Can American expats in France buy ETFs while living overseas? Unfortunately, Americans living in Europe often have to overcome many hurdles in order to invest their money correctly and efficiently. In addition to complex US tax consequences, the access to trading and investing platforms are severely restricted, especially regarding mutual funds and Exchange-Traded Funds (ETFs).
What are the roadblocks?
The reason for the restrictions is somewhat straightforward: it’s due to the overlap of U.S. and E.U. regulations, as well as additional regulations for residents of certain European countries. As described below, the intentions were honorable, but the consequence is that the investment options are limited for American individual investors or U.S. persons living in France.
The U.S. regulations and the fight against money-laundering
In 2010, the United-States imposed FATCA reporting requirements to fight money laundering, drug trafficking, and, terrorism financing. It requires all domestic and foreign banks to report the account information of their U.S. clients to the I.R.S. Unfortunately though, the fallout was quite drastic: many European banks simply started to refuse American clients in order to avoid the additional reporting, leaving many American expats with few local banking options. Across the pond, U.S. banks also balk at accepting overseas clients due to the possible risk of being subjected to foreign laws and liabilities if their customers are trading stocks while living in a foreign country.
The E.U. regulations and protecting small, individual investors
To protect European investors who may have limited financial knowledge, the E.U. limits their availability to certain financial products. ETFs, which are normally regarded as a more diversified, lower-risk product, are ironically considered a complex financial product in Europe, and consequently not available to retail (individual) investors. UCITS (Undertakings for Collective Investment in Transferable Securities), which are the E.U. approved alternative to ETFs, unfortunately are subjected to unfavorable tax consequences for U.S. persons and or not recommended to U.S. expats living in France.
How about mutual funds?
Access to mutual funds in Europe faces an additional obstacle compared to their ETF counterparts, as they are actively-managed portfolios of investments. European jurisdictions can only regulate investment funds that are registered in their jurisdiction, and consequently most prohibit the sale of foreign mutual funds (American funds for example) to residents living in their countries. As a result, American mutual funds are not available to American or European investors living in Europe, or the rest of the world for that matter.
So, can American expats in France buy ETFs?
The short answer is “yes”. American expats in France can buy ETFs, but be prepared to work with the limited investment products and services that are available. Below are three solutions that you can use, each one taking into account your financial knowledge, goals, and assets.
The “pragmatic” approach
In instances where ETFs and mutual funds are not available, there exists a practical substitute. This method entails identifying the constituent stocks within the desired fund, and subsequently purchasing them individually. For instance, investors seeking to invest in the S&P 500 index could purchase each of its 500 component stocks. Although this approach demands a certain level of financial knowledge and a substantial time commitment, it remains feasible. The resulting portfolio would not perfectly mirror the designated index, but would offer a pragmatic alternative.
The “loophole” approach
For certain investors, one way to deal with the strict E.U. regulations is in fact to double-down, and request the ¨professional investor¨ status from your bank or trading platform. This option is not universally available, as it necessitates meeting specific criteria – such as a minimum balance of $500,000 – as well as other prerequisites. Nonetheless, for individuals inclined towards frequent trading activities or possessing a background in finance, this avenue could be a viable solution.
The “peace of mind” approach
The most straightforward and effortless solution is simply to work with the cross-border advisors at Harrison Brook who have access to ETFs and other financial products for U.S. retirement and taxable brokerage accounts. We have done the legwork to find the partners that comply with the complex web of regulations facing U.S. expats in France. Our cross-border advisors can guide you in your financial decisions in order to find the best value products for your portfolio and to attain your financial and personal goals.
Request a consultation
At Harrison Brook, we specialize in solutions tailored specifically to U.S. expats residing in Europe, coupled with the comprehensive financial acumen to optimize your investments. Entrusting Harrison Brook ensures careful consideration of your investment portfolio, personalization of your fiscal strategy, and retirement planning for individuals residing abroad. Harrison Brook is here to assist you in managing your financial assets, so don’t hesitate to book a meeting with us.