisor, inquire about their experience in establishing broadly diversified, multi-currency portfolios tailored for U.S. expat clients. The advisor should be capable of discussing the specific challenges associated with cross-border investing that you encounter as an expatriate residing in your particular country of residence. Moreover, they should be able to articulate the currency risks you face and outline how they intend to assist you in navigating these risks while crafting a customized portfolio that aligns with your unique financial objectives. A competent advisor should be well-versed in these matters to help safeguard your financial interests effectively.
3. What is your experience with navigating the tax laws of my country of residence?
The tax system in the United States stands out in that it levies taxes based on citizenship rather than solely on place of residence. As a U.S. citizen living abroad, even if you have no U.S. tax liabilities, you are still obligated to file taxes in the United States. Consequently, as an expatriate, you find yourself subject to both the tax regulations of your country of residence and those of the United States. This dual tax obligation creates numerous challenges for U.S. citizens and green card holders residing overseas.
To ensure that you do not inadvertently overpay taxes, it is absolutely imperative for your wealth advisor to possess expertise in dealing with multi-jurisdictional tax complexities in general. Moreover, they should have specific knowledge of the tax treaty applicable to your current country of residence. This knowledge will enable them to provide accurate and effective tax guidance, helping you navigate the complexities and optimize your tax situation as a U.S. expat.
4. How will you make sure that my estate plan meets my needs even while I’m living abroad?
American expats who desire to establish a financial legacy for their U.S. family members encounter various estate planning hurdles. If you created an estate plan before relocating abroad, it is probable that it is now subject to an entirely new set of laws in your current country of residence. Failure to take into account these foreign laws during the drafting process may result in your assets not being distributed to your loved ones or beneficiaries as per your original intentions. Therefore, it is crucial to ascertain that your potential advisor possesses relevant experience and understanding of your country of residence’s estate planning laws and how they interact with those of the United States. This will ensure that your estate plan remains effective and aligned with your needs, safeguarding your desired distribution of assets to your family members.
5. What is your background in dealing with inheritance or estate taxes in my country of residence?
If you, as a United States citizen residing abroad, inherit assets, it is probable that you will be obligated to pay inheritance or estate tax according to the regulations of your country of residence. Therefore, it becomes crucial to collaborate with a competent cross-border wealth advisor who possesses a thorough comprehension of your inheritance or estate tax responsibilities, taking into account various factors such as:
- The country where the deceased person was domiciled and held citizenship.
- The country where the beneficiary resides and holds citizenship.
- The specific nature and composition of the inherited assets.
- Any applicable estate tax treaties between the countries involved.
If you are currently in search of a proficient advisor to guide you through your financial matters as a U.S. expat, Abacus Wealth International is here for you. Our area of expertise lies in supporting expats and cross-border families to optimize their wealth and prevent costly mistakes.
We understand the intricate dynamics involved in navigating multi-jurisdictional tax and regulatory systems. We take into account currency, diversification, and investment considerations, enabling us to tailor personalized planning strategies that align precisely with your unique expat needs. As your fiduciary, rest assured that our sole focus is on your best interests.
To learn more, schedule below for a free 15-minute consultation.
Disclaimer:
- The information provided is for educational purposes only and does not constitute personal financial, tax or investment advice and should not be relied on as such. It does not take into consideration any investor’s particular investment objectives, strategies, time horizon, and tax or legal status. Abacus Wealth International (AWI) does not provide tax or legal advice. Please consult a tax or legal professional for corresponding tax and legal advice.
- All material and content have been obtained from sources believed to be reliable. AWI does not guarantee the accuracy of the information provided and shall not be held liable for decisions based on the foregoing information.
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